Reporter NATIONAL BUREAU of ECONOMIC RESEARCH

NBER Reporter NATIONAL BUREAU OF ECONOMIC RESEARCH

A quarterly summary of NBER research 2015 Number 2

Program Report ALSO IN THIS ISSUE International Finance and Macroeconomics

Jeffrey A. Frankel

In the years since the severe global financial crisis of 2008,1 macroprudential policies have attracted interest as a potential additional set of tools to complement ordinary monetary policy, a possible means of counteracting financial market excesses and subsequent crashes. Political Institutions and 10 In the six years since my last report,2 members of the International Comparative Development Finance and Macroeconomics Program have written over 600 working The Economics of Happiness 14 papers. Many have been published subsequently in leading journals. Understanding the Effects 18 There is not space here to summarize all or most of them. Instead, I of Early Investments in Children will concentrate on recent research on international macroprudential How Powerful Are Fiscal Multipliers 21 regulation. All of the working papers in the International Finance and in Recessions? Macroeconomics Program can be found on the program’s publications NBER News 25 page, http://www.nber.org/papersbyprog/IFM.html. We have long had microprudential regulation of banks and secu- Conferences 25 rities markets. But macroprudential thinking begins with the obser- Program and Working Group Meetings 33 vation that the whole of the financial system is more than the sum of Bureau Books 42 the parts. A micro-prudential regulation might, for example, limit the loan-to-value ratio for individual mortgages or set capital minimums for individual lenders at levels that are figured by taking the probability of housing price fluctuations as exogenous. Thus it is a “partial equilibrium” approach. A macro-prudential approach recognizes that housing prices are endogenous, and that during a credit-fueled housing boom, the probability of a crash is greater and so regulations on individual borrowers and lenders may need to be set more stringently. Financial regulators need to think about business cycle fluctuations, and macroeconomic policy-makers need to think about financial regulation. It is not just banks and private financial institutions that were led by a micro perspective into thinking that default probabilities were independent across households, and that therefore treated mortgage-backed securities as virtually riskless. Some regulatory agencies also neglected the correlation across borrowers and so underestimated

Reporter OnLine at: www.nber.org/reporter the possibility that many mortgages could fail els in which labor markets and goods tions imported from abroad, materially simultaneously in a housing downturn. markets do not always clear. The collat- heighten the risk of financial crises.16 NBER Reporter This survey of recent NBER research eral constraint acts as a financial accel- Some countries have had success using on international macroprudential policies is erator, magnifying economic downturns. regulations in the housing sector to dis- divided into four distinct areas: (1) national Monetary policy may not be adequate to courage households from excessive mort- The National Bureau of Economic Research is a private, nonprofit research orga- prudential policies that address macroeco- combat the recession that results during gaging. The regulations include maxi- nization founded in 1920 and devoted to objective quantitative analysis of the nomic issues in the sense of varying over the the deleveraging phase, especially if the mum ratios of debt service-to-income American economy. Its officers and board of directors are: business cycle; (2) macroprudential regula- nominal interest rate cannot fall enough (DSTI) and loan-to-value (LTV). These President and Chief Executive Officer — James M. Poterba tion that focuses on the composition of debt, because of a liquidity trap, more specifi- become “macroprudential” when they are Controller — Kelly Horak 7 17 Corporate Secretary — Alterra Milone for example treating foreign debt as carrying cally the zero lower bound. In this con- raised or lowered with the cycle. an extra risk beyond that of domestic debt text, central banks may be able, in place BOARD OF DIRECTORS and perhaps restricting mortgage borrowing of monetary policy, to use ex ante macro- 2. Macroprudential Regulation Chairman — Martin B. Zimmerman in foreign currency more than in domestic prudential policies such as debt limits and Vice Chairman — Karen N. Horn in Emerging Markets Treasurer — Robert Mednick currency; (3) a precautionary approach to the mandatory insurance requirements during DIRECTORS AT LARGE national balance sheet with regard, in par- the boom phase. These policies can offset Models of financial market imper- Jeffrey Frankel is Harpel 8 Peter Aldrich Mohamed El-Erian Michael H. Moskow ticular, to foreign exchange reserves; and (4) the overborrowing externality. fections, overborrowing, crises, and mac- Professor of Capital For Elizabeth E. Bailey Linda Ewing Alicia H. Munnell global liquidity conditions and coordination Financial market shocks can be trans- roprudential regulation were consid- mation and Growth at Harvard John H. Biggs Jacob A. Frenkel Robert T. Parry issues. This survey places some emphasis on mitted to the real economy through the ered appropriate for emerging markets18 University’s Kennedy School. John S. Clarkeson Judith M. Gueron James M. Poterba 9 Don R. Conlan Robert S. Hamada John S. Reed findings from emerging markets. banking sector in particular. Standard long before the financial crisis of 2008 He directs the Program in Kathleen B. Cooper Peter Blair Henry Marina v. N. Whitman bank regulations to reduce risk include10 impelled most economists to contemplate International Finance and Charles H. Dallara Karen N. Horn Martin B. Zimmerman 1. Cross-country Differences in the capital requirements, a limit on leverage, them seriously for advanced countries. Macroeconomics at the National George C. Eads John Lipsky 11 Jessica P. Einhorn Laurence H. Meyer Use of Macroprudential Policies dividend taxes, liquidity requirements, Some of the same lessons and models Bureau of Economic Research and deposit insurance,12 stress tests,13 ongo- that international economists developed is also a member of its Business DIRECTORS BY UNIVERSITY APPOINTMENT One root source of capital market imper- ing supervision of financial institu- to explain the emerging markets’ sudden Cycle Dating Committee, which Jagdish Bhagwati, Columbia Benjamin Hermalin, California, Berkeley fections is the need for borrowers to have col- tions,14 and minimum reserve require- stops of the 1990s, for example, could officially declares the dates of U.S. Timothy Bresnahan, Stanford Marjorie B. McElroy, Duke lateral in order to prove their creditworthiness.3 ments. Pablo Federico, Carlos Végh, and be applicable to Europe and the U.S. as recessions. Frankel was a senior Alan V. Deardorff, Michigan Joel Mokyr, Northwestern 19 Ray C. Fair, Yale Andrew Postlewaite, Pennsylvania A debtor who is up against a collateral con- Guillermo Vuletin find that develop- well. Korea, in particular, has had some staff economist at the President’s Edward Foster, Minnesota Cecilia Elena Rouse, Princeton straint may be forced to sell assets (“fire sale”), ing countries use reserve requirements success with macroprudential measures Council of Economic Advisers in John P. Gould, Chicago Richard L. Schmalensee, MIT driving down the market price and thereby put- countercyclically far more than advanced that vary over the cycle.20 1983–84, served as chief econo- Mark Grinblatt, California, Los Angeles David B. Yoffie, Harvard ting other borrowers up against their own con- countries do (see Figure1), probably as Bruce Hansen, Wisconsin • Regulation of Foreign mist there in 1996–97, and was straints. Javier Bianchi and Enrique Mendoza Liabilities a Senate-confirmed appointee in DIRECTORS BY APPOINTMENT OF OTHER ORGANIZATIONS show how overborrowing carries a pecuniary 1997–99. Earlier in his career, Jean Paul Chavas, Agricultural and Applied Economics Association externality because private agents do not inter- In open economies, he was professor of economics Martin Gruber, American Finance Association Ellen Hughes-Cromwick, National Association for Business Economics nalize how the price of assets used for collat- prudential regulation can- at the University of California, Arthur Kennickell, American Statistical Association eral responds to collective borrowing decisions.4 not be imposed domes- Berkeley, where he joined the William W. Lewis, Committee for Economic Development Their model suggests that financial innovation tically without regard to faculty in 1979. Robert Mednick, American Institute of Certified Public Accountants Alan L. Olmstead, Economic History Association may have played a role in the financial crisis of the international activities Frankel is a member of the Peter L. Rousseau, American Economic Association 2008–09.5 of financial institutions. Bellagio Group and advisory pan- Gregor W. Smith, Canadian Economics Association Many observers warn of the moral hazard In some cases, authorities els for the Federal Reserve Bank William Spriggs, American Federation of Labor and Congress of Industrial Organizations dangers of bailing out creditors or lenders in may decide to treat for- of New York and the Bureau Bart van Ark, The Conference Board a financial crisis. But if the time-consistent eign debt as carrying extra of Economic Analysis. He was The NBER depends on funding from individuals, corporations, and private system features government intervention dur- risk beyond that of domes- born in San Francisco, graduated foundations to maintain its independence and its flexibility in choosing its ing the deleveraging phase of the cycle, it is tic liabilities and may, for from Swarthmore College, and research activities. Inquiries concerning contributions may be addressed to James appropriate to take this into account before- example, set higher reserve received his Ph.D. in economics M. Poterba, President & CEO, NBER, 1050 Massachusetts Avenue, Cambridge, MA 02138-5398. All contributions to the NBER are tax deductible. hand. Restrictions or taxes on overborrow- requirements for banks’ from MIT. ing during the boom phase of the cycle will foreign-currency deposits The Reporter is issued for informational purposes and has not been reviewed by Figure 1 the Board of Directors of the NBER. It is not copyrighted and can be freely repro- reduce the likelihood or pay the costs of bail- than for domestic deposits. suggests one justification for cap- duced with appropriate attribution of source. Please provide the NBER’s Public outs during the bust phase. In theory, taxes a substitute for monetary policy which The tightening of capital require- ital controls. Charles Engel, in a Information Department with copies of anything reproduced. on debt and dividends that vary with the is diverted, for example, by the need to ments or other regulations on domes- survey of macroprudential policy Requests for subscriptions, changes of address, and cancellations should be sent stage of the cycle can offset the overborrow- raise interest rates in recessions in order tic banks in one country may cause a under high capital mobility, con- to Reporter, National Bureau of Economic Research, Inc., 1050 Massachusetts ing externality.6 to defend the currency.15 “leak” abroad, in the sense that some of cludes that the leakage may jus- Avenue, Cambridge, MA 02138-5398 (please include the current mailing label), Wall Street is connected to Main Street. Booms in real estate lending and the projects that might previously have tify international coordination of or by email to [email protected]. Print copies of the Reporter are only mailed to subscribers in the U.S. and Canada; those in other nations may request electronic Financial market imperfections can interact house prices bubbles, which can orig- been funded by domestic banks may prudential policy, as under the subscriptions at www.nber.org/drsubscribe/. with the provisions of standard macro mod- inate in loose credit market condi- now be financed from abroad.21 This Basel III agreement.22

2 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 3 • Capital Flow Management Policies up permanently (China and India).26 One study of 51 emerging mar- the name of helps explain past crises such as cur- Include Macroprudential and Of course capital controls27 also have ket economies over the period 1995– “the Impossible rency crashes in emerging markets. Capital Controls drawbacks, such as raising firms’ cost 2008 suggests that some countries Trinity.” Also When the Federal Reserve has raised Although the theory of pecuni- of capital28 or lacking enforceability.29 were able to use foreign currency- called the “tri- interest rates, for example, it has ary externalities offers an explanation • Regulation to Influence Liability related prudential measures, domestic lemma,” the sometimes forced Mexico to choose why financial markets do not always Composition prudential measures, and financial- proposition between an unwanted tightening of deliver the best outcomes and so why sector capital controls to reduce both states that even its own monetary conditions and macroprudential regulation might be Some kinds of regulation aim to the share of foreign exchange lending though a coun- an unwanted abandonment of the justified, a finer-grained analysis is alter the composition, rather than in total domestic bank credit and the try might wish peso’s peg to the dollar. This area needed if the conclusions are to be of the total level, of foreign liabilities. share of portfolio debt in total exter- to have a fixed of research is of particular interest practical use. What is different about Capital controls may, for example, nal liabilities, which enhanced their exchange rate, at a time when quantitative easing the danger of overborrowing interna- seek to alter the maturity composi- resilience when the financial crisis hit highly inte- by the Federal Reserve has come to tionally as opposed to domestically? tion of liabilities, reducing short-term in 2008–09.33 grated financial an end and many observers are con- What is different about controls on capital flows that are prone to sud- markets, and the cerned that an expected increase in international capital flows as opposed den reversals.30 Another concern is 3. The Role of Reserves and the ability to set its U.S. interest rates might once again to domestic prudential regulation? the currency composition of liabili- Precautionary Approach to own monetary reverse the flow of finance to emerg- Macroprudential regulations ties. Emerging market countries have the National Balance Sheet Figure 3 policy, it cannot ing countries and trigger new crises. and capital controls have come to in the past borrowed abroad primar- have all three. Research questions abound. Does be grouped together as Capital Flow ily in dollars or other foreign cur- A broader definition of macropru- those with a low ratio.36 Again in 2013, The logic is simple. If there are no the trilemma mean that emerging Management policies, which have rencies, rather than in their own cur- dential policies would include other countries that had been holding more differences between the domestic cur- markets should turn back the clock been found capable of reducing rency. In the case of bank borrowing, efforts to strengthen the national bal- reserves seemed better able to with- rency and foreign currencies and no on capital controls? Does it mean financial fragility.23 Distinguishing such short-term foreign exchange lia- ance sheet, such as increased holdings stand the shock of higher U.S. interest barriers to the cross-border movement that the movement toward floating between macroprudential regulation bilities are an example of the “non- of foreign exchange reserves by the rates that was associated with sugges- of capital, then the domestic interest exchange rates is the answer? Are (to limit leverage) and capital controls core” funding sources (i.e., sources central bank, as precautions to reduce tions of a less-expansionary monetary rate is tied to the world interest rate, intermediate regimes such as man- (to induce precautionary behavior) other than customer deposits) that financial fragility. policy.37Some other studies, however, and so the country cannot set its own aged floating more workable than 38 42 is potentially impor- • Foreign Exchange have found less evidence of an effect. interest rate. (In terms of Figure 4, no the corner choices? Do floating tant. Anton Korinek Reserves rates in fact insulate coun- has argued that the • Alternatives also include tries from foreign inter- latter may be relevant In the decade Reserves and Appreciation est rates as advertised? Do only for those emerg- following the cri- macroprudential regula- ing market countries ses of the 1990s, cen- A complete set of alter- tions offer a solution? Or is in which foreign- tral banks in emerg- native policies for manag- there a new need for inter- currency debt could ing markets increased ing a capital boom would national policy coordina- render devaluation their foreign exchange include not just capital flow tion across central banks contractionary.24 reserves. One impor- management policies but so that the Federal Reserve, • Capital Controls tant reason was the also conventional counter- for example, would take with Fixed precautionary motive: cyclical macroeconomic emerging markets’ interests Exchange Rates They believed it actions such as tightening into account when it sets would help protect monetary policy, tightening interest rates? The theory of their countries against fiscal policy,39 and allowing 40 • Do Floating Rates Really overborrowing as a the worst effects of a the currency to appreciate. Insulate? pecuniary externality financial or balance How authorities manage a 34 can help update the Figure 2 of payments crisis. boom has a big influence on In some theoreti- traditional point that This belief was tested a country’s vulnerability to cal models, capital market capital controls can be used to insulate banks increasingly turn to in a credit in the global financial crisis, a common subsequent adverse shocks. imperfections may prevent a pegged-currency country from exter- boom.31 In 1994–2001, a currency shock experienced by all countries. Figure 4 floating rates from per- nal shocks.25 Controls can be used to mismatch led to contractionary bal- Some studies have found that countries 4. Revisions in the Trilemma, point exists that is on all three sides of forming the shock absorption role reduce capital inflows in boom times ance sheet effects when emerging mar- holding a high level of foreign exchange Global Liquidity Conditions, the triangle at once.) claimed in traditional macroeconomic and then reversed in bad times, like an ket currencies were forced to devalue. reserves indeed tended to come through This principle helps explain the analysis. Some, such as Emmanuel 35 and International umbrella that one uses only when it is After that experience, many countries 2008–09 in better shape than others. Coordination travails of the eurozone. Member Farhi and Iván Werning, find that in raining. Another analogy, introduced sought to reduce this sort of vulnera- (See Figure 3 on next page.) In par- countries have found it difficult to such circumstances taxation of capi- by Michael Klein, is gates that can be bility in their balance sheets by avoid- ticular, countries that had a high ratio A long-standing principle in inter- live with central bank policies that tal flows can be welfare-improving.43 opened or closed with the cycle (Brazil, ing unhedged foreign currency liabili- of foreign exchange reserves to exter- national macroeconomics, often asso- are no longer tailored to their own Others find that capital controls are South Korea) versus walls that are ties.32 (Illustrated in Figure 2.) nal borrowing were not hit as badly as ciated with Robert Mundell, goes by economic circumstances.41 It also of limited help.44

4 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 5 • U.S. Financial Conditions, Global offers another channel for monetary NBER Working Paper No. 16377, 11 E. Farhi and J. Tirole, “Collective Aizenman and Y. Jinjarak, “Real Estate forthcoming, Journal of International Liquidity, and World Capital Flows stimulus besides the interest rate. But September 2010. Moral Hazard, Maturity Mismatch, Valuation, Current Account, and Credit Economics. if floating exchange rates in fact do Return to text and Systemic Bailouts,” NBER Working Growth Patterns, Before and After the Return to text Hélène Rey finds that one global not allow sufficient monetary indepen- 4 J. Bianchi and E. Mendoza, Paper No. 15138, July 2009, and 2008–09 Crisis,” NBER Working Paper 24 A. Korinek and D.Sandri, “Capital factor explains an important part of the dence, again there may be a role for cap- “Overborrowing, Financial Crises, American Economic Review, 102(1), No. 19190, June 2013, and Journal Controls or Macroprudential cross-sectional variance of risky asset ital flow management measures. Some and ‘Macroprudential’ Taxes,” NBER 2009, pp. 60–93. of International Money and Finance, Regulation?” NBER Working Paper No. returns around the world. This time- argue that, in a global economy with Working Paper No. 16091, June 2010, Return to text 48(PB), 2014, pp.249–70. 20805, December 2014. varying global factor can be interpreted open financial markets, the problem of and Proceedings, Federal Reserve Bank 12 A. Demirgüç-Kunt, E. Kane and L. Return to text Return to text as the perceived importance of risk, as the zero lower bound introduces a new of San Francisco, October 2010. Laeven, “Deposit Insurance Database,” 17 K. N. Kuttner and I. Shim, “Can 25 E. Farhi and I.Werning, “Dealing reflected in measures of volatility such dimension to the international policy Return to text NBER Working Paper 20278, July Non-Interest Rate Policies Stabilize with the Trilemma: Optimal Capital as the VIX — often referred to as the trilemma.49 5 J. Bianchi, E. Boz, and E. Mendoza, 2014. Housing Markets? Evidence from a Controls with Fixed Exchange Rates,” 45 “fear index.”. U.S. monetary policy • Central Bank Coordination “Macroprudential Policy in a Fisherian Return to text Panel of 57 Economies,” NBER Working NBER Working Paper No. 18199, June is, in turn, a driver of this global factor Model of Financial Innovation,” NBER 13 V. Acharya, R. Engle, and D. Pierret, Paper No. 19362, December 2013. 2012; S. Schmitt-Grohe and M. Uribe, and of international credit flows and Another response to the problem of Working Paper No. 18036, and IMF “Testing Macroprudential Stress Tests: Return to text “Prudential Policy for Peggers,” NBER leverage.46 As an example of “reach for spillovers from U.S. monetary policy to Economic Review, 60(1), 2012, pp. The Risk of Regulatory Risk Weights,” 18 J. Frankel, “Monetary Policy Working Paper No. 18031, May 2012. yield,” the carry trade entails short-term emerging market countries is a call from 223–69. Return to text NBER Working Paper No. 18968, April in Emerging Markets: A Survey,” Return to text capital flows from low interest rate emerging market leaders like Raghuram 6 O. Jeanne and A. Korinek, 2013. NBER Working Paper No. 16125, 26 M. Klein, “Capital Controls: countries such as the U.S. to high inter- Rajan, Governor of the Reserve Bank “Macroprudential Regulation Return to text June 2010, and B. Friedman and Gates versus Walls,” NBER Working est rate countries such as the emerging of India, for the major central banks Versus Mopping Up After the Crash,” 14 B. Eichengreen and N. Dincer, “Who M. Woodford, eds., Handbook of Paper No.18526, November 2012, markets.47 to coordinate monetary policy with an NBER Working Paper No 18675, Should Supervise? The Structure of Monetary Economics, Amsterdam, The and Brookings Papers on Economic Traditional textbook theory eye toward international repercussions. January 2013; J. Bianchi and E. Bank Supervision and the Performance Netherlands: North Holland, 2011, pp. Activity, 45(2), 2012, pp. 317–67; under the trilemma says that float- Of course the mandate of the Federal Mendoza, “Optimal Time Consistent of the Financial System?” NBER 1442–1520. Return to text A. Fernández, M. Klein, A. Rebucci, ing exchange rates help insulate small Reserve, and of other central banks, is Macroprudential Policy,” NBER Working Paper No. 17401, September 19 A. Korinek and E. Mendoza, “From M. Schindler, and M. Uribe, “Capital countries against global financial fac- to act to promote the best interest of Working Paper No. 19704, December 2011, and International Finance, Sudden Stops to Fisherian Deflation: Control Measures: A New Dataset,” tors such as U.S. monetary conditions, its own economy.50 But that need not 2013; and J. Bianchi, “Efficient 15(3), 2012, pp. 309–25 (published Q uantitative Theory and Policy NBER Working Paper No. 20970, with each country choosing the mon- rule out taking into account interna- Bailouts?” NBER Working Paper No. as “The Architecture and Governance Implications,” NBER Working Paper February 2015. The authors provide a etary policy that suits its own eco- tional repercussions of monetary pol- 18587, December 2012. of Financial Supervision: Sources and No. 19362, August 2013. detailed new dataset of capital control nomic conditions. But transmission of icy moves or coordinating with other Return to text Implications.”) Using observations Return to text restrictions on both inflows and outflows liquidity and risk effects may inval- countries.51 Macroprudential policies 7 J. Bianchi and S. Bigio, “Banks, for 140 countries from 1998 through 20 J. H. Hahm, F. Mishkin, H. S. Shin, for 100 countries over the period 1995 idate this insulation proposition.48 may themselves need to be coordinated Liquidity Management and Monetary 2010, the authors find that supervisory and K. Shin, “Macroprudential Policies to 2013. After all, many countries with float- internationally.52 Policy,” NBER Working Paper No. responsibility tends to be assigned to the in Open Emerging Economies,” NBER Return to text ing exchange rates suffered effects of 20490, September 2014. central bank in low-income countries. Working Paper 17780, January 2012; 27 O. Jeanne, “Capital Account Policies the U.S.-originated global financial cri- Return to text Return to text and V. Bruno and H. S. Shin, “Assessing and the Real Exchange Rate,” NBER sis in 2008–09. Macroprudential regu- 1 C. Reinhart, K. Rogoff, “Recovery 8 E. Farhi and I. Werning, “A Theory 15 P. Federico, C. Végh, and G. Vuletin, Macroprudential Policies: Case of Working Paper No. 18404, September lations might reduce vulnerability to from Financial Crises: Evidence of Macroprudential Policies in the “Reserve Requirement Policy over the Korea,” NBER Working Paper No. 2012, and F. Giavazzi and K. West, such liquidity and risk shocks. The from 100 Episodes,” NBER Working Presence of Nominal Rigidities,” NBER Business Cycle,” NBER Working Paper 19084, May 2013. eds., NBER International Seminar on issue is very relevant in 2015, as fears Paper No. 19823, January 2014, and Working Paper No. 19313, September No. 20612, October 2014, and “Effects Return to text Macroeconomics, Chicago, Illinois: rise that coming increases in U.S. inter- American Economic Review, 104(5), 2013; and A. Korinek and A. Simsek, and Role of Macroprudential Policy: 21 S. Aiyar, C. Calomiris, and University of Chicago Press, 2013, pp. est rates might trigger emerging market 2014, pp. 50–55. “Liquidity Trap and Excessive Evidence from Reserve Requirements T. Wieladek, “Does Macro-Pru 7–42. crises as in the past. Return to text Leverage,” NBER Working Paper No. Based on a Narrative Approach,” pre- Leak? Evidence from a U.K. Policy Return to text 2 J. Frankel, “The Global Financial 19970, March 2014. sented at the 2014 Central Bank of the Experiment,” NBER Working Paper No. 28 L. Alfaro, A. Chari, and F. Kanczuk, • Interest Rates at the Zero Lower Crisis: A Selective Review of Recent Return to text Republic of Turkey-NBER Conference 17822, February 2012. “The Real Effects of Capital Controls: Bound Research in the International Finance 9 C. Buch and L. S. Goldberg, on Monetary Policy and Financial Return to text Liquidity Constraints and Firm and Macroeconomics Program,” NBER “International Banking and Liquidity Stability in Emerging Economies. 22 C. Engel, “Macroprudential Policy Investment,” NBER Working Paper A particular version of the mon- Reporter, 2, 2009, http://www.nber. Risk Transmission: Lessons from Across Return to text in a World of High Capital Mobility: No. 20726, December 2014, and pre- etary independence problem may arise org/programs/ifm/ifm.html. Countries,” NBER Working Paper No. 16 O. Jordà, M. Schularick and A. M. Policy Implications from an Academic sented at the 2014 Central Bank of the when countries are seeking to ease Return to text 20286, July 2014. Taylor, “Betting the House,” NBER Perspective,” NBER Working Paper No. Republic of Turkey-NBER Conference monetary policy in the presence of a 3 Examples include M. Devereux Return to text Working Paper No. 20771, December 20951, February 2015. on Monetary Policy and Financial liquidity trap. For example, interest and C. Yu, “International Financial 10 A. Kashyap, D. Tsomocos, 2014, and forthcoming in Journal of Return to text Stability in Emerging Economies. rates may already be at the zero lower Integration and Crisis Contagion,” and A. Vardoulakis, “How Does International Economics; M. Bordo 23 K. Forbes, M. Fratzscher and Return to text bound, as has been the case in Japan NBER Working Paper No. 20526, Macroprudential Regulation Change and J. Landon-Lane, “What Explains R. Straub, “Capital Controls and 29 J. Bengui and J. Bianchi, “Capital since the late 1990s and other major September 2014; and O. Jeanne and A. Bank Credit Supply?” NBER Working House Price Booms?: History and Macroprudential Measures: What Flow Management when Capital countries since 2009. If the textbook Korinek, “Managing Credit Booms and Paper No. 20165, May 2014. Empirical Evidence,” NBER Working Are They Good For?” NBER Working Controls Leak,” presented at 2014 theory is right, currency depreciation Busts: A Pigouvian Taxation Approach,” Return to text Paper No.19584, October 2013; and J. Paper No. 20860, January 2015, and Central Bank of the Republic of Turkey-

6 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 7 NBER Conference on Monetary Policy the Global Financial Crisis,” NBER 2014, and IMF Economic Review, pp. 290–320; and M. Klein and J. Retrenchment,” NBER Working Paper International Policy Trilemma,” NBER and Financial Stability in Emerging Working Paper No. 17362, August 62(4), 2014, pp. 526–68. Shambaugh, “Rounding the Corners of No. 17351, August 2011, and Journal Working Paper No. 19091, May 2013. Economies. 2011, and Journal of International Return to text the Policy Trilemma: Sources of Monetary of International Economics, 88(2), Return to text Return to text Economics, 88(2), 2012, pp. 388–406; 40 Two papers at the 2014 Central Policy Autonomy,” NBER Working Paper 2012, pp. 235–51. 50 B. Eichengreen, “Does the Federal 30 N. Magud, C. Reinhart, and K. M. Bussière, G. Cheng, M. Chinn, Bank of the Republic of Turkey-NBER No. 19461, September 2013. Return to text Reserve Care About the Rest of the Rogoff, “Capital Controls: Myth and N. Lisack, “For a Few Dollars Conference on Monetary Policy and Return to text 46 S. Agrippino and H. Rey, “World World?”NBER Working Paper No. and Reality — A Portfolio Balance More: Reserves and Growth in Times Financial Stability in Emerging 43 E. Farhi and I. Werning, “Dilemma Asset Markets and the Global Financial 19405, September 2013. Approach,” NBER Working Paper of Crises” NBER Working Paper No. Economies considered the menu of possible not Trilemma? Capital Controls and Cycle,” NBER Summer Institute, June Return to text No. 16805, February 2011; and 19791, January 2014; J. Frankel and responses: K. Forbes and M. W. Klein, Exchange Rates with Volatile Capital 2014; and E. Passari and H. Rey, 51 B. Eichengreen, “International Policy M. Brunnermeier and Y. Sannikov, G. Saravelos, “Are Leading Indicators “Shifting from a Salsa to a Waltz: The Flows,” presented at 2014 Central “Financial Flows and the International Coordination: The Long View,” NBER “International Credit Flows and of Financial Crises Useful for Assessing Consequences of Policy Responses During Bank of the Republic of Turkey-NBER Monetary System,” NBER Working Working Paper No. 17665,December Pecuniary Externalities,” NBER Country Vulnerability? Evidence from Global Booms,” and O. Blanchard, J. Conference on Monetary Policy and Paper No. 21172, May 2015. 2011, and in R. Feenstra and A. Taylor, Working Paper No. 20803, December the 2008–09 Global Crisis,” NBER Ostry, A. R. Ghosh, and M. Chamon, Financial Stability in Emerging Return to text eds., Globalization in an Age of Crisis: 2014. Working Paper No. 16047, June “Managing Capital Flows: How to Economies; and X. Gabaix and M. 47 K. Daniel, R. Hodrick, and Z. Multilateral Economic Cooperation Return to text 2010, and Journal of International Combine Capital Controls, Macro Maggiori, “International Liquidity Lu, “The Carry Trade: Risks and in the Twenty-First Century, Chicago, 31 H. S. Shin an K. Shin, Economics, 87(2), 2012, pp. 216–31. Prudential Tools, FX Intervention, and and Exchange Rate Dynamics,” NBER Drawdowns,” NBER Working Paper No. Illinois: University of Chicago Press, 2014, “Procyclicality and Monetary Return to text the Policy Rate.” Other research looks at Working Paper No. 19854, January 20433, August 2014. pp. 43–82; and C. Engel, “Central Bank Aggregates,” NBER Working Paper No. 36 J. Aizenman, “Hoarding how the menu of options was deployed 2014. Return to text Coordination,” NBER Working Paper No. 16836, February 2011. During a boom International Reserves Versus a after crises hit, in 1997–98 and 2008– Return to text 48 H. Rey, “Dilemma not Trilemma: 20952, February 2015. phase in bank lending, which is reflected Pigovian Tax-Cum-Subsidy Scheme: 09: K. Forbes and M. Klein, “Pick Your 44 G. Pasricha, M. Falagiarda, M. The Global Financial Cycle and Return to text in monetary aggregates, banks increas- Reflections on the Deleveraging Crisis Poison: The Choices and Consequences Bijsterbosch, and J. Aizenman, Monetary Policy Independence,” NBER 52 O. Jeanne, “Macroprudential ingly look beyond their “core” funding of 2008–09, and a Cost Benefit of Policy Responses to Crises,” NBER “Domestic and Multilateral Effects of Working Paper No. 21162, May 2015; Policies in a Global Perspective,” NBER source, deposits, to other funding sourc- Analysis,” NBER Working Paper No. Working Paper No. 20987, February Capital Controls in Emerging Markets,” and presented at Jackson Hole Economic Working Paper No. 19967, March es, which increases vulnerability. 15484, November 2009, and Journal 2015. NBER Working Paper No. 20822, Symposium 2013, Federal Reserve Bank 2014, and in Prospects for Asia and Return to text of Economic Dynamics and Control, Return to text January 2015. of Kansas City. the Global Economy, Asia Economic 32 A. Bénétrix, P. Lane, and J. 35(9), 2011, pp.1502–13; J. Aizenman 41 G. Hale and M. Obstfeld, “The Euro Return to text Return to text Policy Conference, Federal Reserve Bank Shambaugh, “International Currency and M. Hutchison, “Exchange and the Geography of International 45 K. Forbes and F. Warnock, “Capital 49 M. Devereux and J. Yetman, “Capital of San Francisco. Exposures, Valuation Effects, and Market Pressure and Absorption by Debt Flows,” NBER Working Paper No. Flow Waves: Surges, Stops, Flight, and Controls, Global Liquidity Traps and the Return to text the Global Financial Crisis,” NBER International Reserves: Emerging 20033, April 2014. Return to text Working Paper No. 20820, January Markets and Fear of Reserve Loss 42 Developing countries apparently are 2015, and forthcoming, Journal of During the 2008–09 Crisis,” NBER converging on an intermediate choice of International Economics. Working Paper No. 16260, September partial exchange rate flexibility, partial Return to text 2010, and Journal of International financial openness, and partial mon- 33 M. Qureshi, J. Ostry, A. R. Money and Finance, 31(5), 2012, pp. etary policy independence. J. Aizenman Ghosh, and M. Chamon, “Managing 1076–91. and H. Ito, “Living with the Trilemma Capital Inflows: The Role of Capital Return to text Constraint: Relative Trilemma Policy Controls and Prudential Policies,” 37 J. Aizenman, Y.W. Cheung, and H. Divergence, Crises, and Output Losses for NBER Working Paper 17363, August Ito, “International Reserves Before and Developing Countries,” NBER Working 2011, and Journal of International After the Global Crisis: Is There No Paper No. 19448, September 2013, Economics, 88(2), 2012, pp. 407–21. End to Hoarding?” NBER Working and Journal of International Money Return to text Paper No. 20386, August 2014. and Finance, 49(PA), pp. 28–51; J. 34 M. Obstfeld, “The International Macro-prudential policy tends to com- Aizenman and H. Ito, “Trilemma Monetary System: Living with plement IR accumulation. Policy Convergence Patterns and Output Asymmetry,” NBER Working Paper No. Return to text Volatility,” NBER Working Paper No. 17641, December 2011; P. Gourinchas 38 A. Rose and M. Spiegel, “Cross- 17806, February 2012, and North and O. Jeanne, “Capital Flows to country Causes and Consequences of the American Journal of Economics and Developing Countries: The Allocation Crisis: An Update,” NBER Working Finance, 23(3), 2012, pp. 269–85; Puzzle,” NBER Working Paper No. Paper No. 16243, July 2011, and J. Aizenman, M. Chinn, and H. Ito, 13602, November 2007, and Review European Economic Review, 55(3), “Surfing the Waves of Globalization: of Economic Studies, 80(4), 2013, pp. 2011, pp. 309–24. Return to text Asia and Financial Globalization in 1484–1515. 39 C. Végh and G. Vuletin, “The the Context of the Trilemma,” NBER Return to text Road to Redemption: Policy Response Working Paper No. 15876, April 35 K. Dominguez, Y. Hashimoto, and to Crises in Latin America,” NBER 2010, and Journal of the Japanese and T. Ito, “International Reserves and Working Paper No. 20675, November International Economies, 25(3), 2011,

8 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 9 nomic growth. Redistribution can lead based on regional waves of democratiza- Research Summaries to distortions and disincentives,3 or it tions and reversals. can stimulate growth.4 The same is true Our identification assumption of the expansion of the size or role of the is that democratization in a country Political Institutions and state. Finally, democratic political com- spreads to other nondemocratic coun- petition can be very clientelistic, miti- tries in the same region, but does not Comparative Development gating against the provision of public have a direct differential impact on eco- goods. There is also obviously a consid- nomic growth in these countries, at least erable amount of heterogeneity in this conditional on lagged levels of country Daron Acemoglu and James A. Robinson process. Dictatorships and democracies and regional GDP and various covari- alike vary greatly in their institutional ates that could be correlated with coun- A great deal of evidence suggests that ought to be evidence of systemic rela- architecture — such as in the extent of try-level GDP at the year, region, and different patterns of economic develop- tionships between political institutions, checks and balances5 — and societies that initial regime level. ment are causally related to differences economic institutions and policies, and have ostensibly democratic politics may Focusing on a dichotomous vari- Daron Acemoglu is Elizabeth and James in economic institutions. Countries economic outcomes. have political power concentrated in the able which classifies regimes as either Killian Professor of Economics at the that create inclusive and secure property Perhaps the largest research effort hands of a small group of economic elites democratic or not based primarily on Massachusetts Institute of Technology. rights and the rule of law grow, while has gone into investigating the impact of or bureaucrats. whether or not a country has free and His areas of research include politi- those that do not stagnate or decline.1 democracy on economic growth. There Despite this evident heterogeneity, fair elections with universal suffrage, our James A. Robinson is a research associ- cal economy, economic development and But why do economic institutions is obviously a strong correlation between it is interesting to ask what the aver- central estimates suggest that a coun- ate in the NBER’s Programs on the History growth, human capital theory, growth the- vary so much across, and even within, levels of GDP per capita and the extent age effect of moving from autocratic to try which switches from autocracy to of the American Economy and Political ory, innovation, search theory, network countries? Though there are different of democracy, yet at the same time the- democratic political institutions is on democracy achieves about 20 percent Economy. As of July 1, 2015, he will be a economics and learning. approaches to this question, a central oretical work suggests that not all the economic policies and institutions and higher GDP per capita over roughly 30 University Professor at the Harris School of His recent research focuses on the one emphasizes that economic institu- mechanisms unleashed by moving politi- on economic growth. We do that in our years. We also investigate some of the Public Policy at the University of Chicago. political, economic, and social causes of dif- tions (conceived broadly to include eco- cal institutions from autocratic to demo- paper with Suresh Naidu and Pascual mechanisms via which this may hap- Robinson’s research focuses on com- ferences in economic development across nomic policies) are outcomes of pro- cratic are positive for economic growth. Restrepo.6 Ours is hardly the first study pen and find broadly consistent positive parative economic and political develop- societies; the factors affecting the institu- cesses of collective choice. Such choices Democratization tends to shift of this relationship but, interestingly, estimates for the effect of democracy on ment from both a theoretical and an empir- tional and political evolution of nations; are shaped by the political institutions power away from narrow elites towards the conventional wisdom has been that tax-to-GDP ratio and primary school ical perspective. Over the past two decades, and how technology impacts growth and that distribute power, aggregate prefer- the mass of people. That can favor redis- democratization has at best small posi- enrollment rates. he has conducted research and collected distribution of resources and is itself deter- ences and interests, place constraints, tribution, the provision of public goods tive effects on economic growth. Our But, as already noted, there is much data in Botswana, Chile, the Democratic mined by economic and social incentives. and determine the payoffs to different in society,2 and expansion of the role paper shows that this “non result” is more to the variation in political insti- Republic of the Congo, Haiti, the In addition to scholarly arti- strategies in the political process. of the state in society. These very pro- driven by the complicated dynamics of tutions than differences in democracy. Philippines, Sierra Leone, South Africa, and cles, Acemoglu has published several This perspective suggests that there cesses may or may not be good for eco- GDP around democratization. Indeed, the quantitative magnitude Colombia, where he teaches every summer books: Economic Origins of Dictatorship It is a robust fact that democratiza- of the results discussed above shows at the University of the Andes in Bogotá. and Democracy, jointly with James A. tions are often precipitated by recessions that the main institutional difference He is co-author with Daron Acemoglu of Robinson; Why Nations Fail, also jointly and negative economic shocks. Clearly, between poor and rich countries is most the books with Robinson; and Economics, jointly Economic Origins of Dictatorship unless one controls for this properly, likely not that the former tend to be and . with David Laibson and John List. and Democracy Why Nations Fail one can easily make a spurious infer- undemocratic while the latter are demo- Robinson received a B.Sc. in econom- Acemoglu is a fellow of the National ence about the impact of democracy. cratic. Our study, like most, uses a mini- ics from the London School of Economics Academy of Sciences, the Science Academy We control for this using two different malist definition of democracy which in 1982, an M.A. in economics from the (Turkey), the American Academy of Arts strategies. The first is to control for lags leaves out detailed features of the con- University of Warwick in 1987, and his and Sciences, and the Econometric Society. of GDP in linear regressions. The sec- stitutions of countries that help deter- Ph.D. in economics from Yale University He was the recipient of the John Bates ond is to adapt to our panel context the mine the strength of checks and bal- in 1993. Before joining the Chicago fac- Clark Medal in 2005, and the Erwin Plein semi-parametric time-series estimators ances and constraints on the use of ulty, he taught at Harvard University, the Nemmers Prize. He holds honorary doc- proposed by Joshua Angrist and Guido power.9 Moreover, how a given set of University of California, Berkeley, the torates from the University of Utrecht, Kuersteiner,7 and Angrist, Òscar Jordà, formal political institutions functions University of Southern California, and the Bosporus University, and the University and Kuersteiner,8 which use propensity varies greatly across societies. University of Melbourne. of Athens. He received his B.A. in eco- score-based matching methods to cor- Finally, and equally importantly, Robinson lives in Somerville, nomics at the University of York, M.Sc. in rect for the effects of GDP dynamics. there are major differences across and Massachusetts, with his wife and younger mathematical economics and economet- Beyond this problem lies the question of within nations in the way the state is son. In his spare time, he enjoys exploring rics at the London School of Economics, identification. In addition to controlling organized. Having a state with “capac- the world with his elder son, dancing salsa and Ph.D. in economics at the London for a full set of country and year fixed ity” — to regulate, implement and gov- with his wife, listening to music and read- School of Economics. He lives in Newton , effects, we address this issue with an ern, to establish order, monopolize ing history, anthropology, and archaeology Massachusetts with his wife, Asu Ozdaglar, instrumental-variables (IV) strategy. We force, and raise revenues — is poten- books. and his two young sons, Arda and Aras. develop an instrument for democracy tially an important prerequisite for

10 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 11 economic growth. A large social sci- opment or by other factors, such as the variables biases are not the only chal- points, increasing the median coverage the Elites Extend the Suffrage? Democracy A. Robinson, “The Rise of Europe: ence literature suggests that many fac- nature of society (think of homogeneous lenges to estimating the impact of state rate of public utilities (electricity, aque- and the Scope of Government, With an Atlantic Trade, Institutional Change, ets of modernity are consequences of the Korea). Thus there are problems of both capacity on development. We argue that duct and sewage) by 4 percentage points, Application to Britain’s ‘Age of Reform,’” and Economic Growth.” NBER Working development of states, including not just reverse causality and endogeneity to be local state capacity in one municipal- and increasing the median secondary Quarterly Journal of Economics, 119(2), Paper No. 9378, December 2002, economic growth10 but also identities11 addressed before we can say convincingly ity is likely to create spillovers on public school enrollment rate by 3 percent- 2004, pp. 707–65. and American Economic Review, and values.12 that state capacity plays a causal role in good provision and economic outcomes, age points. About 57 percent of these Return to text 95(3), 2005, pp. 546–79; D. C. North To see why the nature of the state promoting economic development. and even on state capacity development, impacts is due to a direct effect, while 43 3 A. Alesina and D. Rodrik “Distributive and B. R. Weingast, “Constitutions might be an important determinant of In joint work with Camilo García- in neighboring municipalities. We for- percent is due to network spillovers. The Politics and Economic Growth,” NBER and Commitment: The Evolution of comparative development, consider the Jimeno, we study the effect of state mulate a simple, empirically operational “full equilibrium” effect is very differ- Working Paper No. 3668, March 1991, Institutional Governing Public Choice in following famous puzzle identified by capacity of Colombian municipalities model of such spillovers and develop ent, however. Once we take into account and Quarterly Journal of Economics, Seventeenth-Century England,” Journal Robert Lucas: on public goods provision and devel- an econometric strategy for identify- the equilibrium responses to the initial 109(2), 1994, pp. 465–90; T. Persson of Economic History, 49(4), 1989, pp. “In 1960 the Philippines and South opment outcomes.14 We conceptualize ing them. Our results reveal fairly large changes in local state capacity in the net- and G. Tabellini, “Is Inequality Harmful 803–32. Korea had about the same standard of state capacity as the presence of state spillovers across municipalities and also work, median coverage rate of public for Growth?’’ NBER Working Paper No. Return to text living as measured by their per-capita functionaries and agencies. This repre- non-trivial strategic effects whereby utilities increases 10 percentage points, 3599, January 1991, and American 10 P. B. Evans, Embedded Autonomy, GDPs of about $640 U.S. (measured in sents a central aspect of what Michael greater state capacity in one municipal- the median fraction of the population Economic Review, 84(3), 1994, pp. Princeton, New Jersey: Princeton 1975 prices). The two countries were Mann calls the “infrastructural power” ity induces an increase in the state capac- in poverty falls by 11 percentage points, 600–21. University Press, 1995; J. I. Herbst, States similar in many other respects … . In both of the state.15 Colombia provides an ity of neighboring municipalities. and median secondary school enroll- Return to text and Power in Africa, Princeton, New countries, all boys of primary school age ideal laboratory for such an investiga- The theory of how state capacity in ment rates increase by over 26 percent- 4 G. Saint-Paul and T. Verdier, Jersey: Princeton University Press, 2000. were in school, and almost all girls, but tion because there is a wide diversity of one municipality should affect that in age points. These large impacts, which “Education, Democracy and Growth,” Return to text only about a quarter of secondary school development and public good outcomes other jurisdictions is ambiguous. When are entirely due to network effects, high- Journal of Development Economics, 11 E. Gellner, Nations and Nationalism, age children were in school. Only 5 per- across Colombian municipalities. For one municipality can free-ride on the light not only the central role that state 42(2), 1993, pp. 399–407. Oxford, United Kingdom: Blackwell, cent of Koreans in their early twenties example, the proportion of the popula- investments of neighboring localities, a capacity plays in economic development Return to text 1983. were in college, as compared to 13 per- tion above the poverty line in the 2005 high spending level in one location may but also the importance of taking the full 5 D. Acemoglu, J. A. Robinson, and Return to text cent in the Philippines. Twenty-six per- census and average secondary school reduce the optimal outlay in adjoining equilibrium effects into account. R. Torvik, “Why Do Voters Dismantle 12 N. Elias, The Civilizing Process, cent of Philippine GDP was generated in enrollment 1992–2002 vary from near jurisdictions. When greater state capac- Much remains to be done in under- Checks and Balances?” NBER Working Volume I. The History of Manners, agriculture, and 28 percent in industry. zero to 100 percent. ity in one jurisdiction makes it less costly standing theoretically and empirically Paper No. 17293, August 2011, and Oxford, United Kingdom: Blackwell, In Korea, the comparable numbers were Our data exhibit strong positive cor- to build such capacity in adjoining juris- how political institutions shape develop- Review of Economic Studies, 80(3), 1969; N. Elias, The Civilizing Process, 37 and 20 percent.”13 relations between our basic measures dictions, or raises the benefits of such ment. Clearly other forms of state capac- 2013, pp. 845–75. Volume II, State Formation and Despite all these similarities, a radi- of state capacity and both public good outlays, then greater spending in one ity need to be investigated and the exter- Return to text Civilization, Oxford, United Kingdom: cal economic divergence ensued. Lucas’ provision and development outcomes. location will be associated with higher nal validity of our results probed. Also 6 D. Acemoglu, S. Naidu, P. Restrepo, Blackwell, 1982; M. Foucault, Discipline explanation is based on differential pat- But are these indicative of a causal rela- outlays in neighboring jurisdictions. important is to consider how different and J. A. Robinson, “Democracy Does and Punish: the Birth of the Prison, New terns of learning by doing and human tionship? To address this question, we Theoretically, how these strate- political institutions interact. Cause Growth,” NBER Working Paper York, New York: Random House, 1975. capital accumulation related to open- develop an identification strategy based gic effects should work out is unclear. If No. 20004, March 2014. Return to text ness. Human capital certainly accumu- on the history of Colombian state for- municipalities free-ride on their neigh- Return to text 13 R. E. Lucas, Jr., “Making a Miracle,” lated a lot faster in Korea, but from mation. In particular, we focus on two bors’ investments, state capacity choices 1 D. Acemoglu, S. Johnson, and J. A. 7 J. D. Angrist and G. Kuersteiner, Econometrica, 61(2), 1993, p. 251. our perspective Lucas’ discussion of variables: the historical presence of colo- will be strategic substitutes. Conversely, if Robinson, “The Colonial Origins of “Causal Effects of Monetary Shocks: Semi- Return to text what was different about Korea and the nial state officials and agencies in 1794 municipalities find it harder or less - ben Comparative Development: An Empirical parametric Conditional Independence 14 D. Acemoglu, C. García-Jimeno, and Philippines in 1960 is very narrow. A and the location of the colonial “royal eficial to build state capacity when it is Investigation,” NBER Working Paper Tests with a Multinomial Propensity J. A. Robinson, “State Capacity and huge unmentioned difference was that roads” network. This network has dis- missing in their neighborhood, they will No. 7771, June 2000, and American Score,” Review of Economics and Economic Development: A Network Korea was able to lay claim to a long his- appeared and thus provides an attractive be strategic complements. We incorpo- Economic Review, 91(5), 2001, pp. Statistics, 93(3), 2011, pp. 725–47. Approach,” NBER Working Paper No. tory of centralized, bureaucratized, state source of variation in the historical pres- rate these strategic aspects by modeling 1369–1401; D. Acemoglu, F. A. Gallego, Return to text 19813, January 2014, and forthcoming authority with a homogeneous national ence of the state and the cost of building the building of state capacity as a network and J. A. Robinson, “Institutions, Human 8 J. D. Angrist, O. Jordà, and G. in American Economic Review. identity. The Philippines was not. and expanding local state capacity, espe- game. We then estimate the parameters of Capital and Development,” NBER Kuersteiner, “Semiparametric Estimates Return to text Though we often take for granted cially when we control for distance to this model, exploiting both the network Working Paper No. 19933, February of Monetary Policy Effects: String Theory 15 M. Mann, Sources of State Power: that states have “capacity,” this is in fact current roads. There is indeed a positive structure and the exogenous sources of 2014, and Annual Review of Economics, Revisited,” NBER Working Paper No. Volume 1, A History of Power from the missing in many less-developed parts of correlation between the number of colo- variation discussed above. 6(1), 2014, pp. 875–912. 19355, August 2013. Beginning to AD 1760, New York, New the world. And there are large challenges nial state employees at the municipality Our benchmark estimates imply, Return to text Return to text York: Cambridge University Press, 1986. to pinpointing the role of state capacity level and the same measure today. Since for example, that moving all munici- 2 A. Lizzeri, and N. Persico, “Why Did 9 D. Acemoglu, S. Johnson, and J. Return to text in promoting economic development. the state-building strategy of the colonial palities below median state capacity to State capacity is multi-dimensional, authorities was quite unrelated to sub- the median will have a “partial equilib- and we have few theories how political sequent republican state-building aims, rium” direct effect (holding the level of capacity, fiscal capacity, and bureaucratic this historical data creates an appealing state capacity of all municipalities above capacity co-vary or are determined. They source of variation. the median constant) of reducing the obviously may be influenced by devel- Yet reverse causality and omitted median poverty rate by 3 percentage

12 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 13 The Economics of Happiness possible life as a zero. These three ways Those who were offered, but did not take, of evaluating lives deliver answers that the chance to donate felt some emotional are structurally identical, in the sense of costs, but in the aggregate these were John F. Helliwell being explained by the same variables much less than the emotional returns to with the same coefficients, despite hav- those who chose to donate.22 ing distributions with different means.15 This emerging field broadens eco- is at low levels, that workplace trust, as quality — between the suicide and life Emotional reports, or measures of affect, Marriage and the Set nomic analysis by using measures of shown in the figure, is a very strong pre- satisfaction models.10 Social trust and can be either positive or negative, and Point for Happiness subjective well-being to help address a dictor of life satisfaction, even more so community connections were strongly generally refer to either current emotions core issue in economics — how to make for women than men,7 and that the qual- and equally important in both mod- or those in a recent time period, usu- If measures of life satisfaction are to best use of scarce resources — by rede- ity and quantity of social connections at els. Indeed, subsequent research sug- ally yesterday. Typical measures of nega- be reliable guides to human welfare, they fining “best use.” It is now more than work, at home, and in the neighbor- gested that higher levels of social trust tive affect would be worry, anger, depres- must be shown to respond in predictable 40 years since Richard Easterlin first hood are perhaps the most important were associated with significantly lower sion, and anxiety, with typical measures and durable ways to changes in impor- advocated using measures of subjective supports for life satisfaction.8 death rates from both suicides and traf- of positive affect including happiness and tant life circumstances. If, on the con- John F. Helliwell, a long- well-being to judge the quality of life.1 But what about suicide in those fic fatalities.11 enjoyment, sometimes buttressed with trary, there is a happiness set point, deter- time NBER research asso- I came to see the necessity of such a supposedly happy Scandinavian coun- The apparent usefulness of happi- more evidently behavioral measures like mined chiefly by genetic factors, for each ciate, is senior fellow of broadening only after seeing that it was tries? A proper answer to this ques- ness data spurred deeper digging and a smiling and laughter. People answer life individual, with eventual full adaptation the Canadian Institute inadequate to assess the consequences tion required expertise from other mixture of research methods to untan- evaluation questions and reports of emo- to any change in circumstances, then the for Advanced Research of democracy2 and of social gle two-way linkages between tions yesterday in appropriately different happiness measure in question will not (CIFAR) and co-direc- capital3 solely in terms of their subjective well-being and ways, with weekend effects appearing for be able to provide a long-term guide to tor of CIFAR’s Program on linkages to economic growth. other variables. It also led to yesterday’s emotions but not for life eval- the quality of life. This view seems to Social Interactions, Identity Measures of subjective well- research to establish the mean- uations.16 Life evaluations, much more be supported by the finding that post- and Well-Being. He is pro- being seemed like natural candi- ing and value of different ways than current or remembered emotions marriage life evaluations among respon- fessor emeritus of econom- date measures of welfare. But to of measuring subjective well- from yesterday, are linked strongly and dents in the U.K. Household Panel survey ics at the Vancouver School understand and assess their suit- being,12 to assess the extent to durably to levels and changes in a vari- returning to pre-marriage levels within a of Economics, University of ability required a broader dis- which there are interpersonal ety of life circumstances, both within and few years demanded our attention. The British Columbia. ciplinary perspective. A useful and international differences among countries.17 These include not frequent finding that married people are Helliwell’s re cent starting point was to see if life in how happiness is measured only individual life circumstances, such on average happier than singles in other- books include Well-Being satisfaction assessments from and determined, to evaluate as income and unemployment,18 but also wise the same life circumstances has been for Public Policy, with Ed around the world supported the extent to which the well- the quality of public institutions, ranging interpreted by some as showing only that Diener, Richard Lucas, and Aristotle’s prediction that peo- being effects of income and from prison conditions19 to the honesty already-happy people were more likely to Ulrich Schimmack, 2009; ple would report higher life sat- other factors depend on com- and overall efficiency with which public get and stay married. International Differences isfaction if they had better life parisons with others,13 and to services are delivered.20 In a recent working paper,23 Shawn in Well-Being, edited circumstances, in the form of use subjective well-being data Grover and I explain the return to base- with Diener and Daniel family, friends, good health, and to focus on the quality of eco- The Power of Generosity line by defining the comparison group Kahneman, 2010; and sufficient material means, while also disciplines. How well are modern inter- nomic development.14 closely. Although the individuals studied World Happiness Report for being supported from the one side by national differences in suicide rates Three recent sets of results invite Two of my recent co-authored papers, did indeed return to their pre-marriage 2012, 2013, and 2015, all positive emotions and on the other by explained by the same factors exposed special attention. relying on a mixture of experimental lab levels of life satisfaction, they were still edited with Richard Layard a sense of life purpose. Aristotle’s pre- by Émile Durkheim’s careful research studies and international survey evidence, happier than they would have been with- and Jeffrey Sachs. The lat- sumptions were supported remarkably more than a century ago?9 Can the Life Evaluations versus find that people are happier performing out getting married, since most of the ter three volumes were pub- well by World Values Survey data, with same model consistently explain both Emotional Reports pro-social acts. The first paper combined marriages were occurring at ages when lished by the United Nations two-level modeling revealing the joint life satisfaction and suicide rates? experiments in several different cultures the average life satisfaction was drop- Sustainable Development importance of individual and national- World Values Survey data showed that It is important to distinguish two with survey data from many countries ping, as part of a U-shaped age pattern Research Network; the series level variables.4 The fact that life eval- the same factors that had been found to importantly different measures of sub- to argue that the happiness-producing of life satisfaction in many countries. In received the 2014 Award uations could be explained by income be associated with international differ- jective well-being: life evaluations and power of generosity could be a psycho- addition, the pre-marriage baseline was for the Betterment of the and other life circumstances permitted ences in life satisfaction were also asso- emotional reports. The former are rep- logical universal rather than something set too close to the point of marriage, Human Condition from the calculation of compensating differen- ciated with international differences in resented by three main types of survey bound by the social norms of specific cul- thus already incorporating the happiness International Society for tials to compare the relative importance suicide rates, of course with the signs question: How satisfied are you with tures.21 The second paper used a range created when the long-term relationship Quality-of-Life Studies. of different aspects of life.5 reversed. Sweden fit both models per- life as a whole these days? How happy of experiments to show that offering a was established with the eventual mar- Helliwell is a Fellow of My subsequent work expanded the fectly. Its very high subjective well- are you with your life these days? and chance to donate, in the context of an riage not yet taken place. To be really the Royal Society of Canada analysis to show that life evaluations being and fairly average suicide rates the Cantril ladder, used in the Gallup experiment set up for other reasons, led convincing, however, our research needed and an Officer of the Order depend more on the quality of gov- were reconciled by the differing rela- World Poll, asking people to evalu- to high donation levels and significantly to make full allowance for the reverse of Canada. For more infor- ernment than on the institutions of tive importance of some factor — such ate their lives today on a scale with the positive emotional effects for givers com- effects running from happiness to mar- mation, go to http://faculty. democracy,6 especially when the former as divorce, religion, and government best possible life as a 10 and the worst pared either to controls or to non-givers. riage. We did this by including each indi- arts.ubc.ca/jhelliwell/

14 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 15 vidual’s measured life satisfaction sev- 3 J. F. Helliwell and R. D. Putnam, Suicide: A Study in Sociology [1897] 2010, pp. 291–350. in Economic Inquiry, 52(4), 2014, Nyende, C. E. Ashton-James, M. eral years in the past to capture any set “Economic Growth and Social Capital by J.A. Spaulding and G. Simpson, Return to text pp.1485–1502. This paper shows that Norton, “Prosocial Spending and point effect. in Italy,” Eastern Economic Journal, Glencoe Ill., Free Press, 1951. 16 J. F. Helliwell and S. Wang, the spillover well-being losses of local Well-Being: Cross-Cultural Evidence Finally, in attempting to find an 21(3), 1995, pp. 295–307; and J. F. Return to text “Weekends and Subjective Well-Being,” unemployment on those still employed for a Psychological Universal,” NBER explanation for the size and long dura- Helliwell “Economic Growth and Social 10 J. F. Helliwell, “Well-Being and NBER Working Paper No. 17180, July are in aggregate larger than the individ- Working Paper No. 16415, September tion of the happiness effects accompa- Capital in Asia,” NBER Working Paper Social Capital: Does Suicide Pose a 2011, and Social Indicators Research, ual costs for the unemployed themselves. 2010, and Journal of Personality and nying marriage in our U.K. sample, we No. 5570, February 1996, and in R. G. Puzzle?” NBER Working Paper No. 116(2), April 2014, pp. 389–407. Return to text Social Psychology, 104(4), April took advantage of a question in another Harris, ed., The Asia-Pacific Region 10896, November 2004, and Social Return to text 19 J. F. Helliwell, “Institutions as 2013, pp. 635–52. part of the survey asking each respon- in the Global Economy: A Canadian Indicators Research, 81(3), May 17 See Table 2.1 of J. F. Helliwell and Enablers of Wellbeing: The Singapore Return to text dent to identify their best friend, with Perspective, Calgary, Canada: 2007, pp. 455–96. S. Wang, “World Happiness: Trends, Prison Case Study,” International Journal 22 L. B. Aknin, G. Mayraz, and spouse or equivalent being one of the University of Calgary Press, 1996, pp. Return to text Explanations and Distribution,” in J. of Wellbeing, 1(2), 2011, pp. 255–65. J. F. Helliwell, “The Emotional categories offered. The life satisfac- 21–42. 11 J. F. Helliwell and S. Wang, “Trust F. Helliwell, R. Layard and J. Sachs, Return to text Consequences of Donation tion effects of being married, relative Return to text and Well-Being,” NBER Working eds., World Happiness Report 2013, 20 J. F. Helliwell, H. Huang, S. Grover Opportunities,” NBER Working Paper to being single, were always large and 4 J. F. Helliwell, “How’s Life? Paper No. 15911, April 2010, and New York, New York: United Nations and S. Wang, “Empirical Linkages No. 20696, November 2014. significant, and were more than 50 Combining Individual and National- International Journal of Wellbeing, Sustainable Development Solutions Between Good Government and Return to text percent larger for those who reported Level Variables to Explain Subjective 1(1), January 2011, pp. 42–78. Network, September 2013. National Well-Being,” NBER Working 23 S. Grover and J. F. Helliwell, their spouse as their best friend. The Well-Being,” NBER Working Paper Return to text Return to text Paper No. 20686, November 2014. “How’s Life at Home? New Evidence same relationship was also evident for No.9065, July 2002 and in Economic 12 J. F. Helliwell and C. P. Barrington- 18 J. F. Helliwell and H. Huang, Return to text on Marriage and the Set Point for the growing group who were living as Modelling, 20(2), March 2003, pp. Leigh, “Measuring and Understanding “New Measures of the Costs of 21 L. B. Aknin, C. P. Barrington- Happiness,” NBER Working Paper No. a couple but not married — they were 331-60. Subjective Well-Being,” NBER Working Unemployment,” NBER Working Leigh, E. Dunn, J. F. Helliwell, 20794, December 2014. on average happier than the singles, but Return to text Paper No. 15887, April 2010, and Paper No. 16829, February 2011, and R. Biswas-Diener, I. Kemeza, P. Return to text especially so if they regarded their part- 5 J. F. Helliwell and C. P. Barrington- Canadian Journal of Economics 43(3), ner as their best friend. Leigh, “How Much is Social Capital August 2010, pp. 729–53. Thus the research showed large and Worth?” NBER Working Paper No. Return to text durable life satisfaction effects from a 16025, May 2010, and in J. Jetten, C. 13 C. P. Barrington-Leigh and J. F. key change in life circumstances, recon- Haslam, and S. A. Haslam, eds., The Helliwell, “Empathy and Emulation: ciled the life-course and cross-sectional Social Cure: Identity, Health and Life Satisfaction and the Urban estimates, and developed evidence for Well-Being, London, United Kingdom: Geography of Comparison Groups,” a social and friendship-based basis for Psychology Press, 2012, pp. 55–71. NBER Working Paper No. 14593, the well-being benefits of marriage. The Return to text October 2008. See also J. F. Helliwell paper thereby supports both the ability 6 J. F. Helliwell and H. Huang, “How’s and H. Huang, “How’s the Job? of life satisfaction measures to capture Your Government? International Well-Being and Social Capital in the the well-being effects of changes in life Evidence Linking Good Government Workplace,” NBER Working Paper No. circumstances and the importance of and Well-Being,” NBER Working Paper 11759, November 2005, and Industrial social factors in explaining levels and 11988, January 2006, and British and Labor Relations Review, 63(2), changes of life satisfaction. Journal of Political Science 38(4) , 2010, pp. 225–28. 2008, pp. 595–619. Return to text Return to text 14 J. F. Helliwell, “Life Satisfaction 1 R. A. Easterlin, “Does Economic 7 J. F. Helliwell and H. Huang, “Well- and Q uality of Development,” NBER Growth Improve the Human Lot? Some Being and Trust in the Workplace,” Working Paper No. 14507, November Empirical Evidence,” In P. A. David NBER Working Paper 14589, December 2008. Forthcoming in Policies for and M. W. Reder, eds., Nations and 2008, and Journal of Happiness Studies, Happiness, Oxford University Press, Households in Economic Growth: 12(5), May 2011, pp. 747–67. edited by S. Bartolini, E.Bilancini, L. Essays in Honor of Moses Abramovitz, Return to text Bruni and P. Porta. New York, New York: Academic Press, 8 J. F. Helliwell and R. D. Putnam, Return to text 1974, pp. 89–125. “The Social Context of Well-Being,” 15 J. F. Helliwell, C. P. Barrington- Return to text Philosophical Transactions of the Leigh, A. Harris and H. Huang, 2 J. F. Helliwell, “Empirical Linkages Royal Society of London, Series B, “International Differences in the between Democracy and Economic Biological Sciences, 339(1499), 2004, Social Context of Well-Being,” NBER Growth,” NBER Working Paper No. pp. 1445–56. Working Paper No. 14720, February 4066, May 1992, and British Journal Return to text 2009, and in J. F. Helliwell, E. Diener of Political Science, 24(2), 1994, pp. 9 E. Durkheim, Le Suicide. Étude de and D. Kahneman, eds., International 225–48. Sociologie, Paris, France: Félix Alcan, Differences in Well-Being, New York, Return to text 1897. See also the English translation New York: Oxford University Press,

16 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 17 Understanding the Effects of Early Expanding Access to Preschool data from the Consumer Expenditure that are both high quality and highly Survey, we find that higher-SES fam- targeted, and returns diminishing as Investments in Children Another promising intervention in ilies — for whom private preschool the students’ counter-factual experi- early life is access to high-quality educa- enrollment falls significantly — reduce ences in the absence of a public pre- tional environments. In his 2013 State their spending on childcare. By contrast, school program increase. Diane Whitmore Schanzenbach of the Union address, President Obama lower-SES families — for whom there proposed sweeping reform to preschool are larger impacts on the extensive mar- Long-run Impacts of Early education in the United States. The $75 gin — display larger declines in over- Elementary School Experiences A growing economics literature is fer by exploiting this variation across billion proposed “Preschool for All” all maternal time spent with children seeking to understand the effects of geography and time of the introduction initiative calls for dramatic increases in using data from the American Time Use Another widely-discussed early- early childhood influences on later life of the program. the number of four-year-olds in public Survey. This finding is counterbalanced life intervention is improvement in the outcomes. While much recent work One of our first studies found that preschool programs and in the quality by an increase in “quality” time spent quality of schooling for students in explores the effects of health measured babies who were in utero when food of these programs nationwide. reading, playing, talking, etc., between the early elementary grades. Project at birth, my work and that of others stamps were introduced in their county The Preschool for All initiative low-SES mothers and their children. STAR was a randomized experiment Diane Whitmore Schanzen demonstrates the importance of events weighed more at birth.3 But the avail- shares many characteristics with the While the model state programs conducted in Tennessee in which over bach is a research associ- in early life — but after birth — on ability of food stamps at other points state universal preschool programs are still too young for us to estimate 11,000 students and their teachers were ate in the NBER’s Programs long-term outcomes. during childhood may also have had that have been offered in Georgia and their long-term impacts, we are able assigned to classrooms that varied in on Children, Education, and A recent review by Douglas Almond an impact. In our recent work, we use Oklahoma since the 1990s. While high to explore impacts on achievement as class size and other measures of quality. Public Economics. An associ- and Janet Currie concludes that child the Panel Study of Income Dynamics rates of return have been documented late as eighth grade. For lower-income The experiment included one cohort ate professor in the School of and family characteristics measured at (PSID) to test whether children born for preschool programs targeted to chil- children, we find positive impacts of children that started kindergarten Education and Social Policy at school entry explain as much of the vari- prior to the introduction of food stamps dren of low socioeconomic status, less on math and reading scores as mea- in the 1985–86 school year. By now, Northwestern University, she ation in adult outcomes as factors such as in their county also benefited from the is known about the impacts of universal sured on the National Assessment of the students in the original cohort have also is chair of the university’s years of education that are more typically program.4 We start with the cohort of programs.5 Elizabeth Cascio and I draw Education Progress (NAEP) in fourth become adults, and researchers have Program on Child, Adolescent studied by economists.1 James Heckman children that we initially observe in the together data from multiple sources to grade. The impacts on this group been able to use a variety of administra- and Family Studies in the argues that the rates of return to human 1968 PSID, follow them into adult- estimate the impacts of these “model” diminish substantially by eighth grade, tive databases to follow their progress Institute for Policy Research, and capital investment in disadvantaged pop- hood, and observe their completed edu- state programs on preschool enrollment but sizable impacts on math scores to determine whether the intervention a visiting scholar at the Federal ulations are highest in early life.2 cation, earnings, and detailed health and a broad set of short- and longer-run remain. Conversely, although some had meaningful lasting impacts. Reserve Bank of Chicago. In a series of studies, my coauthors outcomes such as general health status, family and child outcomes.6 children from higher-income families Susan Dynarski, Joshua Hyman, and I Schanzenbach studies the and I have estimated the long-term height and weight, presence of chronic Using data from the Current were more likely to have attended measure the impact on educational attain- economics of policies aimed at impacts of interventions in early life. We conditions, and work/activity limita- Population Survey’s October supplement preschool and other families effec- ment in adulthood of being randomly improving the lives of children find that there are promising interventions. We find that individuals with on school enrollment, we find that the tively received sizable income trans- assigned in grades K-3 to a small class in poverty. Her research is at tions for children in school settings and access to food stamps before age five had universal state programs have increased fers from the program, their academic (with on average 15 students) instead of a the intersection of education, through social safety net programs that measurably better health in adulthood, preschool enrollment rates of children achievement does not appear to have larger class (with on average 22 students).7 health, and anti-poverty pro- impact outcomes measured in later ado- exhibiting improved overall health and from lower and higher socioeconomic improved in either grade. Using a data match obtained from the grams. She studied economics lescence and into adulthood. lower rates of obesity, diabetes, and status families alike. For children from We view these results as highly con- National Student Clearinghouse, we find and religion at Wellesley College, high blood pressure. lower-SES families, preschool enrollment sistent with the broad patterns in the that assignment to a small class increases and received her Ph.D. from Early Life Interventions For women, we also find that child- increased by 20 percentage points, pri- preschool literature, with highest eco- the probability of attending college by 2.7 Princeton University. Before and Adult Economic and hood access to the food stamp pro- marily driven by children who other- nomic returns coming from programs percentage points. joining the Northwestern fac- Health Outcomes gram increases economic self-suffi- wise would not have attended pre- ulty, she taught at the University ciency in adulthood. Those with access school enrolling in public programs. of Chicago and spent two years The food stamp program is a central to food stamps as children were more For children from higher-SES fami- as a Robert Wood Johnson part of the U.S. safety net, and provides likely to graduate from high school, lies, however, the enrollment impact Scholar in Health Policy vouchers to participants that can be earn more, and rely less on the social has been more muted at 11 to 14 per- Research at the University of used to purchase food at grocery stores. safety net as adults than those who did centage points. Among these higher- California, Berkeley. Participation in the food stamp pro- not. Interestingly, we find positive but SES children, we measure substan- Schanzenbach lives in gram increases the total resources avail- diminishing impacts of food stamps tial crowd out due to the universal Chicago’s North Shore with able to a family, pushing out the bud- by the child’s age when the program program. In particular, we estimate her husband Max, who is an get constraint and raising consumption was introduced in the child’s county. that of every 10 higher-SES program economist in Northwestern’s levels among participants. When the These findings suggest that there are enrollees, four or five otherwise would law school, and their three chil- program was introduced in the 1960s, important long-term returns to fam- have been in private preschools. dren. A native of St. Louis, she it was rolled out slowly, over a 13-year ily income from social supports dur- We also document the impacts remains a loyal Cardinals fan period, on a county-by-county basis. ing early life, and that income-support of universal preschool programs on despite living in Cubs territory. Hilary Hoynes, Almond, and I investi- programs have benefits that have not money and time investments fami- gate the impact of this safety net trans- previously been well quantified. lies make in their children. Using

18 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 19 The impacts are considerably higher a variety of adult outcomes including Review of Economics and Statistics, How Powerful Are Fiscal Multipliers in Recessions? among populations with traditionally earnings. While the test-score impacts 93(2), 2011, pp. 387–403. low rates of postsecondary attainment. faded away in later grades, we were able Return to text For example, the estimated impacts on to detect sustained impacts on non- 4 H. W. Hoynes, D. W. Schanzenbach, Alan Auerbach and Yuriy Gorodnichenko college attendance are 5.8 percentage cognitive skills, suggesting a possible and D. Almond, “Long Run Impacts points among black students, and 4.4 mechanism for the long-term effects. of Childhood Access to the Safety Net,” percentage points among students who The impacts of class quality are simi- NBER Working Paper No. 18535, In policy and academic discussions In our initial work on this ques- casts for fiscal variables using the were eligible for a subsidized school lar for students who entered the exper- November 2012. of recent years, few topics have gener- tion we use a “smooth transition vector Survey of Professional Forecasters and lunch at the time of the original experi- iment later, suggesting that a better Return to text ated more interest than fiscal multipli- autoregression” (STVAR) that allows “Greenbook” projections made by the ment. Among students attending schools classroom environment from ages five 5 J. J. Heckman, S. H. Moon, R. ers, which measure how much a dol- for transition of the economy between staff of the Federal Reserve Board. with the highest concentration of pov- through eight can have substantial Pinto, P. Savelyev, and A. Yavitz, “A lar of increased government spending regimes characterized by potentially Our STVAR estimates sug- erty, small class assignment raised the long-term benefits. New Cost-Benefit and Rate of Return or reduced taxes raises output. Indeed, different responses to fiscal shocks.3 gest that multipliers are considerably rate of college attendance by 7.3 percent- In both Project STAR papers, we Analysis for the Perry Preschool the magnitude of fiscal multipliers is at With only a handful of post-World War larger in recessions than in expansions. age points, and among students with the find that the actual long-run impacts Program: A Summary,” NBER Working the core of debates about whether gov- II recessions, generally short in length, Although exact magnitudes depend on lowest projected probability of attend- were larger than what would have Paper No. 16180, July 2010, and ernments should try to stimulate their a key advantage of this approach is that the horizon and specifics of how mul- ing college, the impact is 11 percentage been predicted based on the short- Journal of Public Economics, 94, economies during a recession. Bitter it exploits intensive as well as exten- tipliers are defined, we conclude that points. In addition, small classes in the run test score gains. This finding is 2010, pp.114–28 (published as “The disagreement in the United States and sive margins of business cycle fluc- a dollar increase in government spend- early grades improve the likelihood of consistent with a growing body of Rate of the Return to the HighScope elsewhere about the course of fiscal pol- tuations. What matters is not only ing raises output by about $1.50 to $2 earning a college degree, and majoring in research on early-life interventions, Perry Preschool Program”); J. Ludwig icy during the Great Recession reflects whether the economy is in a recession in recessions and by only about $0.50 a more technical and high-earning field, and raises challenging evaluation prob- and D. A. Phillips, “The Benefits and in part how little is known about mul- but also how deep the recession is. Our in expansions. The figure on the next such as science, technology, engineering, lems. Policymakers often rely on short- Costs of Head Start,” NBER Working tipliers and how important this matter approach postulates a function measur- page shows a time series of multipliers mathematics, business, or economics. term outcomes such as standardized Paper No. 12973, March 2007, is for policy. ing the probability of being in a given over our post-war sample period based Using administrative tax return test scores to gauge the effectiveness of and Society for Research on Child While previous research studied regime (recession or expansion) that on these estimates, with the variation data, we are able to broaden the scope educational interventions. But, as sug- Development, Social Policy Report, the effects of fiscal policy on the econ- depends on the state of the economy. over time reflecting changes in the state of adult outcomes studied in the gested in our research, if these measures 21(3), 2007. omy,1 a key question is how powerful The higher the probability of a regime, of the economy. Controlling for real- Project STAR experiment. Raj Chetty, systematically understate the long-run Return to text fiscal policy can be in recessions, dur- the more the behavior of the economy time expectations about fiscal variables John Friedman, Nathaniel Hilger, impacts of early childhood programs, 6 E. U. Cascio and D. W. ing which the need to stabilize eco- will reflect conditions in that regime generally increases the difference in the Emmanuel Saez, Danny Yagan, and I over-reliance on short-run outcomes Schanzenbach, “The Impacts of nomic activity is particularly acute. rather than in the alternative regime. size of the government spending mul- analyzed the impacts of the experi- may lead to abandonment of some pol- Expanding Access to High-Q uality With a quickly shrinking economy in We calibrate this function in such a way tiplier across the regimes. Note that ment on outcomes ranging from earn- icies that would pass a long-term cost- Preschool Education,” NBER Working late 2008 and early 2009, existing esti- that the implied frequency of the econ- this variation in the multiplier applies ings to retirement savings, home own- benefit analysis. Paper No. 19735, December 2013, mates of the average effect of fiscal omy being in recession matches the broadly to recessions vs. expansions ership, and marriage.8 While we study and Brookings Papers on Economic stimulus were potentially misleading. frequency of U.S. recessions as deter- in the sense that our results are not long-term impacts of random assign- Activity, 47(2), 2013, pp. 127–92. For example, old-style Keynesian mod- mined by the NBER. To measure the driven by the recent U.S. experience of ment to a variety of observable charac- 1 D. Almond and J. Currie, “Human Return to text els emphasized that increased govern- state of the economy, we use a coinci- very low short-term interest rates and teristics such as class size and teacher Capital Development Before Age Five,” 7 S. Dynarski, J. M. Hyman, and ment spending might stimulate output dent business cycle indicator, the devia- a binding zero lower bound. Our esti- experience, we also estimate “class- NBER Working Paper No. 15827, D. W. Schanzenbach, “Experimental and have little effect on prices in times tion of the centered seven-quarter mov- mates suggest that fiscal policy could room effects” — the combined effects March 2010, and O. Ashenfelter and Evidence on the Effect of Childhood of slack but could have an inflation- ing average of the real GDP growth rate be a powerful tool to stabilize output of teachers, peers, and other class-level D. Card, eds., Handbook of Labor Investments on Postsecondary ary effect with low output response if from the average growth rate. and thus reduce adverse effects of busi- shocks — on later life outcomes. An Economics, 4B, Amsterdam, The Attainment and Degree Completion,” the economy were close to full employ- The same paper makes another ness cycles. analysis of variance revealed that kin- Netherlands: North Holland, 2010, NBER Working Paper No. 17533, ment. More recent theoretical work methodological contribution by using In subsequent work, we investigate dergarten classroom assignment has Chapter 15, pp. 1315–1486. October 2011, and Journal of Policy made a similar prediction in the con- professional forecasts to purge predict- whether the government spending mul- significant impacts on earnings and Return to text Analysis and Management, 32(4), text of a binding zero lower bound for able variation from the time series of tiplier varies over the business cycle in other adult outcomes, leading us to 2 J. J. Heckman and D. Masterov, “The 2013, pp. 692–717. nominal interest rates, based on the government spending in constructing other countries as well.5 Introducing a ask whether the class effects on earn- Productivity Argument for Investing in Return to text view that a fiscal stimulus would not measures of unexpected changes in fis- multi-country dimension increases the ings were correlated with class effects Young Children,” NBER Working Paper 8 R. Chetty, J. N. Friedman, N. Hilger, lead to an increase in interest rates in cal policy. This adjustment is poten- overall number of episodes of econ- on kindergarten test scores. To address No. 13016, April 2007, and Review of E. Saez, D. W. Schanzenbach, and D. such a circumstance.2 While reasonable tially important because many changes omies which exhibit slack or which this, we proxy for classroom quality Agricultural Economics, 29(3), 2007, Yagan, “How Does Your Kindergarten to expect, cyclical variation in the size in fiscal variables are predictable and are in recession, possibly allowing us with the average test scores of an indi- pp. 446–93. Classroom Affect Your Earnings? of fiscal multipliers has, until recently, hence potentially anticipated by eco- to obtain sharper estimates of fiscal vidual’s classmates, measured at the end Return to text Evidence from Project STAR,” NBER been largely unexplored empirically. nomic agents. Treating such antic- multipliers. However, the international of kindergarten. Using this proxy mea- 3 D. Almond, H. W. Hoynes, and D. Working Paper No. 16381, September This glaring gap between what policy- ipated changes in fiscal variables as dimension poses several statistical and sure, we find that class quality impacts W. Schanzenbach, “Inside the War on 2010, and Quarterly Journal of makers wanted to know and what ear- fiscal shocks can attenuate estimates computational challenges for STVARs, immediate test scores, that the boost Poverty: The Impact of Food Stamps Economics, 126(4), 2011, pp. 1593– lier work could provide stimulated our of fiscal multipliers.4 To construct a such as correlation of error terms across dissipates later in elementary school, on Birth Outcomes,” NBER Working 1660. interest in exploring state-varying fiscal long time series of fiscal forecasts at countries. To address these challenges, and that it reappears strongly across Paper No. 14306, September 2008, and Return to text multipliers. a quarterly frequency, we splice fore- we introduce the method of direct pro-

20 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 21 jections to estimate average or state-depen- cal spillovers, there has been little work on macroeconomic past is characterized by rela- gate multiplier; the mapping from estimated dent multipliers.6 Specifically, this approach the subject.7 In a paper based on the same tively small business-cycle fluctuations. This responses at the local level to macroeconomic involves estimating a series of linear regres- data set as the previous one, we make prog- data challenge is not insurmountable, how- responses is not straightforward, as some sions for different horizons, thus making sta- ress in several dimensions.8 First, our sam- ever. First, as already noted, one can use vari- elements of local responses may overstate tistical analysis straightforward and robust. ple of OECD countries is larger and more ations in economic strength throughout the national responses — because of factors such Using direct projections also allows us to diverse than those used in previous research. postwar period, not simply focusing on epi- as national supply constraints — while others radically increase the number of variables we Second, we again remove predictable innova- sodes of recession, to estimate state-varying may understate them because of effects such can study because this framework is a sin- tions in government spending using profes- fiscal multipliers. Second, one can focus on as positive regional spillovers. gle-equation approach and thus avoids the sional forecasts. Once each country’s fiscal countries with more postwar volatility, or A promising alternative to longer time “curse of dimensionality” plaguing simul- shocks are calculated, we compute exter- use longer time series with more frequent series or exploiting local variation is the taneous estimation in VARs. Furthermore, nal shocks for each country as a weighted or volatile recessions, to obtain more varia- use of high-frequency data, which can pro- this approach can easily accommodate fiscal average of other countries’ domestic shocks, tion in the data. We take the first of these vide many observations even in precisely shocks that are orthogonal to the fiscal pre- using weights based on bilateral trade vol- approaches in looking at the experience in defined regimes, can sharpen identification Alan Auerbach is the Robert dictions of professional forecasters. umes. Third, we use the method of direct Japan, which has had a long period of eco- of fiscal shocks, and can keep the level Yuriy Gorodnichenko D. Burch Professor of Economics Using data for OECD countries and our projections to allow the size of fiscal spill- nomic weakness and thus potentially allows of the analysis at an aggregate level.12 To is an associate professor in and Law and directs the Burch approach of direct projections, we find that overs to depend on the state of the economy, us to estimate more precisely multipliers in illustrate the power of this approach, our the University of California, Center for Tax Policy and Public shocks to government spending — identi- in particular recession vs. expansion. Our an economic downturn.9 One can also con- most recent work involves the construc- Berkeley, department of econom- Finance at the University of fied as innovations in government tion of daily series of spending and ics and a research associate in the California, Berkeley, where he spending purged of fiscal forecasts spending commitments by the U.S. NBER. has taught since 1994. Auerbach made by the OECD staff — lead to Department of Defense (DoD).13 It Gorodnichenko is an has been an NBER research asso- stronger output responses in reces- is highly unlikely that changes in applied macroeconomist. A sig- ciate since 1978, the year he sions than in expansions. We see DoD spending or DoD commitments nificant part of his research has received his Ph.D. from Harvard the same pattern when regimes are on a given day are driven by develop- been about monetary policy University and joined the NBER’s defined based on current output lev- ments in the economy. As a result, (effects, optimal design, inflation Program in Business Taxation and els rather than growth rates (i.e., the commonly used minimum delay targeting), fiscal policy (coun- Finance, the ancestor of today’s boom vs. slack rather than expansion restriction — that is, government tercyclical policy, government Public Economics Program. He vs. recession). We also use the direct spending cannot react to changes in spending multipliers), taxation also is a member of the Economic projections framework to examine the economy within a narrow time (tax evasion, inequality), eco- Fluctuations and Growth Program. responses of other macroeconomic window — is likely to be satisfied. nomic growth (long-run deter- His research interests span the variables — such as investment, con- Hence, the chain of causality from minants, globalization, innova- fields of public economics and sumption, employment, wages, and changes in government spending to tion, financial frictions), pricing, macroeconomics, with a particu- prices — to government spending changes in macroeconomic outcomes and business cycles. He serves on lar focus, aside from recent work shocks as a function of the state of is even more credible than in analy- many editorial boards, includ- on fiscal multipliers, on the inter- the business cycle. By and large, the sis based on quarterly data. Using ing The Review of Economics action of demographics and long- estimated responses are consistent high-frequency data on fiscal vari- and Statistics and VoxUkraine run fiscal policy and the effects and with the old-style Keynesian view: ables can also radically improve our (http://voxukraine.org/). He design of capital income taxation. Excess capacity is associated with ability to estimate when economic has written over 40 papers since Auerbach previously has larger government spending multipli- agents learn about changes in fiscal he joined UC Berkeley in 2007; served as editor of the Journal ers and smaller effects on prices. variables and when economic vari- his work has been published in of Economic Perspectives and The focus of this exercise was to ables react to changes in fiscal vari- leading economics journals and American Economic Journal: examine domestic multipliers: If Germany has estimates suggest that fiscal spillovers are struct historical U.S. time series of output, ables. Of course, analysis at a daily frequency cited in policy discussions and Economic Policy and as vice presi- a government spending shock, how much does comparable in magnitude to domestic mul- taxes and government spending as far back as rules out analysis of responses of slow-mov- media. He has received numer- dent of the American Economic the German economy respond to the shock? tipliers and tend to be lower in expansions 1890.10 While using longer time series can be ing variables like GDP or the unemployment ous awards for his research and Association. He is currently However, the world economy is increasingly than in recessions. These results suggest that helpful, it also raises issues that may be hard rate, leading us to focus on financial indica- advising. president of the National Tax integrated and a shock in one country can spill coordination of fiscal policies may be more to address with available data. These include tors such as exchange rates and interest rates A native of Ukraine, Gorod Association. He is also a Fellow over to other countries. To the extent that fis- valuable than previously thought. structural transformations that coincide with that can respond immediately.14 nichenko received his B.A. and of the Econometric Society and cal spillovers are strong, there may be added While this recent work finds fiscal policy the changing role of the government in the Using our daily series of defense spend- M.A. at EERC/Kyiv-Mohyla the American Academy of Arts benefits and costs to one country’s adoption to be a potentially powerful tool to stabilize economy, the evolution of the tax system, ing announcements, we are able to resolve Academy (Kyiv, Ukraine) and his and Sciences. A New York native, of fiscal stimulus. Countries with strong fiscal an economy, estimation of state-dependent, and identification coming from wars that an exchange-rate puzzle in the previous lit- Ph.D. at the University of Auerbach received his B.A. from capacity, like Germany, can help stimulate the or even average, fiscal multipliers sometimes are special periods for the economy. Another erature.15 With fiscal shocks identified from Michigan. He lives in Oakland, Yale University. He lives in Berkeley economies of countries with weak fiscal capac- presents researchers with challenges that are approach is to use local variation in govern- actual spending data at a quarterly frequency, California, with his wife — also a with his wife, Gay, with whom he ity, like Greece, but spillovers from abroad also difficult to address using conventional data. ment spending and economic conditions.11 the U.S. dollar depreciates after a positive professor at UC Berkeley — and enjoys hiking and (when there is may upset economic stability. Specifically, given the “Great Moderation” The key disadvantage of this approach is that government-spending shock, even though son. snow) skiing around California. Despite the potential importance of fis- that preceded the Great Recession, the recent one estimates a local rather than an aggre- the overwhelming majority of macroeco-

22 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 23 nomic models predict an appreciation. S. Rebelo, “When Is the Government “Government Spending Multipliers in We demonstrate that this puzzle evap- Spending Multiplier Large?” Journal Good Times and in Bad: Evidence from NBER News orates when one considers responses of Political Economy, 119(1), 2011, U.S. Historical Data,” NBER Working at a higher frequency: On average, on pp. 78–121; and M. Woodford, Paper No. 20719, November 2014. days when the DoD announces more “Simple Analytics of the Government Return to text spending, the U.S. dollar appreciates Expenditure Multiplier,” American 11 For example, see E. Nakamura and J. significantly. Thus, the standard mac- Economic Journal: Macroeconomics, Steinsson, “Fiscal Stimulus in a Monetary Fryer Receives John Bates Clark Medal roeconomic framework is suitable for 3(1), 2011, pp. 1–35. Union: Evidence from U.S. Regions,” analyses of the international effects of Return to text American Economic Review, 104(3), NBER Research Associate Roland to improve economic opportunities for Medal include Daniel McFadden, Martin fiscal shocks. 3 A. Auerbach and Y. Gorodnichenko, 2014, pp. 753–92, and G. Chodorow- G. Fryer, Jr. received the American disadvantaged children. It calls Fryer “the Feldstein, Joseph Stiglitz, James Heckman, During the Great Recession, coun- “Measuring the Output Responses to Reich, L. Feiveson, Z. Liscow, and W. Economic Association’s John Bates Clark leading economist working on the eco- Jerry Hausman, Sanford Grossman, Paul tries around the world adopted expan- Fiscal Policy,” American Economic Woolston, “Does State Fiscal Relief Medal for 2015. This annual award rec- nomics of race and education.” Krugman, Lawrence Summers, David sionary fiscal policies aimed at counter- Journal: Economic Policy, 4(2), 2012, During Recessions Increase Employment? ognizes the American economist under Fryer is the Henry Lee Professor of Card, Kevin Murphy, Andrei Shleifer, acting the large negative shocks to their pp. 1–27. Evidence from the American Recovery the age of 40 who has made the most Economics at Harvard University and Steven Levitt, Daron Acemoglu, Susan economies. These actions occurred in Return to text and Reinvestment Act.” American substantial contribution to economic a research associate in the NBER Labor Athey, Emmanuel Saez, Esther Duflo, spite of skepticism among many econo- 4 See the discussion in V. Ramey, Economic Journal: Economic Policy, 4 thought and knowledge. This year’s prize Studies and Education programs. He Jonathan Levin, Amy Finkelstein, Raj mists about the potential of fiscal policy “Identifying Government Spending (3), 2012, pp. 118–45 . citation highlights Fryer’s “innovative received his B.A. from the University Chetty, and Matthew Gentzkow. Other to stimulate economic activity. The results Shocks: It’s all in the Timing,” The Return to text and creative research contributions [that] of Texas at Arlington in 1998 and NBER associates who won the Clark of our and related work suggest that fiscal Quarterly Journal of Economics, 12 For example, we can differentiate have deepened our understanding of the his Ph.D. from the Pennsylvania State Medal are Franklin Fisher, now an emeri- policy activism may indeed be effective at 126(1), 2011, pp. 1–50. between i) a period of binding ZLB in sources, magnitude, and persistence of University in 2002. tus member of the Board of Directors, and stimulating output during a deep reces- Return to text a recession and ii) a period of binding U.S. racial inequality,” and his evalua- Other current NBER research the late research associates Gary Becker, sion, and that the potential negative side 5 A. Auerbach and Y. Gorodnichenko, ZLB in an expansion. For the United tions of various policies that are designed associates who have received the Clark Milton Friedman, and Zvi Griliches. effects of fiscal stimulus, such as increased “Fiscal Multipliers in Recession and States, we have enough daily observa- inflation, are also less likely in these cir- Expansion,” in A. Alesina and F. tions to precisely estimate responses of cumstances. These empirical results call Giavazzi, eds., Fiscal Policy after the macroeconomic variables to government into question the results from the new Financial Crisis, Chicago, Illinois: spending shocks during these regimes. Keynesian literature, which suggests that University of Chicago Press, 2013, pp. Return to text shocks to government spending, even 63–98. 13 A. Auerbach and Y. Gorodnichenko, when increasing output, will crowd out Return to text “Effects of Fiscal Shocks in a Globalized Conferences private economic activity. While there 6 Ò. Jordà, “Estimation and Inference World,” NBER Working Paper No. has been some recent progress provid- of Impulse Responses by Local 21100, April 2015. ing a rationale for large multipliers when Projections,” American Economic Return to text economies confront a binding zero lower Review, 95(1), 2005, pp. 161–82. 14 Another source of high-frequency bound on interest rates, our findings Return to text identification of government spend- Retirement & Health Benefits in the Public Sector apply to more general recessionary condi- 7 For example, see S. Hebous and T. ing shocks could be the stock market. tions, and thus present a challenge for the Zimmermann, “Estimating the Effects For example, Jonas Fisher and Ryan An NBER conference, “Retirement & Health Benefits in the Public Sector,” took place in Cambridge on April 10–11. Research development of new models that, like the of Coordinated Fiscal Actions in the Peters use quarterly stock price move- Associates Robert L. Clark of North Carolina State University and Joseph P. Newhouse of Harvard University organized the meet- simple traditional Keynesian model, can Euro Area,” CESIFO Working Paper ments of defense corporations to identify ing. These papers were discussed: encompass positive fiscal multipliers for No. 3912, August 2012. fiscal shocks. In principle, that can be • Jeffrey R. Brown, University of Illinois at Urbana-Champaign and NBER, and George Pennacchi, University of Illinois private activity. Return to text done at a daily frequency. See J. Fisher at Urbana-Champaign, “Discounting Pension Liabilities: Funding Versus Value” (NBER Working Paper No. 21276) 8 A. Auerbach and Y. Gorodnichenko, and R. Peters, “Using Stock Returns to “Output Spillovers from Fiscal Policy,” Identify Government Spending Shocks,” • Jeffrey Clemens, University of California, San Diego, and NBER, and David M. Cutler, Harvard University and NBER, 1 O. Blanchard and R. Perotti, American Economic Review, 103(3), Economic Journal,120(544), 2010, pp. “Impact of ACA on State and Local Health Plans” “An Empirical Characterization of 2013, pp. 141–6. 414–26. the Dynamic Effects of Changes in Return to text Return to text • Jeremy D. Goldhaber-Fiebert, David M. Studdert, and Monica S. Farid, Stanford University, and Jay Bhattacharya, Government Spending and Taxes on 9 A. Auerbach and Y. Gorodnichenko, 15 T. Monacelli and R. Perotti, “Fiscal Stanford University and NBER, “Will Divestment from Employment-Based Health Insurance Save Employers Money? Output,” Quarterly Journal of Economics, “Fiscal Multipliers in Japan,” NBER Policy, the Real Exchange Rate, and The Case of State and Local Governments” (NBER Working Paper No. 20222) 117(4), 2002, pp. 1329–68. Working Paper No. 19911, February 2014. Traded Goods,” Economic Journal, • Alan R. Weil, Project Hope, “State Health Plans and Their Impact on State Budgets” Return to text Return to text 120(544), 2010, pp. 437–61. 2 L. Christiano, M. Eichenbaum, and 10 V. Ramey and S. Zubairy, Return to text • Robert L. Clark and Emma Hanson, North Carolina State University; and Olivia S. Mitchell, University of Pennsylvania and NBER, “Lessons for Public Pensions from Utah’s Move to Pension Choice” • Alicia Munnell, Jean-Pierre Aubry, and Mark Cafarelli, Boston College, “COLA Cuts in State-Local Pensions”

24 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 25 • Robert L. Clark and Emma Hanson, Melinda S. Morrill, and Aditi Pathak, North Carolina State University, • Pascaline Dupas, Stanford University and NBER, and Edward Miguel, University of California, Berkeley, and NBER, “Supplemental Plan Offerings and Retirement Saving Choices: An Analysis of North Carolina School Districts” “Health, Health Care, and Health Behavior in Developing Countries” • Jeffrey R. Brown, and Richard Dye, University of Illinois at Chicago, “Illinois Pensions in a Fiscal Context: A (Basket) • Karthik Muralidharan, University of California, San Diego, and NBER, “Field Experiments in Education in Developing Case Study” (NBER Working Paper No. 21293) Countries” Summaries of these papers are at http://www.nber.org/confer/2015/RHBs15/summary.html • Roland G. Fryer, Jr., Harvard University and NBER, “Education in Developed Countries” • Alain de Janvry and Elisabeth Sadoulet, University of California, Berkeley, and Tavneet Suri, MIT and NBER, “Agriculture in Developing Economies” Economics of Culture and Institutions • Jesse Rothstein, University of California, Berkeley, and NBER, and Till M. von Wachter, University of California, Los Angeles, and NBER, “Social Experiments in the Labor Market” An NBER conference, “Economics of Culture and Institutions,” took place in Cambridge on April 11. Research Associate Alberto Bisin of New York University and Faculty Research Fellow Paola Giuliano of the University of California, Los Angeles, • Uri Gneezy, University of California, San Diego, and Alex Imas, Carnegie Mellon University, “Lab in the Field: Measuring organized the meeting. These papers were discussed: Preferences in the Wild” • Oded Galor, Brown University and NBER, and Ömer Özak, Southern Methodist University, “The Agricultural Origins • Elizabeth Levy Paluck and Eldar Shafir, Princeton University, “The Psychology of Construal in the Design of Field of Time Preference” (NBER Working Paper No. 20438) Experiments” • Daron Acemoglu, MIT and NBER, and Matthew Jackson, Stanford University, “Social Norms and the Enforcement of • Marianne Bertrand, University of Chicago and NBER, and Esther Duflo, “Field Experiments on Discrimination” Laws” (NBER Working Paper No. 20369) • Rema Hanna, Harvard University and NBER, and Dean Karlan, Yale University and NBER, “Designing Anti-Poverty • Daniel Chen, ETH Zürich, and Susan Yeh, George Mason University, “How Do Rights Revolutions Occur? Free Speech Programs: Experimental Lessons” and the First Amendment” • William Congdon, ideas42; Jeffrey R. Kling, Congressional Budget Office and NBER; Jens Ludwig, University of • Yihui Pan, University of Utah; Stephan Siegel, University of Washington; and Tracy Yue Wang, University of Minnesota, Chicago and NBER; and Sendhil Mullainathan, Harvard University and NBER, “Social Policy: Mechanism Experiments “The Cultural Origin of Preferences: CEO Cultural Heritage and Corporate Investment” and Policy Evaluations” • Eugenio Proto and Andis Sofianos, University of Warwick, and Aldo Rustichini, University of Minnesota, “Higher Summaries of these papers are at http://www.nber.org/confer/2015/FEs15/summary.html Intelligence Groups Have Higher Cooperation Rates in the Repeated Prisoner’s Dilemma” • Giovanni Mastrobuoni, University of Essex, and Daniele Terlizzese, Bank of Italy, “Rehabilitating Rehabilitation: Prison Conditions and Recidivism” Innovation Policy and the Economy • Jeffrey Butler, Einaudi Institute for Economics and Finance (Rome); Pierluigi Conzo, University of Turin; and Martin A. Leroch, University of Mainz, “Social Identity and Punishment” The NBER’s 16th annual Innovation Policy and the Economy conference took place in Washington on April 14. The conference was organized by Research Associates Scott Stern of MIT and Josh Lerner of Harvard University. These papers were discussed: Summaries of these papers are at http://www.nber.org/confer/2015/CIs15/summary.html • Karim Lakhani, Harvard University, and Kevin J. Boudreau, London Business School, “Innovation Field Experiments: Empirical Insights and Policy Implications from Organizing Innovation Contests” Economics of Field Experiments • Yael Hochberg, Rice University and NBER, “Accelerating Entrepreneurs and Ecosystems: The Seed Accelerator Model” • Ramana Nanda and Matthew Rhodes-Kropf, Harvard University and NBER, “Financing Entrepreneurial An NBER conference, “Economics of Field Experiments,” took place in Cambridge on April 10–11. Research Associates Experimentation” (NBER Working Paper No. 21278) Abhijit Banerjee and Esther Duflo of MIT organized the meeting. These papers were discussed: • Heidi L. Williams, MIT and NBER, “Intellectual Property Rights and Innovation: Evidence from Health Care Markets” • Judith Gueron, MDRC, “The Politics and Practice of Social Experiments: Seeds of a Revolution” (NBER Working Paper No. 21246) • Rachel Glennerster, MIT, “The Practicalities of Running Randomized Evaluations: Partnerships, Measurement, Ethics, • Fiona Scott Morton, Yale University and NBER, and Carl Shapiro, University of California, Berkeley, and NBER, and Transparency” “Patent Assertions: Are We Any Closer to the Aligning Reward to Contribution?” • Abhijit Banerjee; Sylvain Chassang, Princeton University; and Erik Snowberg, California Institute of Technology and Summaries of these papers are at http://www.nber.org/confer/2015/IPEs15/summary.html NBER, “Decision Theoretic Approaches to Experiment Design and External Validity” • Duncan Simester, MIT, “Field Experiments in Marketing” • Frederico Finan, University of California, Berkeley, and NBER; Benjamin A. Olken, MIT and NBER; Rohini Pande, Harvard University and NBER, “Government Workers in Developing Countries” • Alan S. Gerber, Yale University and NBER, and Donald Green, Columbia University, “Field Experiments on Voter Mobilization: An Overview of a Burgeoning Literature”

26 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 27 • Amitabh Chandra, Harvard University and NBER, and Jon Skinner, Dartmouth College and NBER, “Racial Disparities 30th Macroeconomics Annual Conference in Hospital Quality” The NBER’s 30th Annual Conference on Macroeconomics, organized by Research Associates Martin Eichenbaum of • Jay Bhattacharya and Thomas E. MaCurdy, Stanford University and NBER, “Challenges in Controlling Medicare Northwestern University and Jonathan Parker of MIT, took place in Cambridge on April 17–18. Theses papers were discussed: Spending: Treating Highly Complex Patients” • Nicola Gennaioli, Bocconi University; Yueran Ma, Harvard University; and Andrei Shleifer, Harvard University and • James Banks, University of Manchester; Richard Blundell, University College London; Zoë Oldfield, Institute for Fiscal NBER, “Expectations and Investment” (NBER Working Paper No. 21260) Studies (London); and James P. Smith, RAND Corporation, “House Price Volatility and the Housing Ladder” (NBER Working Paper No. 21255) • Chun Chang, Shanghai Jiao Tong University; Kaiji Chen, Emory University; Daniel F. Waggoner, Federal Reserve Bank of Atlanta; and Tao Zha, Emory University and NBER, “Trends and Cycles in China’s Macroeconomy” (NBER Working Summaries of these papers are at http://www.nber.org/confer/2015/AGs15/summary.html Paper No. 21244) • Hanming Fang, University of Pennsylvania and NBER; Quanlin Gu and Li-An Zhou, Peking University; and Wei Xiong, Princeton University and NBER, “Demystifying the Chinese Housing Boom” (NBER Working Paper No. 21112) Multiple Equilibria and Financial Crises • Daron Acemoglu, MIT and NBER; Ufuk Akcigit, University of Pennsylvania and NBER; and William Kerr, Harvard University and NBER, “Networks and the Macroeconomy: An Empirical Exploration” An NBER conference, supported by New York University, the Federal Reserve Bank of San Francisco, the Barry Family Trust, and the University of California, Los Angeles, titled “Multiple Equilibria and Financial Crises” took place in San Francisco on May • Regis Barnichon, CREI (Barcelona), and Andrew Figura, Federal Reserve Board, “Declining Desire to Work and 14–15. Research Associates Roger Farmer of University of California, Los Angeles, and Jess Benhabib of New York University orga- Downward Trends in Unemployment and Participation” (NBER Working Paper No. 21252) nized the meeting. These papers were discussed: • Cristina Arellano, Federal Reserve Bank of Minneapolis and NBER; Andrew Atkeson, University of California, Los • Romain Rancière, Paris School of Economics, and Aaron Tornell, University of California, Los Angeles, “Financial Angeles, and NBER; and Mark L. J. Wright, Federal Reserve Bank of Chicago and NBER, “External and Public Debt Liberalization, Debt Mismatch, Allocative Efficiency, and Growth” Crises” • Edouard Schaal, New York University, and Mathieu Taschereau-Dumouchel, University of Pennsylvania, “Coordinating Summaries of these papers are at http://www.nber.org/confer/2015/Macro15/summary.html and full texts of the papers and Business Cycles” video presentations are at http://www.nber.org/macroannualconference/macroannual_2015.html • Ricardo Lagos, New York University and NBER, and Shengxing Zhang, London School of Economics, “Monetary Exchange in Over-the-Counter Markets: A Theory of Speculative Bubbles, the Fed Model, and Self-Fulfilling Liquidity Crises” Conference on the Economics of Aging • Mikhail Golosov, Princeton University and NBER, and Guido Menzio, University of Pennsylvania and NBER, “Agency Business Cycle” The NBER’s “Conference on the Economics of Aging” took place in Carefree, Arizona on April 30 and May 1. Program Director David A. Wise of Harvard University organized the meeting. These papers were discussed: • Dmitry Plotnikov, International Monetary Fund, “Hysteresis in Unemployment and Jobless Recoveries” • James M. Poterba, MIT and NBER; Steven F. Venti, Dartmouth College and NBER; and David A. Wise, “Assets at End • Roger Farmer, “Global Sunspots and Asset Prices in a Monetary Economy” (NBER Working Paper No. 20831) of Life and When First Observed: Looking Backwards” • Assaf Patir, Hebrew University of Jerusalem, “Synchronization and Bias in a Simple Macroeconomic Model” • Michael Chernew and David M. Cutler, Harvard University and NBER; Kaushik Ghosh, NBER; and Mary Beth Landrum, Harvard University, “Understanding the Improvement in Disability Free Life Expectancy in the U.S. Elderly • Gianluca Benigno, London School of Economics, and Luca Fornaro, CREI (Barcelona), “Stagnation Traps” Population” • Guillaume Rocheteau, University of California, Irvine; Randall Wright, University of Wisconsin–Madison and NBER; • John Beshears, Harvard University and NBER; James J. Choi, Yale University and NBER; Joshua Hurwitz, NBER; and and Sylvia Xiaolin Xiao, University of Wisconsin–Madison, “Open Market Operations” David Laibson and Brigitte C. Madrian, Harvard University and NBER, “Liquidity in Retirement Savings Systems: An • Feng Dong, Shanghai Jiao Tong University; Pengfei Wang, Hong Kong University of Science and Technology; and Yi International Comparison” (NBER Working Paper No. 21168) Wen, Federal Reserve Bank of St. Louis, “Credit Search and Credit Cycles” • Philip Armour and Susann Rohwedder, RAND Corporation, and Michael D. Hurd, RAND Corporation and NBER, • Russell Cooper, Pennsylvania State University and NBER, and Kalin Nikolov, European Central Bank, “Government “Trends in Pension Cash-Out at Job Change and the Effects on Long-Term Outcomes” Debt and Banking Fragility: The Spreading of Strategic Uncertainty” (NBER Working Paper No. 19278) • Florian Heiss, University of Düsseldorf; Daniel L. McFadden, University of California, Berkeley, and NBER; Joachim • Guido Lorenzoni, Northwestern University and NBER, and Iván Werning, MIT and NBER, “Slow Moving Debt Crises” Winter and Amelie C. Wuppermann, University of Munich; and Yaoyao Zhu, University of Southern California, “Three (NBER Working Paper No. 19228) Measures of Disease Prevalence: The Good, the Bad, and the Ugly” Summaries of these papers are at http://www.nber.org/confer/2015/MEFCs15/summary.html • Anne Case and Angus Deaton, Princeton University and NBER, “Suicide, Age, and Wellbeing: an Empirical Investigation” (NBER Working Paper No. 21279) • Raquel Fonseca, Université du Québec à Montréal; Arie Kapteyn, University of Southern California and NBER; and Jinkook Lee and Gema Zamarro, University of Southern California, “Does Retirement Make You Happy? A Simultaneous Equations Approach”

28 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 29 The Economics of Commodity Markets Education • Eric A. Hanushek, Stanford University and NBER, “Minimal Skills, Knowledge Capital, and Economic Growth” The NBER held its annual Universities Research Conference in Cambridge on May 15–16. Research Associates Kenneth Singleton of Stanford University and Wei Xiong of Princeton University organized the meeting on the topic “The Economics of • Binzhen Wu and Xiaohan Zhong, Tsinghua University, “Mismatch in China’s College Admission” Commodity Markets.” These papers were discussed: Energy and the Environment • Harrison Hong, Princeton University and NBER; Áureo de Paula, University College London; and Vishal Singh, New • James B. Bushnell, University of California, Davis, and NBER, “Emission Uncertainty and Cap and Trade Market Design” York University, “Hoard Behavior and Commodity Bubbles” (NBER Working Paper No. 20974) • Mar Reguant, Stanford University and NBER, “Wind Uncertainty in Electricity Markets: Practical Challenges” • Sylvain Leduc, Federal Reserve Bank of San Francisco; Kevin Moran, Université Laval (Quebec City); and Robert Vigfusson, Federal Reserve Board, “A Decade of Learning: The Role of Beliefs in Oil Futures Markets During the 2000s” • Hua Wang, The World Bank, “Economic Cost of Environmental Pollution in China” • Itay Goldstein, University of Pennsylvania, and Liyan Yang, University of Toronto, “Commodity Financialization: Risk • Min Wang, CCER, and Jinhua Zhao, Michigan State University, “Are Renewable Energy Policies Climate Friendly? The Sharing and Price Discovery in Commodity Futures Markets” Role of Capacity Constraints and Market Power “ • Erik P. Gilje, University of Pennsylvania; Robert C. Ready, University of Rochester; and Nikolai Roussanov, University Industrial Organization and Regional Economics of Pennsylvania and NBER, “Fracking, Drilling, and Asset Pricing: Estimating the Economic Benefits of the Shale Revolution” • Joseph Gyourko, University of Pennsylvania and NBER, “Real Estate Market in China” • Rabah Arezki, International Monetary Fund; Valerie A. Ramey, University of California, San Diego, and NBER; • Hanming Fang, University of Pennsylvania and NBER; Quanlin Gu and Li-An Zhou, Peking University; and Wei Xiong, and Liugang Sheng, Chinese University of Hong Kong, “News Shocks in Open Economies: Evidence from Giant Oil Princeton University and NBER, “Demystifying the Chinese Housing Boom” (NBER Working Paper No. 21112) Discoveries” (NBER Working Paper No. 20857) • Xiaobo Zhang, CCER, “E-commerce Development in China” • Darien Huang, University of Pennsylvania, “Gold, Platinum, and Expected Stock Returns” International Finance • Akshaya Jha, Stanford University, and Frank A. Wolak, Stanford University and NBER, “Testing for Market Efficiency with Transactions Costs: An Application to Convergence Bidding in Wholesale Electricity Markets” • Michael B. Devereux, University of British Columbia and NBER, and Wei Dong and Ben Tomlin, Bank of Canada, “Exchange Rate Pass Through, Currency of Invoicing, and Market Share” • Thomas Covert, University of Chicago, “Experiential and Social Learning in Firms: The Case of Hydraulic Fracturing in the Bakken Shale” • Jianguo Xu, CCER, “Capital Account Liberalization and Economic Growth Revisited: Different Effects of Inflow and Outflow Liberalization” • Davidson Heath, University of Southern California, “Unspanned Macroeconomic Risks in Oil Futures” Labor Economics • Ke Tang, Tsinghua University, and Haoxiang Zhu, MIT and NBER, “Commodities as Collateral” • Wouter Dessein and Tano Santos, Columbia University, “Managerial Style and Attention” Summaries of these papers are at http://www.nber.org/confer/2015/URCs15/summary.html • Wei Huang, Harvard University; Xiaoyan Lei, CCER; and Ang Sun, Renmin University of China, “The Great Expectations: Impact of One-Child Policy on Education of Girls” The 17th Annual CCER-NBER-Tsinghua University • Gordon Liu, CCER, “Fertility Transition in China: Does the One-Child Policy Matter?” Conference on China and the World Economy • Kevin Milligan, University of British Columbia and NBER, “Work Capacity of Older Workers: Canada and the United States” The seventeenth annual CCER-NBER-Tsinghua University • Kathryn L. Shaw, Stanford University and NBER, “The Effectiveness of Human Resources Management Practices: Conference on China and the World Economy took place at Evidence from Insider Econometrics” the China Center for Economic Research (CCER)of Beijing University on June 16–19. The conference was jointly organized by • Till M. von Wachter, University of California, Los Angeles, and NBER, “U.S. and Chinese Trends in Employment and Shang-Jin Wei of Columbia University and the Asian Development Labor Force Participation” Bank (on leave from NBER), Yang Yao of CCER, and Chong-en • Dandan Zhang, CCER, “Stealing Your Way to My Heart: China’s One Child Policy, Marriage Markets, and Crime” Bai of Tsinghua University. These papers were discussed: Public Finance Development and Growth • James M. Poterba, MIT and NBER, “Drawdown Patterns in Tax-Favored Retirement Saving Accounts” • Jinfeng Luo and Yi Wen, Tsinghua University, “Institutions Do Not Rule: Reassessing the Driving Forces of Economic • Fan Zhang, CCER, “The Credit Risk of China’s Local Government Debt” Development” • Shang-Jin Wei, “Inferring the Unofficial Income of the Officials: With an Application to China”

30 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 31 Trade Program and Working Group Meetings • Meixin Guo and Lin Lu, Tsinghua University, “Trade Costs and Income Inequality in China” • Kalina Manova, Stanford University and NBER, “China’s International Trade: Finance, Quality and Global Value Chains” Productivity, Innovation, and Entrepreneurship • Miaojie Yu, CCER, “Distribution Outward FDI and Firm Heterogeneity: Evidence from Chinese Firms” The NBER’s Productivity, Innovation, and Entrepreneurship Program, co-directed by Nicholas Bloom of Stanford University and Josh Lerner of Harvard University, met in Cambridge on March 20. These papers were discussed: East Asian Seminar on Economics • David C. Chan, Jr., Stanford University and NBER, “The Efficiency of Slacking Off: Evidence from the Emergency Department” (NBER Working Paper No. 21002) The NBER, the Australian National University, the Peking University China Center for Economic Research, the Chung- • Ariel Dora Stern, Harvard University, “Innovation under Regulatory Uncertainty: Evidence from Medical Technology” Hua Institution for Economic Research (Taipei), the Hong Kong University of Science and Technology, the Korea Development Institute, the National University of Singapore, the Tokyo Center for Economic Research, and Tsinghua University jointly spon- • Lee G. Branstetter, Carnegie Mellon University and NBER; Chirantan Chatterjee, Indian Institute of Management sored the NBER’s 26th Annual East Asian Seminar on Economics. It took place in San Francisco on June 18–19. Research Bangalore; and Matthew Higgins, Georgia Institute of Technology and NBER, “Starving or Fattening the Golden Goose? Associates Takatoshi Ito of Columbia University and Andrew K. Rose of the University of California, Berkeley, organized the con- Generic Entry and the Incentives for Early-Stage Pharmaceutical Innovation” (NBER Working Paper No. 20532) ference, which focused on “Financial Stability.” These papers were discussed: • Prithwiraj Choudhury and Tarun Khanna, Harvard University, “Ex-Ante Information Provision and Innovation: Natural • Òscar Jordà, Federal Reserve Bank of San Francisco; Moritz Schularick, University of Bonn; and Alan M. Taylor, Experiment of Herbal Patent Prior Art Adoption at the USPTO and EPO” University of California, Davis, and NBER, “Leveraged Bubbles” • Paul Gompers, Harvard University and NBER; Steven N. Kaplan, University of Chicago and NBER; and Vladimir • Sumit Agarwal, Jessica Pan, and Wenlan Qian, National University of Singapore, “Age of Decision: Pension Savings Mukharlyamov, Harvard University, “What Do Private Equity Firms Say They Do?” (NBER Working Paper No. 21133) Withdrawal and Consumption and Debt Response” • Benjamin Pugsley and Ayşegül Şahin, Federal Reserve Bank of New York, “Grown-Up Business Cycles” • Douglas W. Diamond and Anil K. Kashyap, University of Chicago and NBER, “Liquidity Requirements, Liquidity • Antoine Dechezleprêtre and Ralf Martin, London School of Economics, and Myra Mohnen, University College London, Choice, and Financial Stability” “Knowledge Spillovers from Clean and Dirty Technologies” • Frederic Lambert and Kenichi Ueda, International Monetary Fund, “The Effects of Unconventional Monetary Policies on Bank Soundness” Summaries of these papers are at http://www.nber.org/confer/2015/PRs15/summary.html • Woon Gyu Choi, Bank of Korea, and David Cook, Hong Kong University of Science and Technology, “Policy Conflicts and Inflation Targeting: The Role of Credit Markets” International Trade and Investment • Hao Wang and Hao Zhou, Tsinghua University; Honglin Wang, Hong Kong Institute for Monetary Research; and Lisheng Wang, Chinese University of Hong Kong, “Shadow Banking: China’s Dual-Track Interest Rate Liberalization” The NBER’s Program on International Trade and Investment, directed by Robert Feenstra of the University of California, Davis, met in Cambridge on March 20-21. These papers were discussed: • John D. Burger, Loyola University Maryland; Rajeswari Sengupta, Indira Gandhi Institute of Development Research (Mumbai); Francis E. Warnock, University of Virginia and NBER; and Veronica Cacdac Warnock, University of • Michael Dickstein, Stanford University and NBER, and Eduardo Morales, Princeton University and NBER, “What do Virginia, “U.S. Investment in Global Bonds: As the Fed Pushes, Some EMEs Pull” (NBER Working Paper No. 20571) Exporters Know?” • Jens Christensen, Jose Lopez, and Glenn Rudebusch, Federal Reserve Bank of San Francisco, “A Probability-Based Stress • William Lincoln, Johns Hopkins University, and Andrew McCallum, Federal Reserve Board, “The Rise of Exporting By Test of Federal Reserve Assets and Income” U.S. Firms” • Tim Robinson, University of Melbourne, and Fang Yao, Reserve Bank of New Zealand, “Loan-to-Value Ratio Policy and • Thibault Fally, University of California, Berkeley, and Russell Hillberry, The World Bank, “A Coasian Model of Business Cycles” International Production Chains” • Andrés Fernández, Inter-American Development Bank; Alessandro Rebucci, Johns Hopkins University; and Martín • Emily Blanchard, Dartmouth College, and William Olney, Williams College, “Globalization and Human Capital Uribe, Columbia University and NBER, “Are Capital Controls Countercyclical?” Investment: How Export Composition Drives Educational Attainment” • Jiseob Kim, Korea Development Institute, “How Loan Modifications Influence the Prevalence of Mortgage Defaults” • Ryan Monarch, Federal Reserve Board, “It’s Not You, It’s Me: Breakups in U.S.-China Trade Relationships” • Chung-Hua Shen, National Taiwan University; Hao Fang, Hwa Hsia University of Technology (New Taipei City); and • Illenin Kondo, Federal Reserve Board, “Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S.” Yen-Hsien Lee, Chung Yuan Christian University (Taoyuan City), “How Early of the Early Warning Signal in Banking • Emily Blanchard; Chad Bown, The World Bank; and Robert Johnson, Dartmouth College and NBER, “Global Supply Crisis? The Three Booms, Credit, Housing, and Capital, Cases” Chains and Trade Policy” Summaries of these papers are at http://www.nber.org/confer/2015/EASE15/summary.htm • Delina Agnosteva and Yoto Yotov, Drexel University, and James Anderson, Boston College and NBER, “Intra-National Trade Costs: Assaying Regional Frictions” Summaries of these papers are at http://www.nber.org/confer/2015/ITIs15/summary.html

32 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 33 Environmental and Energy Economics • Benjamin Hébert and Jesse Schreger, Harvard University, “The Costs of Sovereign Default: Evidence from Argentina” • Rosen Valchev, Duke University, “Exchange Rates and UIP Violations at Short and Long Horizons” The NBER’s Program on Environmental and Energy Economics met in Cambridge on March 26–27. Program Director Don Fullerton of the University of Illinois at Urbana-Champaign and Research Associate Matthew E. Kahn of the University of • Shaghil Ahmed, Stephanie E. Curcuru, and Andrei Zlate, Federal Reserve Board, and Francis E. Warnock, University California, Los Angeles, organized the meeting. These papers were discussed: of Virginia and NBER, “The Two Components of International Capital Flows” • Ann Ferris, Ronald Shadbegian, and Ann Wolverton, Environmental Protection Agency, and Wayne B. Gray, Clark Summaries of these papers may be found at: http://www.nber.org/confer/2015/IFMs15/summary.html University and NBER, “Do Renewable Portfolio Standards Affect Manufacturing Activity Through Higher Electricity Prices?” • Lucas W. Davis, University of California, Berkeley, and NBER, and Gilbert E. Metcalf, Tufts University and NBER, Public Economics “Does Better Information Lead to Better Choices? Evidence from Energy-Efficiency Labels” (NBER Working Paper No. 20720) The NBER’s Program on Public Economics met in Cambridge on April 9–10. Program Co-director Raj Chetty of Harvard • Garth Heutel, Georgia State University and NBER; Juan Moreno-Cruz, Georgia Institute of Technology; and Soheil University and Research Associate John N. Friedman of Brown University organized the meeting. These papers were discussed: Shayegh , Carnegie Institution of Washington, “Solar Geoengineering, Uncertainty, and the Social Cost of Carbon” Behavioral Responses to Taxation: Research Using Administrative Tax Data • Stephen P. Holland, University of North Carolina at Greensboro and NBER; Erin T. Mansur, Dartmouth College and • George Bulman, University of California, Santa Cruz, and Caroline M. Hoxby, Stanford University and NBER, “The NBER; Nicholas Muller, Middlebury College and NBER; and Andrew Yates, University of North Carolina at Chapel Returns to the Federal Tax Credits for Higher Education” (NBER Working Paper No. 20833) Hill, “Measuring the Spatial Heterogeneity in Environmental Externalities from Driving: A Comparison of Gasoline and Electric Vehicles” • Patricia Tong, Department of the Treasury, and Li Zhou, University of Alberta, “The Impact of Place-Based Employment Tax Credits on Local Labor: Evidence from Tax Data” • Klaus Desmet, Southern Methodist University; Dávid Krisztián Nagy, Princeton University; and Esteban Rossi- Hansberg, Princeton University and NBER, “The Geography of Development: Evaluating Migration Restrictions and • Michael P. Devereux and Li Liu, University of Oxford, “Incorporation for Investment” Coastal Flooding” (NBER Working Paper No. 21087) • David Joulfaian, Department of the Treasury; James M. Poterba, MIT and NBER; and Robert Gordon, Twenty-First • Marco Gonzalez-Navarro, University of Toronto, and Matthew Turner, Brown University, “Subways and Urban Growth: Securities Corporation, “Choosing Between the Estate Tax and Basis Carryover Regime of 2010” Evidence from Earth” • Jason M. DeBacker, Middle Tennessee State University; Bradley Heim and Anh Tran, Indiana University; and Alexander • Christopher Timmins, Duke University and NBER, and Ashley Vissing, Duke University, “Valuing Leases for Shale Gas Yuskavage, Department of the Treasury, “Once Bitten, Twice Shy? The Lasting Impact of IRS Audits on Individual Tax Development” Reporting” • Christiane Baumeister, Bank of Canada, and Lutz Kilian, University of Michigan, “A General Approach to Recovering • Julie Berry Cullen, University of California, San Diego, and NBER; Nicholas Turner, Department of the Treasury; and Market Expectations from Futures Prices with an Application to Crude Oil” Ebonya L. Washington, Yale University and NBER, “Political Alignment and Tax Evasion” • Mark R. Jacobsen, University of California, San Diego, and NBER; Christopher R. Knittel, MIT and NBER; James • Tatyana Deryugina, University of Illinois at Urbana-Champaign; Laura Kawano, Department of the Treasury; and M. Sallee, University of Chicago and NBER; and Arthur van Benthem, University of Pennsylvania and NBER, “The Steven D. Levitt, University of Chicago and NBER, “The Economic Impact of Hurricane Katrina on its Victims: Evidence Implications of Heterogeneity for the Regulation of Energy-Consuming Durable Goods” from Individual Tax Returns” (NBER Working Paper No. 20713) • Kirk B. Doran, University of Notre Dame; Alexander M. Gelber, University of California, Berkeley, and NBER; and Summaries of these papers may be found at: http://www.nber.org/confer/2015/EEEs15/summary.html Adam Isen, Department of the Treasury, “The Effects of High-Skilled Immigration on Firms: Evidence from H-1B Visa Lotteries” (NBER Working Paper No. 20668) International Finance and Macroeconomics Public Economics Spring Program Meeting

The NBER’s Program on International Finance and Macroeconomics met in Cambridge on March 27. Research Associates Gita • Michael Geruso, University of Texas at Austin and NBER, and Timothy J. Layton, Harvard University, “Upcoding or Gopinath and Laura Alfaro of Harvard University organized the meeting. These papers were discussed: Selection? Evidence from Medicare on Squishy Risk Adjustment” (NBER Working Paper No. 21222) • Emmanuel Farhi, Harvard University and NBER, and Jean Tirole, Toulouse School of Economics, “Deadly Embrace: • Jonas Kolsrud, Uppsala University; Camille Landais and Johannes Spinnewijn, London School of Economics; and Peter Sovereign and Financial Balance Sheets Doom Loops” Nilsson, Stockholm University, “The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden” • Raquel Fernández, New York University and NBER, and Alberto Martin, CREI (Barcelona), “The Long and the Short • John Beshears, David Laibson, and Brigitte C. Madrian, Harvard University and NBER, and James J. Choi, Yale of It: Sovereign Debt Crises and Debt Maturity” (NBER Working Paper No. 20786) University and NBER, “Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions” (NBER Working Paper No. 20738) • Liliana Varela, University of Houston, “Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode” • François Gerard, Columbia University, and Francisco J. M. Costa, Getúlio Vargas Foundation (Rio de Janeiro), “Hysteresis and the Social Cost of Corrective Policies: Evidence from a Temporary Energy Saving Program” • David Atkin, University of California, Los Angeles, and NBER; Benjamin Faber, University of California, Berkeley, and NBER; and Marco Gonzalez-Navarro, University of Toronto, “Retail Globalization and Household Welfare: Evidence • Patrick M. Kline and Christopher R. Walters, University of California, Berkeley, and NBER, “Evaluating Public from Mexico” (NBER Working Paper No. 21176) Programs with Close Substitutes: The Case of Head Start” 34 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 35 • Justine S. Hastings, Brown University and NBER; Christopher A. Neilson, New York University; and Seth D. • Daron Acemoglu, MIT and NBER; Georgy Egorov, Northwestern University and NBER; and Konstantin Sonin, Zimmerman, University of Chicago, “The Effects of Earnings Disclosure on College Enrollment Decisions” National Research University Higher School of Economics (Moscow), “Social Mobility and Stability of Democracy: Re-Evaluating de Tocqueville” Summaries of these papers are at http://www.nber.org/confer/2015/PEs15/summary.html Summaries of these papers are at http://www.nber.org/confer/2015/POLs15/summary.html Corporate Finance

The NBER’s Program on Corporate Finance met at the University of Chicago on April 10. Research Associates Thomas Chinese Economy Philippon and Jeffrey Wurgler of New York University organized the meeting. These papers were discussed: The NBER’s Working Group on the Chinese Economy met in Cambridge on April 10–11. Working Group Director Shang- • Erik P. Gilje, University of Pennsylvania, “Do Firms Engage in Risk-Shifting? Empirical Evidence” Jin Wei of Columbia University and Research Associate Hanming Fang of the University of Pennsylvania organized the conference. These papers were discussed: • Xavier Giroud, MIT and NBER, and Holger Mueller, New York University and NBER, “Firm Leverage and Unemployment during the Great Recession” (NBER Working Paper No. 21076) • Xiaoxue Zhao, Duke University, “To Reallocate or Not? Optimal Land Institutions under Communal Tenure: Evidence from China” • Manuel Adelino, Duke University; Antoinette Schoar, MIT and NBER; and Felipe Severino, Dartmouth College, “Changes in Buyer Composition and the Expansion of Credit during the Boom” (NBER Working Paper No. 20848) • Teng Li, Haoming Liu, and Alberto Salvo, National University of Singapore, “Severe Air Pollution and Labor Productivity” • Atif Mian, Princeton University and NBER, and Amir Sufi, University of Chicago and NBER, “Fraudulent Income Overstatement on Mortgage Applications during the Credit Expansion of 2002 to 2005” (NBER Working Paper No. • Nancy Qian, Yale University and NBER, and Jaya Wen, Yale University, “The Impact of Xi Jinping’s Anti-Corruption 20947) Campaign on Luxury Imports in China” • Claire Célérier, University of Zurich, and Boris Vallée, Harvard University, “Returns to Talent and the Finance Wage • Brent Ambrose, Pennsylvania State University; Yongheng Deng, National University of Singapore; and Jing Wu, Premium” Tsinghua University, “Understanding the Risk of China’s Local Government Debts and Its Linkage with Property Markets” • Harrison Hong, Princeton University and NBER, and Inessa Liskovich, Princeton University, “Crime, Punishment and • Carlos Garriga, Federal Reserve Bank of St. Louis; Yang Tang, Nanyang Technological University (Singapore); and Ping the Halo Effect of Corporate Social Responsibility” Wang, Washington University in St. Louis and NBER, “Rural-Urban Migration, Structural Transformation, and Housing Markets in China” • José Azar and Isabel K. Tecu, Charles River Associates, and Martin C. Schmalz, University of Michigan, “Anti- Competitive Effects of Common Ownership” • Nathaniel Baum-Snow, Brown University and NBER; Loren Brandt, University of Toronto; J. Vernon Henderson, London School of Economics; Matthew Turner, Brown University; and Qinghua Zhang, Peking University, “Transport • Craig Doidge and Alexander Dyck, University of Toronto; Hamed Mahmudi, University of Oklahoma; and Aazam Infrastructure, Urban Growth, and Market Access in China” Virani, University of Arizona, “Can Institutional Investors Improve Corporate Governance Through Collective Action?” • Donghua Chen, Nanjing University; Dequan Jiang, Wuhan University; Alexander Ljungqvist, New York University and Summaries of these papers are at http://www.nber.org/confer/2015/CFs15/summary.html NBER; Haitian Lu, Hong Kong Polytechnic University; and Mingming Zhou, University of Colorado Colorado Springs, “State Capitalism vs. Private Enterprise” (NBER Working Paper No. 20930) • Ke Tang, Tsinghua University, and Haoxiang Zhu, MIT and NBER, “Commodities as Collateral” Political Economy • Hanwei Huang, London School of Economics; Jiandong Ju, Shanghai University of Finance and Economics; and Vivian Z. Yue, Emory University, “A Unified Model of Structural Adjustments and International Trade: Theory and Evidence The NBER’s Program on Political Economy met in Cambridge on April 10. Program Director Alberto Alesina of Harvard from China” University organized the meeting. These papers were discussed: • Ying Bai, Hong Kong University of Science and Technology, and Ruixue Jia, University of California, San Diego, “Elite • Sergei Guriev, Sciences Po (Paris), and Daniel Treisman, University of California, Los Angeles, and NBER, “How Recruitment and Political Stability: The Impact of the Abolition of China’s Civil Service Exam” Modern Dictators Survive: Co-optation, Censorship, Propaganda, and Repression” (NBER Working Paper No. 21136) Summaries of these papers may be found at: http://www.nber.org/confer/2015/CEs15/summary.html • Andrea Prat, Columbia University, “Media Power” • Brian G. Knight, Brown University and NBER, “An Econometric Evaluation of Competing Explanations for the Midterm Gap” (NBER Working Paper No. 20311) Asset Pricing • Thomas Dohmen, Benjamin Enke, and Armin Falk, University of Bonn; David Huffman, University of Oxford; and Uwe Sunde, University of Munich, “Patience and the Wealth of Nations” The NBER’s Program on Asset Pricing met at the University of Chicago on April 10. Research Associates Nikolai Roussanov and Jules H. van Binsbergen of the University of Pennsylvania organized the meeting. These papers were discussed: • Leonardo Bursztyn, University of California, Los Angeles, and NBER; Michael J. Callen, Harvard University; Bruno Ferman, Getúlio Vargas Foundation (Rio de Janeiro); Ali Hasanain, Lahore University of Management Sciences; and • William Fuchs and Brett Green, University of California, Berkeley, and Dimitris Papanikolaou, Northwestern University Noam Yuchtman, University of California, Berkeley, and NBER, “Identifying Ideology: Experimental Evidence on Anti- and NBER, “Adverse Selection, Slow Moving Capital, and Misallocation” Americanism in Pakistan”

36 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 37 • Nicolae B. Gârleanu, University of California, Berkeley, and NBER; Stavros Panageas, University of Chicago and • Elaine M. Liu, University of Houston and NBER; Jin-Tan Liu, National Taiwan University and NBER; and Hazel Tseng, NBER; and Jianfeng Yu, University of Minnesota, “Impediments to Financial Trade: Theory and Measurement” University of Houston, “The Impact of a Natural Disaster on the Incidence of Fetal Losses and Pregnancy Outcomes” • Andrea Buffa, Boston University; Dimitri Vayanos, London School of Economics and NBER; and Paul Woolley, • Mark L. Egan, University of Chicago, and Tomas Philipson, University of Chicago and NBER, “Non-Adherence and London School of Economics, “Asset Management Contracts and Equilibrium Prices” (NBER Working Paper No. 20480) Personalized Medicine: A Positive and Normative Analysis” • Martin Lettau, University of California, Berkeley, and NBER; Sydney C. Ludvigson, New York University and NBER; • D. Mark Anderson, Montana State University; Benjamin Crost, University of Illinois at Urbana-Champaign; and Daniel and Sai Ma, New York University, “Capital Share Risk and Shareholder Heterogeneity in U.S. Stock Pricing” (NBER I. Rees, University of Colorado Denver, “Wet Laws, Drinking Establishments, and Crime” Working Paper No. 20744) • Chad D. Cotti, University of Wisconsin–Oshkosh; Erik Nesson, Ball State University; and Nathan Tefft, Bates College, • Peter Feldhütter and Stephen Schaefer, London Business School, “The Credit Spread Puzzle in the Merton Model — Myth “The Effects of Tobacco Control Policies on Tobacco Products, Tar, and Nicotine Consumption: Evidence from Household or Reality?” Panel Data” • Anna Cieslak, Northwestern University, and Adair Morse and Annette Vissing-Jorgensen, University of California, Berkeley, and NBER, “Stock Returns over the FOMC Cycle” Summaries of these papers are at http://www.nber.org/confer/2015/HEs15/summary.html

Summaries of these papers are at http://www.nber.org/confer/2015/APs15/summary.html Cohort Studies

Behavioral Finance The NBER’s Working Group on Cohort Studies met in Cambridge on April 17–18. Working Group Director Dora Costa of the University of California, Los Angeles, and Research Associate Robert Pollak of Washington University in St. Louis organized The Behavioral Economics Working Group held a meeting on Behavioral Finance at the University of Chicago on April 11. the meeting. These papers were discussed: Research Associate James J. Choi of Yale University and Faculty Research Fellow Kelly Shue of the University of Chicago organized the meeting. These papers were discussed: • Alissa Goodman, Heather Joshi, Bilal Nasim, and Claire Tyler, University College London, “Social and Emotional Skills in Childhood and Their Long-Term Effects on Adult Life” • Cary Frydman, University of Southern California, “What Drives Peer Effects in Financial Decision-Making? Neural and Behavioral Evidence” • Gabriella Conti, University College London, “Explaining the Relationship between Early Life Factors and Later Outcomes: Behavioral and Biological Pathways” • Hong Ru, MIT, and Antoinette Schoar, MIT and NBER, “Do Credit Card Companies Screen for Behavioral Biases?” • Eric Schneider, University of Sussex, “Fetal Health Stagnation: Have Health Conditions in Utero Improved in the U.S. • Joshua Madsen, University of Minnesota, and Marina Niessner, Yale University, “Is Investor Attention for Sale? The Role and Western and Northern Europe over the Past 150 Years?” of Advertising in Financial Markets” • Aryeh Stein, Emory University, “Child Growth and Human Capital: Data from COHORTS” • Erik Eyster, London School of Economics; Matthew Rabin, University of California, Berkeley; and Dimitri Vayanos, London School of Economics and NBER, “Financial Markets where Traders Neglect the Informational Content of Prices” • Daniel W. Belsky, Avshalom Caspi, Renate Houts, Harvey J. Cohen, David Corcoran, HonaLee Harrington, Jon (NBER Working Paper No. 21224) Schaefer, Karen Sugden, Benjamin Williams, Anatoli I. Yashin, and Terrie Moffitt, Duke University; Andrea Danese, King’s College London; Salomon Israel, Hebrew University of Jerusalem; M. E. Levine, University of California, Los • Dong Lou and Christopher Polk, London School of Economics, and Spyros Skouras, Athens University of Economics Angeles; and Richie Poulton, University of Otago, “Quantification of Biological Aging in Young Adults” and Business, “A Tug of War: Overnight Versus Intraday Expected Returns” • Dave Donaldson, Stanford University and NBER, and Daniel Keniston, Yale University and NBER, “How Positive Was • Olivier Dessaint, University of Toronto, and Adrien Matray, HEC Paris, “Do Managers Overreact to Salient Risks? the Positive Check? Investment and Fertility in the Aftermath of the 1918 Influenza in India” Evidence from Hurricane Strikes” • Chulhee Lee and Esther Lee, Seoul National University, “Son Preference, Sex-Selective Abortion, and Parental Investment Summaries of these papers are at http://www.nber.org/confer/2015/BEs15/summary.html in Girls in Korea: Evidence from the Year of the White Horse” • Joanna Lahey, Texas A&M University and NBER, and Douglas Oxley, University of Wyoming, “Discrimination at the Intersection of Age, Race, and Gender: Evidence from a Lab-in-the-Field Experiment” Health Economics • Avron Spiro, Boston University, “Long-Term Psychological Outcomes of Military Experience” The NBER’s Program on Health Economics met in Cambridge on April 17. Program Director Michael Grossman ofthe • Hans Henrik Sievertsen and Miriam Wüst, Danish National Centre for Social Research, “Discharge on the Day of Birth, Graduate Center of the City University of New York and Research Associate Theodore Joyce of Baruch College organized the meet- Parental Response, and Health and Schooling Outcomes” ing. These papers were discussed: • Adam Isen, Department of the Treasury; Maya Rossin-Slater, University of California, Santa Barbara; and Reed Walker, • Philip DeCicca, McMaster University and NBER, and Harry Krashinsky, University of Toronto, “Does Education University of California, Berkeley, and NBER, “Heat and Long-Run Human Capital Formation” Reduce Teen Fertility? Evidence from Compulsory Schooling Laws” • Achyuta Adhvaryu, University of Michigan; Steven A. Bednar, Elon University; Teresa Molina and Anant Nyshadham, • Thomas Goldring, Carnegie Mellon University; Fabian Lange, McGill University; and Seth Richards-Shubik, Carnegie University of Southern California; and Quynh T. Nguyen, The World Bank, “Salt Iodization and the Enfranchisement of Mellon University and NBER, “Testing for Changes in the SES-Mortality Gradient when the Distribution of Education the American Worker” Changes Too” (NBER Working Paper No. 20993)

38 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 39 • Govert Bijwaard, Netherlands Interdisciplinary Demographic Institute, and L.H. Lumey, Columbia University, “Effects • Sarah R. Cohodes, Harvard University, “The Long-Run Impacts of Tracking High-Achieving Students: Evidence from of Prenatal Famine on Conscript Heights at Age 18” Boston’s Advanced Work Class” • Jesse Anttila-Hughes, University of San Francisco, and Thomas Dreesen, Abdul Latif Jameel Poverty Action Lab, • Hugh Macartney, Duke University and NBER; Robert McMillan, University of Toronto and NBER; and Uros “Heterogeneous Long-Term Human Capital Impacts of Climate Variability in Rural and Urban Bangladesh” Petronijevic, University of Toronto, “Incentive Design in Education: An Empirical Analysis” • Sarah Miller, University of Michigan, and Laura R. Wherry, University of California, Los Angeles, “The Long-Term • Nicola Bianchi, Stanford University, “The General Equilibrium Effects of Educational Expansion” Health Effects of Early Life Medicaid Coverage” • Cassandra Hart, Elizabeth Friedmann, and Michael Hill, University of California, Davis, “Online Course-Taking and • Amanda E. Kowalski, Yale University and NBER, “What Do Longitudinal Data on Millions of Hospital Visits Tell us Student Outcomes in California Community Colleges” about the Value of Public Health Insurance as a Safety Net for the Young and Privately Insured?” (NBER Working Paper No. 20887) • Markus Nagler, University of Munich; Marc Piopiunik, Ifo Institute for Economic Research (Munich); and Martin R. West, Harvard University and NBER, “Weak Markets, Strong Teachers: Recession at Career Start and Teacher Summaries of these papers are at http://www.nber.org/confer/2015/CSs15/summary.html Effectiveness”

Summaries of these papers are at http://www.nber.org/confer/2015/CHEDs15/summary.html Organizational Economics The NBER’s Working Group on Organizational Economics met in Cambridge on April 24–25. Working Group Director Children Robert Gibbons of MIT organized the meeting. These papers were discussed: • David C. Chan, Jr., Stanford University and NBER, “Tacit Learning and Influence behind Practice Variation: Evidence The NBER’s Program on Children met in Cambridge on May 1. Program Director Janet Currie of Princeton University orga- from Physicians in Training” nized the meeting. These papers were discussed: • Maija Halonen-Akatwijuka, University of Bristol, and Oliver D. Hart, Harvard University and NBER, “Short-Term, • Raj Chetty, Nathaniel Hendren, and Lawrence Katz, Harvard University and NBER, “The Effects of Exposure to Better Long-Term, and Continuing Contracts” (NBER Working Paper No. 21005) Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment” (NBER Working Paper No. 21156) • Casey Ichniowski, Columbia University (deceased), Anne Preston, Haverford College, “Do Star Performers Produce More Stars? Peer Effects and Learning in Elite Teams” (NBER Working Paper No. 20478) • Seema Jayachandran, Northwestern University and NBER, and Rohini Pande, Harvard University and NBER, “Why Are Indian Children So Short?” (NBER Working Paper No. 21036) • Robert Akerlof, University of Warwick, and Richard Holden, University of New South Wales, “Movers and Shakers” • Randall Akee, University of California, Los Angeles, and Emilia Simeonova, Johns Hopkins University and NBER, • Rebecca Henderson, Harvard University and NBER, and Hazhir Rahmandad and Nelson P. Repenning, MIT, “Making “How Does Household Income Affect Child Personality Traits and Behaviors?” the Numbers? ‘Short Termism’ & the Puzzle of Only Occasional Disaster” (NBER Working Paper No. 16367) • Krzysztof Karbownik and Anthony Wray, Northwestern University, “Childhood Health and Long-Run Economic • Alexander Peysakhovich, Harvard University, and David Rand, Yale University, “Habits of Virtue: Creating Norms of Opportunity in Victorian England” Cooperation and Defection in the Laboratory” • Tom Vogl, Princeton University and NBER, “Intergenerational Dynamics and the Fertility Transition” • Steven Grenadier, Stanford University; Andrey Malenko, MIT; and Nadya Malenko, Boston College, “Timing Decisions in Organizations: Communication and Authority in a Dynamic Environment” • Kasey Buckles and Daniel M. Hungerman, University of Notre Dame and NBER, “The Incidental Fertility Effects of School Condom Distribution Programs” • Birger Wernerfelt, MIT, “The Size of Markets and the Scope of Firms” Summaries of these papers are at http://www.nber.org/confer/2015/CHEDs15/summary1.html • Mitchell Hoffman, University of Toronto; Lisa Kahn, Yale University and NBER; and Danielle Li, Harvard University, “Discretion in Hiring” • Luis Garicano, London School of Economics, and Luis Rayo, University of Utah, “Why Organizations Fail: Models and Cases” Summaries of these papers are at http://www.nber.org/confer/2015/OEs15/summary.html

Education Program

The NBER’s Program on Education met in Cambridge on April 30. Program Director Caroline M. Hoxby of Stanford University organized the meeting. These papers were discussed: • Judith Scott-Clayton, Columbia University and NBER, and Lauren Schudde, Columbia University, “Performance Standards in Need-Based Student Aid”

40 NBER Reporter • 2015 Number 2 NBER Reporter • 2015 Number 2 41 Bureau Books NBER Macroeconomics Annual 2014

For information on ordering and electronic distribution of the first three books, see http://www.press.uchicago.edu/books/ orders.html, or to place an order for the first three books, you may also contact the University of Chicago Press at Edited by Jonathan Parker and Michael Woodford Telephone: 1-800-621-2736 $90.00 Email: [email protected] ISBN: 978-0-226-26873-6 The twenty-ninth edition of the NBER Recession. Another pair of papers tackles Macroeconomics Annual continues its tradi- the role of information in business cycles. Improving the Measurement of tion of featuring theoretical and empirical Other contributions address how assump- research on central issues in contemporary tions about sluggish nominal price adjust- Consumer Expenditures macroeconomics. Two papers in this year’s ment affect the consequences of various issue deal with recent economic perfor- monetary policy rules and the role of busi- Edited by Christopher D. Carroll, Thomas F. Crossley, and John Sabelhaus mance: one analyzes the evolution of aggre- ness cycles in the long-run decline in the Studies in Income and Wealth, volume 74 gate productivity before, during, and after workforce share of middle-wage jobs. The $130.00 the Great Recession, and the other charac- final chapter discusses the advantages and terizes the factors that have contributed to disadvantages of the elimination of physi- Robust and reliable measures of con- native approaches might present. slow economic growth following the Great cal currency. sumer expenditures are essential for ana- Improving the Measurement of lyzing aggregate economic activity and for Consumer Expenditures begins with a com- measuring differences in household cir- prehensive review of current methodologies cumstances. Many countries, including the for collecting consumer expenditure data. United States, are embarking on ambitious Subsequent chapters highlight the range of The Color Factor: The Economics projects to redesign surveys of consumer objectives that expenditure surveys may sat- spending, with the goal of better capturing isfy, compare the data available from con- of African-American Well-Being in economic heterogeneity. This is an appro- sumer expenditure surveys with that avail- the Nineteenth-Century South priate time to examine the way consumer able from other sources, and describe how Long-term Factors in Economic Development series expenditures are currently measured, and current survey practices in the United States the challenges and opportunities that alter- compare with those in other nations. Howard Bodenhorn $39.95

This book is available from Oxford University Press: 1-800-445-9714 (phone) Innovation Policy and the Economy, Volume 15 1-919-677-1303 (fax) [email protected]

Edited by William R. Kerr, Josh Lerner, and Scott Stern Despite the many advances that the gle with race, racial integration, and race $60.00 United States has made in racial equal- mixing — a problem that has plagued the ISBN: 978-0-226-26842-2 ity over the past half century, numerous United States from its earliest days. events within the past several years have In The Color Factor: The Economics The 15th volume of Innovation Policy ers the changing nature of postdoctoral proven prejudice to be alive and well in of African-American Well-Being in the and the Economy is the first to focus on a sin- positions in science departments, which modern-day America. In one such example, Nineteenth-Century South economist gle theme: high-skilled immigration to the are disproportionately held by immigrant Governor Nikki Haley of South Carolina Howard Bodenhorn presents the first The Color Factor concludes United States. The first paper is the product researchers. The fourth considers the role of dismissed one of her principal advisors in full-length study of the ways in which that we will not really under- of a long-term research effort on the impact U.S. firms in high-skilled immigration. The 2013 when his membership in the ultra- skin color intersected with policy, society, stand race until we understand of immigration to the United States of final paper describes how strong growth in conservative Council of Conservative and economy in the 19th century South. how American attitudes toward Russian mathematicians beginning around global scientific and technological knowl- Citizens (CCC) came to light. According With empirical and statistical rigor, the race were shaped by race mixing. 1990 as the Soviet Union collapsed. The edge production has reduced the share to the Southern Poverty Law Center, in investigation confirms that individuals of The text is a valuable resource for second describes how obtaining an under- of world scientific activity in the United 2001 the CCC website included a mes- mixed race experienced advantages over students, social scientists, histo- graduate degree from a U.S. university can States, increased the immigrant proportion sage that read “God is the one who divided African Americans in multiple dimen- rians, and anyone hoping to gain open an important pathway for immigrants of scientists and engineers at U.S. univer- mankind into different races … . Mixing the sions — in occupations, family formation a deeper understanding of the to participate in the U.S. labor market in sities and firms, and fostered cross-border races is rebelliousness against God.” This and family size, wealth, health, and access historical roots of modern race IT occupations. The third paper consid- collaborations for U.S. scientists. episode reveals America’s continuing strug- to freedom, among other criteria. dynamics in America.

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