Working Paper
Total Page:16
File Type:pdf, Size:1020Kb
Load more
Recommended publications
-
Adverse Selection, Credit, and Efficiency: the Case of The
Adverse Selection, Credit, and Efficiency: the Case of the Missing Market∗† Alberto Martin‡ December 2010 Abstract We analyze a standard environment of adverse selection in credit markets. In our envi- ronment, entrepreneurs who are privately informed about the quality of their projects need to borrow in order to invest. Conventional wisdom says that, in this class of economies, the competitive equilibrium is typically inefficient. We show that this conventional wisdom rests on one implicit assumption: entrepreneurs can only access monitored lending. If a new set of markets is added to provide entrepreneurs with additional funds, efficiency can be attained in equilibrium. An important characteristic of these additional markets is that lending in them must be unmonitored, in the sense that it does not condition total borrowing or investment by entrepreneurs. This makes it possible to attain efficiency by pooling all entrepreneurs in the new markets while separating them in the markets for monitored loans. Keywords: Adverse Selection, Credit Markets, Collateral, Monitored Lending, Screening JEL Classification: D82, G20, D62 ∗I am grateful to Paolo Siconolfi, Filippo Taddei, Jaume Ventura, Wouter Vergote seminar participants at CREI and Univesitat Pompeu Fabra, and to participants at the 2008 Annual Meeting of the SED for their comments. Iacknowledgefinancial support from the Spanish Ministry of Education and Sciences (grants SEJ2005-00126 and CONSOLIDER-INGENIO 2010 CSD2006-00016, and Juan de la Cierva Program), the Generalitat de Catalunya (AGAUR, 2005SGR 00490), and from CREA-Barcelona Economics. †An early draft of this paper, circulated in 2006, was titled “On the Efficiency of Financial Markets under Adverse Selection: the Role of Exclusivity”. -
Behavioral Ecology and Household-Level Production for Barter and Trade in Premodern Economies
UC Davis UC Davis Previously Published Works Title “Every Tradesman Must Also Be a Merchant”: Behavioral Ecology and Household-Level Production for Barter and Trade in Premodern Economies Permalink https://escholarship.org/uc/item/9hq2q96v Journal Journal of Archaeological Research, 27(1) ISSN 1059-0161 Authors Demps, K Winterhalder, B Publication Date 2019-03-15 DOI 10.1007/s10814-018-9118-6 Peer reviewed eScholarship.org Powered by the California Digital Library University of California J Archaeol Res https://doi.org/10.1007/s10814-018-9118-6 “Every Tradesman Must Also Be a Merchant”: Behavioral Ecology and Household‑Level Production for Barter and Trade in Premodern Economies Kathryn Demps1 · Bruce Winterhalder2 © Springer Science+Business Media, LLC, part of Springer Nature 2018 Abstract While archaeologists now have demonstrated that barter and trade of material commodities began in prehistory, theoretical eforts to explain these fnd- ings are just beginning. We adapt the central place foraging model from behavioral ecology and the missing-market model from development economics to investigate conditions favoring the origins of household-level production for barter and trade in premodern economies. Interhousehold exchange is constrained by production, travel and transportation, and transaction costs; however, we predict that barter and trade become more likely as the number and efect of the following factors grow in impor- tance: (1) local environmental heterogeneity diferentiates households by production advantages; (2) preexisting social mechanisms minimize transaction costs; (3) com- modities have low demand elasticity; (4) family size, gender role diferentiation, or seasonal restrictions on household production lessen opportunity costs to participate in exchange; (5) travel and transportation costs are low; and (6) exchange oppor- tunities entail commodities that also can function as money. -
The Missing Market for Work Permits
Policy Research Working Paper 9005 The Missing Market for Work Permits Michael Lokshin Martin Ravallion Europe and Central Asia Region Office of the Chief Economist September 2019 Policy Research Working Paper 9005 Abstract Citizens have a right to accept any job offer in their country, people to rent out their right-to-work for a period of their but that right is not marketable or automatically extended choice. On the other side of the market, foreigners could to foreigners. Yet, some citizens have useful things to do purchase time-bound work permits. The market would no if they could rent out their right-to-work, and there are longer be missing. This paper formulates and studies this foreigners who would value the new options for employ- policy proposal. ment. Thus, there is a missing market. A solution is to allow This paper is a product of the Office of the Chief Economist, Europe and Central Asia Region. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at [email protected]. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. -
Inefficiencies Caused by Governments'interventions
INEFFICIENCIES CAUSED BY GOVERNMENTS’ INTERVENTIONS IN AIRLINES’ MARKETS Deborah Ancell University of Westminster ABSTRACT At least seven of the indicators of market inefficiencies and/or failure are visible in the airline industry. These have bee n triggered by national, multi - national or supranational governments’ (NMSGs’) interventions trying to resolve political, social or environmental problems. These seven interventions (many lacking preliminary economic analysis) have been aimed at resolving lack of competition , filling missing markets, and neutralising the presence of negative externalities, free riders, social inequalities and moral panic. Desk research showed that just one of these NMSGs’ interventions was beneficial since it encouraged competition while the other six unintentionally triggered market inefficiencies or failures. Furthermore, it is possible that some of the interventions could eventually make advanced world airlines subsidise their advancing world competitors. KEYWORDS airlines, competition , market interventions, failure, inefficiency Dr Deborah Ancell is a Senior Lecturer at the Faculty of Architecture and the Built Environment , University of Westminster , United Kingdom. Email: [email protected] , Tel.: +44 (0)20 3506 6637 Journal of Air Transport Studies, Volume 9, Issue 1, 2018 43 1 . INTRODUCTION TO PUBLIC PROVISION AND PRIVATE MARKETS Sometimes Governments’ market interventions work to the detriment of an industry. Consequently and unfortunately, much Government intervention in markets – the -
Economic Transition and the Distributions of Income and Wealth
First Draft: May 1997 Comments welcome ECONOMIC TRANSITION AND THE DISTRIBUTIONS OF INCOME AND WEALTH Francisco H.G. Ferreira1 The World Bank Keywords: Transition economies; Privatization; Inequality; Wealth distribution. JEL Classification: D31, D63, H42, P21. Abstract: This paper relies on a model of wealth distribution dynamics and occupational choice to investigate the distributional consequences of policies and developments associated with transition from central planning to a market system. The model suggests that even an efficient privatization designed to be egalitarian may lead to increases in inequality (and possibly poverty), both during transition and in the new steady-state. Creation of new markets in services also supplied by the public sector may also contribute to an increase in inequality, as can labour market reforms that lead to a decompression of the earnings structure and to greater flexibility in employment. The results underline the importance of retaining government provision of basic public goods and services; of removing barriers that prevent the participation of the poor in the new private sector; and of ensuring that suitable safety nets are in place. Correspondence Address: The World Bank; 1818 H Street, NW; Washington, DC 20433; USA. E-mail: [email protected] 1 I am grateful to Simon Commander, Tito Cordella and Aart Kraay for helpful discussions. All errors are mine. The views expressed are my own and not necessarily those of the World Bank. 2 1. Introduction. In 1987, two years before the fall of the Berlin Wall, some 2.2 million people lived on less than U$1-a-day (in 1985 prices, using PPP exchange rates for each country) in Eastern Europe and the former Soviet Union. -
Revisiting Stimulus and the Great Recession
The Daily Dish Revisiting Stimulus and the Great Recession DOUGLAS HOLTZ-EAKIN | OCTOBER 21, 2020 Eakinomics: Revisiting Stimulus and the Great Recession There has been a steady drumbeat of calls for additional “stimulus” to counter the fallout of the COVID-19 recession. I want to stipulate that I think the case can be made for an appropriately structured fiscal bill, but the case is not being made in a compelling fashion. A key part of the argument has been that stimulus got cut off after the 2008-09 recession and doomed the economy to slow growth. A New York Times article, entitled “ Why the U.S. Risks Repeating 2009’s Economic Stimulus Mistakes,” is typical. “‘The initial response was good, but we need more,’ said Karen Dynan, who was chief economist at the Treasury Department in the Obama administration and now teaches at Harvard. The decision to pull back on spending a decade ago, she said, ‘really prolonged the period of weakness after the great recession.’” (This argument is most often made by former Obama Administration officials.) Maybe. But maybe there is another lesson from that era. The first is that if you are going to do fiscal stimulus, do fiscal stimulus. The American Recovery and Reinvestment Act (ARRA) contained some tax cuts and social safety net transfers of the typical stimulus ilk. But it contained a slew of provisions – e.g., health services information technologies and green investments – that were transformative in nature and core parts of the Obama domestic agenda. Transformation is not stimulus, which is just putting back in place what was previously there. -
Deflation: Economic Significance, Current Risk, and Policy Responses
Deflation: Economic Significance, Current Risk, and Policy Responses Craig K. Elwell Specialist in Macroeconomic Policy August 30, 2010 Congressional Research Service 7-5700 www.crs.gov R40512 CRS Report for Congress Prepared for Members and Committees of Congress Deflation: Economic Significance, Current Risk, and Policy Responses Summary Despite the severity of the recent financial crisis and recession, the U.S. economy has so far avoided falling into a deflationary spiral. Since mid-2009, the economy has been on a path of economic recovery. However, the pace of economic growth during the recovery has been relatively slow, and major economic weaknesses persist. In this economic environment, the risk of deflation remains significant and could delay sustained economic recovery. Deflation is a persistent decline in the overall level of prices. It is not unusual for prices to fall in a particular sector because of rising productivity, falling costs, or weak demand relative to the wider economy. In contrast, deflation occurs when price declines are so widespread and sustained that they cause a broad-based price index, such as the Consumer Price Index (CPI), to decline for several quarters. Such a continuous decline in the price level is more troublesome, because in a weak or contracting economy it can lead to a damaging self-reinforcing downward spiral of prices and economic activity. However, there are also examples of relatively benign deflations when economic activity expanded despite a falling price level. For instance, from 1880 through 1896, the U.S. price level fell about 30%, but this coincided with a period of strong economic growth. -
Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments Scott R
Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments Scott R. Baker, R. A. Farrokhnia, Steffen Meyer, Michaela Pagel, and Constantine Yannelis NBER Working Paper No. 27097 May 2020, Revised in September 2020 JEL No. D14,E21,G51 ABSTRACT The 2020 CARES Act directed large cash payments to households. We analyze house-holds’ spending responses using high-frequency transaction data from a Fintech non-profit, exploring heterogeneity by income levels, recent income declines, and liquidity as well as linked survey responses about economic expectations. Households respond rapidly to the re-ceipt of stimulus payments, with spending increasing by $0.25-$0.40 per dollar of stimulus during the first weeks. Households with lower incomes, greater income drops, and lower lev-els of liquidity display stronger responses highlighting the importance of targeting. Liquidity plays the most important role, with no significant spending response for households with large checking account balances. Households that expect employment losses and benefit cuts dis-play weaker responses to the stimulus. Relative to the effects of previous economic stimulus programs in 2001 and 2008, we see faster effects, smaller increases in durables spending, larger increases in spending on food, and substantial increases in payments like rents, mortgages, and credit cards reflecting a short- term debt overhang. We formally show that these differences can make direct payments less effective in stimulating aggregate consumption. Scott R. Baker Michaela Pagel Kellogg School of Management Columbia Business School Northwestern University 3022 Broadway 2211 Campus Drive Uris Hall Evanston, IL 60208 New York, NY 10027 and NBER and NBER [email protected] [email protected] R. -
Nils Bernstein: the European Debt Crisis – from a Danish Perspective
Nils Bernstein: The European debt crisis – from a Danish perspective Speech by Mr Nils Bernstein, Governor of the National Bank of Denmark, at the seminar “Europe in the times of crisis – are we looking for solutions or parachutes?”, at Danske Bank, Copenhagen, 14 December 2011. The slides can be found on the website of the National Bank of Denmark. * * * Thank you for inviting me to speak here today. I will touch upon the European debt crisis from a Danish perspective. The world economy has lost momentum since last spring and short-term outlook has worsened. The European economies, especially in the euro area, have seen the strongest slowdown. But there are considerable differences from country to country. Germany and France continued to enjoy solid growth in the 3rd quarter, whereas growth in the most indebted countries, the five GIIPS countries i.e. Greece, Italy, Ireland, Portugal and Spain, has been close to zero or even negative (slide 2 – real GDP). There is a clear division among the EU Member States: countries, with relatively sound public finances and external balances before the crisis, are performing better than countries with internal and external imbalances (slide 3 – General government balance). But over the past couple of months even euro area Member States with sound economies have been affected by rising interest rates. There is considerable volatility, and three groups in the euro area seem to have been formed. The first group with the narrowest spreads to Germany includes Finland, the Netherlands, Austria and France. The second group consists, among others, of Belgium, Spain and Italy and the third group is Ireland, Portugal and Greece. -
Reflation Trade” and Through an Eventual Tightening Policy Environment
Relative value beyond the “reflation trade” and through an eventual tightening policy environment FEBRUARY 2021 Monetary Policy Drives Asset Inflation But the Fed seems almost defensive about The November announcements by its role in asset price inflation. In his Pfizer/BioNTech and Moderna regarding January 27 press conference, Fed Chair highly encouraging vaccine efficacy data Powell flatly rejected this very suggestion: represented the first true bright spot for “If you look at what’s really been driving the near-term economic outlook since the asset prices in the last couple of months, beginning of the pandemic almost a year it isn’t monetary policy… It’s been ago. Credit and equity markets had already expectations about vaccines, and it’s also been on a virtually uninterrupted charge fiscal policy.” higher since March, buoyed by fiscal and This is true, to be sure. However, with monetary policy and more recently by an the Fed’s new policy of average inflation election result that seemed likely to deliver targeting (allowing inflation to overshoot its more calm, less uncertainty and more long-term 2% goal due to years of lagging) stimulus. The vaccine rollout seemed a and a palpable fear of triggering a repeat justification, if not an outright catalyst, for of the “taper tantrum” in 2013 by another leg higher, as a return to normalcy committing to telegraph an end to asset seemed closer than ever. purchases far in advance, it’s hard not to However, the vaccine rollout has been view the monetary policy environment fraught, new variants continue to emerge as a catalyst for increasingly aggressive and business restrictions come and go. -
Is Fiscal Stimulus an Effective Policy Response to a Recession? Reviewing the Existing Research
FRASER RESEARCH BULLETIN June 2020 Is Fiscal Stimulus an Effective Policy Response to a Recession? Reviewing the Existing Research by Jake Fuss, Alex Whalen, and Tegan Hill Summary This report examines existing academic Research also shows that the Canadian studies that analyze evidence regarding the government’s stimulus in response to the 2009 effectiveness of fiscal stimulus—additional recession contributed little, if anything, to the government spending and/or tax relief—as a economic turnaround. mechanism to mitigate the impact of a reces Harvard University professor Alberto Ale sion and speed up economic recovery. The re sina finds that increases in government spend search raises significant doubts about whether ing are associated with lower growth, while fiscal stimulus can achieve this objective. stimulus based on decreases in personal and Evidence from University of California— business taxes are associated with higher rates San Diego professor Valerie Ramey and Har of economic growth. In addition, Alesina’s work vard University professor Robert Barro dem suggests that reductions to government spend onstrates that the fiscal multiplier created by ing are an important part of reducing fiscal increased government spending is below 1.0, deficits following a recession. indicating that stimulus measures actually Before implementing any fiscal stimulus crowd out economic activity that would other packages, Canadian policymakers must con wise have occurred. sider the potential implications on both the Empirical research from Stanford Univer economy and government balance sheets. Past sity professor John Taylor shows that the US history suggests that stimulus will not improve stimulus package during the 2008-09 recession the Canadian economy and may even be a det failed to increase consumption and had little to riment to it. -
Quantitative Easing and Inequality*
Quantitative Easing and Inequality* Donggyu Lee† University of Maryland March 4, 2021 The latest draft is available here This paper studies how quantitative easing (QE) affects household welfare across the wealth distribution. I build a heterogeneous agent New Keynesian (HANK) model with household portfolio choice, wage and price rigidities, endogenous unemployment, frictional financial intermediation, an effective lower bound (ELB) on the policy rate, forward guidance, and QE. To quantify the contribution of the various channels through which monetary policy affects inequality, I estimate the model using Bayesian methods, explicitly taking into account the oc- casionally binding ELB constraint and the QE operations undertaken by the Federal Reserve during the 2009-2015 period. I find that QE program unambiguously benefited all house- holds by stimulating economic activity. However, it had non-linear distributional effects. On the one hand, it widened the income and consumption gap between the top 10% and the rest of the wealth distribution, by boosting profits and equity prices. On the other hand, QE shrank inequality within the lower 90% of the wealth distribution, primarily by lowering un- employment. On net, it reduced overall wealth and income inequality, as measured by the Gini index. Surprisingly, QE has weaker distributional consequences compared with conven- tional monetary policy. Lastly, forward guidance and an extended period of zero policy rates amplified both the aggregate and the distributional effects of QE. Keywords: unconventional monetary policy, inequality, heterogeneous agent New Keynesian model, quantitative easing, Bayesian estimation, effective lower bound JEL Codes: E12, E30, E52, E58 *I am very grateful to my advisors Boragan˘ Aruoba, Luminita Stevens, Thomas Drechsel and John Shea for their invaluable guidance and support.