Papers CIG 2018 - uniroma1.it

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Papers CIG 2018 Themes: US Gains from trade: o Costinot, Arnaud, and Andrés Rodríguez-Clare. 2018. "The US Gains from Trade: Valuation Using the Demand for Foreign Factor Services." Journal of Economic Perspectives, 32 (2): 3- 24. o Feenstra, Robert C. 2018. "Alternative Sources of the Gains from International Trade: Variety, Creative Destruction, and Markups." Journal of Economic Perspectives, 32 (2): 25- 46. Brexit: o Sampson, Thomas. 2017. "Brexit: The Economics of International Disintegration." Journal of Economic Perspectives, 31 (4): 163-84. o Fetzer, Thiemo, Did Austerity Cause Brexit? (July 25, 2018). CESifo Working Paper Series No. 7159. Available at SSRN: https://ssrn.com/abstract=3251187 (alla fine di questo file) o Breinlich, Holger and Leromain, Elsa and Novy, Dennis and Sampson, Thomas and Usman, Ahmed, The Economic Effects of Brexit - Evidence from the Stock Market (August 2018). CEPR Discussion Paper No. DP13147. Available at SSRN: https://ssrn.com/abstract=3244521 (alla fine di questo file) o Eichengreen, Barry and Mari, Rebecca and Thwaites, Gregory, Will Brexit Age Well? Cohorts, Seasoning and the Age-Leave Gradient, Past, Present and Future (October 2018). CEPR Discussion Paper No. DP13288. Available at SSRN: https://ssrn.com/abstract=3278663 (alla fine di questo file) Global monetary system (see Journal of Economic Perspectives, Summer 2017, 3 articles) o Kassa, Woubet and Lartey, Emmanuel Kwasi Koranteng, Financial Development, Exchange Rate Regimes, and Growth Dynamics (August 20, 2018). World Bank Policy Research Working Paper No. 8562. Available at SSRN: https://ssrn.com/abstract=3238404 (alla fine di questo file) China (see Journal of Economic Perspectives, Winter 2017, 7 articles) o Kaiji Chen, Tao Zha (2018) Macroeconomic Effects of China's Financial Policies, NBER WP 25222 (alla fine di questo file) Global Value Chains: o Timmer, Marcel P., Abdul Azeez Erumban, Bart Los, Robert Stehrer, and Gaaitzen J. de Vries. 2014. "Slicing Up Global Value Chains." Journal of Economic Perspectives, 28 (2): 99- 118. o De Soyres, Francois Michel Marie Raphael and Frohm, Erik and Gunnella, Vanessa and Pavlova, Elena, Bought, Sold, and Bought Again: The Impact of Complex Value Chains on Export Elasticities (July 13, 2018). World Bank Policy Research Working Paper No. 8535. Available at SSRN: https://ssrn.com/abstract=3238378 (alla fine di questo file) o Ahmad, N., et al. (2017), "Indicators on global value chains: A guide for empirical work", OECD Statistics Working Papers, No. 2017/08, OECD Publishing, Paris, https://doi.org/10.1787/8502992f-en. Gravity model: o Jacks, David S. and Novy, Dennis, Market Potential and Global Growth over the Long Twentieth Century (August 02, 2018). CESifo Working Paper Series No. 7164. Available at SSRN: https://ssrn.com/abstract=3251698 (alla fine di questo file) Economic impact of Climate Change (see Journal of Economic Perspectives, Fall 2018, 3 articles)

Transcript of Papers CIG 2018 - uniroma1.it

Page 1: Papers CIG 2018 - uniroma1.it

Papers CIG 2018

Themes

bull US Gains from trade

o Costinot Arnaud and Andreacutes Rodriacuteguez-Clare 2018 The US Gains from Trade Valuation

Using the Demand for Foreign Factor Services Journal of Economic Perspectives 32 (2) 3-

24

o Feenstra Robert C 2018 Alternative Sources of the Gains from International Trade

Variety Creative Destruction and Markups Journal of Economic Perspectives 32 (2) 25-

46

bull Brexit

o Sampson Thomas 2017 Brexit The Economics of International Disintegration Journal of

Economic Perspectives 31 (4) 163-84

o Fetzer Thiemo Did Austerity Cause Brexit (July 25 2018) CESifo Working Paper Series No

7159 Available at SSRN httpsssrncomabstract=3251187 (alla fine di questo file)

o Breinlich Holger and Leromain Elsa and Novy Dennis and Sampson Thomas and Usman

Ahmed The Economic Effects of Brexit - Evidence from the Stock Market (August 2018)

CEPR Discussion Paper No DP13147 Available at

SSRN httpsssrncomabstract=3244521 (alla fine di questo file)

o Eichengreen Barry and Mari Rebecca and Thwaites Gregory Will Brexit Age Well

Cohorts Seasoning and the Age-Leave Gradient Past Present and Future (October 2018)

CEPR Discussion Paper No DP13288 Available at

SSRN httpsssrncomabstract=3278663 (alla fine di questo file)

bull Global monetary system (see Journal of Economic Perspectives Summer 2017 3 articles)

o Kassa Woubet and Lartey Emmanuel Kwasi Koranteng Financial Development Exchange

Rate Regimes and Growth Dynamics (August 20 2018) World Bank Policy Research

Working Paper No 8562 Available at SSRN httpsssrncomabstract=3238404 (alla fine di

questo file)

bull China (see Journal of Economic Perspectives Winter 2017 7 articles)

o Kaiji Chen Tao Zha (2018) Macroeconomic Effects of Chinas Financial Policies NBER WP

25222 (alla fine di questo file)

bull Global Value Chains

o Timmer Marcel P Abdul Azeez Erumban Bart Los Robert Stehrer and Gaaitzen J de

Vries 2014 Slicing Up Global Value Chains Journal of Economic Perspectives 28 (2) 99-

118

o De Soyres Francois Michel Marie Raphael and Frohm Erik and Gunnella Vanessa and

Pavlova Elena Bought Sold and Bought Again The Impact of Complex Value Chains on

Export Elasticities (July 13 2018) World Bank Policy Research Working Paper No 8535

Available at SSRN httpsssrncomabstract=3238378 (alla fine di questo file)

o Ahmad N et al (2017) Indicators on global value chains A guide for empirical work

OECD Statistics Working Papers No 201708 OECD Publishing Paris

httpsdoiorg1017878502992f-en

bull Gravity model

o Jacks David S and Novy Dennis Market Potential and Global Growth over the Long

Twentieth Century (August 02 2018) CESifo Working Paper Series No 7164 Available at

SSRN httpsssrncomabstract=3251698 (alla fine di questo file)

bull Economic impact of Climate Change (see Journal of Economic Perspectives Fall 2018 3 articles)

Asset Prices and Macroeconomic Outcomes A Survey

BIS Working Paper No 676

106 Pages Posted 11 Dec 2017

Stijn Claessens

Ayhan Kose

Abstract

This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes It

focuses on three major questions First what are the basic theoretical linkages between asset prices and

macroeconomic outcomes Second what is the empirical evidence supporting these linkages And third

what are the main challenges to the theoretical and empirical findings The survey addresses these

questions in the context of four major asset price categories equity prices house prices exchange rates

and interest rates with a particular focus on their international dimensions It also puts into perspective

the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic

outcomes and discusses possible future research directions

Keywords equity prices exchange rates house prices interest rates credit output consumption

investment real-financial linkages macrofinancial linkages imperfections frictions

Economic Convergence in the Euro Area Coming Together or Drifting Apart

IMF Working Paper No 1810

48 Pages Posted 8 Feb 2018

Jeffrey R Franks

International Monetary Fund affiliation not provided to SSRN

Bergljot Barkbu

International Monetary Fund (IMF)

Rodolphe Blavy

International Monetary Fund (IMF) - African Department

William Oman

International Monetary Fund (IMF)

Hanni Schoelermann

International Monetary Fund (IMF)

Date Written January 2018

Abstract

We examine economic convergence among euro area countries on multiple dimensions While there was

nominal convergence of inflation and interest rates real convergence of per capita income levels has not

occurred among the original euro area members since the advent of the common currency Income

convergence stagnated in the early years of the common currency and has reversed in the wake of the

global economic crisis New euro area members in contrast have seen real income convergence Business

cycles became more synchronized but the amplitude of those cycles diverged Financial cycles showed a

similar pattern sychronizing more over time but with divergent amplitudes Income convergence requires

reforms boosting productivity growth in lagging countries while cyclical and financial convergence can be

enhanced by measures to improve national and euro area fiscal policies together with steps to deepen the

single market

Keywords Business cycles Economic integration Euro Area Financial cycles Convergence

synchronization Economic and Monetary Union Optimum Currency Area Financial Aspects of Economic

Integration

JEL Classification E32 F15 F36 O47

Structural Reforms Growth and Inequality An Overview of Theory Measurement and Evidence

CESifo Working Paper Series No 6812

52 Pages Posted 21 Feb 2018

Nauro F Campos

Brunel University London - Economics and Finance Centre for Economic Policy Research (CEPR) University

of Michigan at Ann Arbor - The William Davidson Institute IZA Institute of Labor Economics

Paul De Grauwe

London School of Economics amp Political Science (LSE) CESifo (Center for Economic Studies and Ifo Institute

for Economic Research) Centre for Economic Policy Research (CEPR)

Yuemei Ji

University College London - School of Slavonic and East European Studies

Multiple version iconThere are 2 versions of this paper

Date Written January 15 2018

Abstract

This paper provides a critical overview of the state of the art in the economics literature on structural

reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence

We start with a simple theoretical framework for the relationship between structural reforms economic

growth and income inequality We argue that whether structural reforms have a positive or negative

impact depends on various factors The type of reform timing sequence and political constraints play

crucial roles in determining the effectiveness of reforms on economic growth and income inequality We

conclude by proposing a 7-point agenda for future research

Keywords structural reforms growth inequality

JEL Classification D600

Immigration assimilation and the future of public education

RyuichiTanaka LidiaFarre FrancescOrtega a

University of Tokyo Japan b

University of Barcelona Spain c

Queens College CUNY USA d

IAE-CSIC Spain

European Journal of Political Economy

Volume 52 March 2018 Pages 141-165

Abstract

This paper analyzes the effects of immigration on the size and quality of public education using a

quantitative political economy model that allows for a heterogeneous immigrant population Our analysis

distinguishes between short and long-run effects and accounts for the consequences of naturalization and

assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that

immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in

public education spending and almost a 1 percentage-point increase in the share of native households

using private schools Depending on the eventual degree of assimilation these trends will be greatly

intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that

assimilation in terms of family size and the value assigned to childrens education are the most relevant

dimensions quantitatively We also show that immigration policies that favor one group over another can

significantly alter the overall effects of immigration on the schooling system

Global Financial Cycles and the Exchange Rate

Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696

18 Pages Posted 14 Feb 2018

Maurice Obstfeld International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department

Date Written February 2018

Abstract

This paper examines the relevance of exchange rate regimes in the transmission of global

financial shocks to domestic financial and macroeconomic conditions Our findings suggest

that even in todays highly financially integrated world the nominal exchange rate regime

does matter-at least for emerging market economies The transmission of global financial

shocks to domestic variables is magnified under fixed exchange rate regimes relative to more

flexible regimes For advanced economies however the jury is still out as the recent paucity

of truly fixed regimes among these economies poses a challenge for estimating the effect of

exchange rate flexibility

Keywords emerging market economies global financial cycle trilemma

JEL Classification F31 F36 F41

Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815

47 Pages Posted 21 Feb 2018

Yvonne Giesing

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)

Date Written January 15 2018

Abstract

This paper establishes a causal link between the emigration of skilled workers and firm

performance in source countries Using firm-level panel data from ten Eastern European

countries we show that the emigration of skilled workers lowers firm total factor

productivity We exploit time country and industry differences in the opening of EU labor

markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from

new EU member states We argue that a potential channel behind this effect relates to the

reduction in firm-specific human capital due to a higher worker turnover

Keywords migration firm productivity human capital EU enlargement

JEL Classification O150 D240 F220 J240

Reserve Currency Blocs A Changing International

Monetary System IMF Working Paper No 1820

43 Pages Posted 20 Feb 2018

Camilo E Tovar International Monetary Fund

Tania Mohd Nor International Monetary Fund (IMF)

Date Written January 2018

Abstract

What is the extent of currency diversification in the international monetary system How

hasit evolved over time In this paper we quantify the degree of currency diversification

usingregression methods of currency co-movements to determine the extent to which

nationalcurrencies across the world belong to a reserve currency bloc We then use these

estimates tocalculate the economic size of each currency bloc A key contribution of our paper

is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the

internationalmonetary system has transitioned from a bi-polar system - consisting of the US

dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated

tocontinue to dominate having the largest share in global GDP (40 percent) followed by

therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence

forthe RMB bloc appears to be most evident among the BRICS currencies The British

poundand the Japanese yen blocs appear to play minor roles

Keywords Economic integration Foreign exchange International monetary system

Currency Bloc Internatinal Monetary System International Monetary Arrangements and

Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics

JEL Classification F15 F31 F33 F36 F41 O24

17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services

by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)

Abstract

About 8 cents out of every dollar spent in the United States is

spent on imports What if because of a wall or some other

extreme policy intervention imports were to remain on the other

side of the US border How much would US consumers be willing to

pay to prevent this hypothetical policy change from taking place

The answer to this question represents the welfare cost from

autarky or equivalently the welfare gains from trade In this

article we discuss how to evaluate these gains using the demand

for foreign factor services The estimates of gains from trade

for the US economy that we review range from 2 to 8 percent of

GDP

httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw

A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763

11 Pages Posted 6 Mar 2018

Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute

of Labor Economics

Prachi Mishra Government of India - Reserve Bank of India

Chris Papageorgiou International Monetary Fund (IMF) - Research Department

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)

University of Michigan at Ann Arbor - The William Davidson Institute

Date Written February 2018

Abstract

In this imaginary dialogue a populist and an economist discuss the role of economic shocks to

explain populism A simple correlation between economic shocks and populism is weak

However economic shocks can explain well the phenomenon of populism in countries with

low pre-existent level of trust This is confirmed both at the macro cross-country level and

also by micro evidence obtained from surveys Finally this finding is consistent with the

ideational approach in political science which emphasizes how the populist narrative

opposes the corrupt elite to the virtuous people

Keywords Europe Political parties populism

JEL Classification A10 A12

International Capital Flow Pressures IMF Working Paper No 1830

59 Pages Posted 14 Mar 2018

Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)

Signe Krogstrup IMF

There are 3 versions of this paper

Date Written February 2018

Abstract

This paper presents a new measure of capital flow pressures in the form of a recast

ExchangeMarket Pressure index The measure captures pressures that materialize in actual

internationalcapital flows as well as pressures that result in exchange rate adjustments The

formulation istheory-based relying on balance of payments equilibrium conditions and

international assetportfolio considerations Based on the modified exchange market pressure

index the paperalso proposes the Global Risk Response Index which reflects the country-

specific sensitivityof capital flow pressures to measures of global risk aversion For a large

sample of countriesover time we demonstrate time variation in the effects of global risk on

exchange marketpressures the evolving importance of the global factor across types of

countries and thechanging risk-on or risk-off status of currencies

Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange

Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven

Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General

JEL Classification F23 G11 G20 F32

Sovereign Defaults in Court CEPR Discussion Paper No DP12777

76 Pages Posted 13 Mar 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

Date Written March 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords debt restructuring enforcement government financing sovereign default

JEL Classification F34 G15 H63 K22

Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859

48 Pages Posted 20 Mar 2018

Florian Dorn

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-

University Munich Center for Economic Studies (CES)

Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written February 05 2018

Abstract

This paper re-examines the link between globalization and income inequality We use data for

140 countries over the period 1970-2014 and employ an IV approach to deal with the

endogeneity of globalization measures We find that the link between globalization and

income inequality differs across different groups of countries There is a robust positive

relationship between globalization and inequality in the transition countries including China

and most countries of Middle and Eastern Europe In the sample of the most advanced

economies neither OLS nor 2SLS results show any significant positive relationship between

globalization and inequality We conclude that institutions providing income insurance and

education which characterize most advanced economies but are less developed in transition

economies may have moderated effects of globalization on income inequality

Keywords globalization income inequality redistribution instrumental variable estimation

panel econometrics development levels transition economies China

JEL Classification D310 D630 F020 F600 C260 H110 H200

The US Gains from Trade Valuation Using the

Demand for Foreign Factor Services CEPR Discussion Paper No DP12788

34 Pages Posted 20 Mar 2018

Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of

Technology (MIT) - Department of Economics

Andres Rodriguez-Clare Inter-American Development Bank (IDB)

There are 2 versions of this paper

Date Written March 2018

Abstract

About 8 cents out of every dollar spent in the United States is spent on imports What if

because of a wall or some other extreme policy intervention imports were to remain on the

other side of the US border How much would US consumers be willing to pay to prevent this

hypothetical policy change from taking place The answer to this question represents the

welfare cost from autarky or equivalently the welfare gains from trade In this article we

discuss how to evaluate these gains using the demand for foreign factor services The

estimates of gains from trade for the US economy that we review range from 2 to 8 percent of

GDP

A Multidimensional Approach to Trade Policy

Indicators IMF Working Paper No 1832

38 Pages Posted 12 Mar 2018

Diego Cerdeiro International Monetary Fund (IMF)

Rachel Nam International Monetary Fund (IMF)

Date Written February 2018

Abstract

We present and discuss a set of indicators to help assess countries trade policies The

indicators relate to three policy areas - trade in goods trade in services and FDI Given

concerns about the direction of global trade policy we also consider a set of more granular

measures that reflect the evolution of countries policies since the 2008 financial crisis We

propose a simple approach to present the multidimensional aspects of trade policy that by

shedding light on relative openness across areas can facilitate policy discussions In the cross-

section of countries we find a diversity in the type of measures adopted both between and

(since the 2008 financial crisis) within policy areas lending support to the approach based on

multiple indicators The indicators time series suggest that advanced and especially

emerging economies are moving toward more open regimes over time although recently

progress has with some exceptions slowed across the board Lastly our findings also call for

stronger efforts to objectively quantify the different aspects of countries trade regimes More

data both across countries and in terms of policy areas that significantly affect trade are

needed for better-informed policy discussions

Keywords Foreign direct investment Trade policy indicators trade in goods services trade

trade barriers General Country and Industry Studies of Trade

JEL Classification F10 F14

Corporate Indebtedness and Low Productivity

Growth of Italian Firms IMF Working Paper No 1833

47 Pages Posted 12 Mar 2018

Gareth Anderson Bank of England

Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department

Date Written February 2018

Abstract

Productivity growth in Italy has been persistently anemic and has lagged that of the euro area

over the period 1999-2015 while the indebtedness of its corporate sector has increased

Using the ORBIS firm-level database this paper studies the long-term impact of persistent

corporate-debt accumulation on the productivity growth of Italian firms and investigates

whether total factor productivity growthvaries with the level of corporate indebtedness We

employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi

(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and

cross-sectional dependence arising from unobserved common factors (for example oil price

shocks labor and product market frictions and stance of global financial cycle) Filtering out

the effects of unobserved common factors and controlling for firm specific characteristics we

find significant negative effects of persistent corporate debt build-up on total factor

productivity growth and weak evidence of a threshold level of corporate debt beyond which

productivity growth drops off significantly Our results have strong policy implications for

example the design of the tax system should discourage persistent corporate debt

accumulation and effective and timely frameworks to reduce corporate debt overhangs are

essential

Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel

threshold models cross-sectional dependence Models with Panel Data Firm Behavior

Empirical Analysis General

JEL Classification C23 D22 D24 G30

Regulatory Cycles Revisiting the Political Economy of

Financial Crises IMF Working Paper No 188

90 Pages Posted 21 Mar 2018

Jihad C Dagher International Monetary Fund (IMF) - Research Department

There are 2 versions of this paper

Date Written January 2018

Abstract

Financial crises are traditionally analyzed as purely economic phenomena The political

economy of financial booms and busts remains both under-emphasized and limited to isolated

episodes This paper examines the political economy of financial policy during ten of the most

infamous financial booms and busts since the 18th century and presents consistent evidence

of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during

these episodes were often amplified by political regulatory stimuli credit subsidies and an

increasing light-touch approach to financial supervision The regulatory backlash that ensues

from financial crises can only be understood in the context of the deep political ramifications

of these crises Post-crisis regulations do not always survive the following boom The

interplay between politics and financial policy over these cycles deserves further attention

History suggests that politics can be the undoing of macro-prudential regulations

Keywords Political economy Political economy Financial crises Financial Regulation Boom-

Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and

Voting Behavior Positive Analysis of Policy-Making and Implementation General

Government Policy and Regulation General

JEL Classification D72 D78 G10 G18 N00 P16

Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872

26 Pages Posted 21 Mar 2018

Sanjit Dhami University of Leicester - Department of Economics

Ali al-Nowaihi University of Leicester - Department of Economics

Date Written February 12 2018

Abstract

We examine the various senses in which economist use the term ldquorationalityrdquo and then outline

some of the commonly drawn implications and auxiliary assumptions Finally we confront the

implications with the empirical evidence drawing on the insights from the exciting new field

of behavioral economics

Keywords rationality self-regarding preferences efficient markets heuristics optimization

JEL Classification B400

Nudging and Environmental Corporate

Responsibility A Natural Experiment CEIS Working Paper No 426

22 Pages Posted 3 Apr 2018

Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics

Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department

of Economics and Statistics

Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies

(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)

Date Written April 3 2018

Abstract

We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on

environmentally responsible products withwithout the increase of the responsible product

price We find that the simple use of a small shelf-poster explaining the importance of buying

a green product (withwithout a concurring price increase) generates significant changes in

market shares for some of the product classes for both food and non-food products Part of

the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-

increase treatment

Keywords nudging environmental sustainability randomised field experiment

JEL Classification C93 D12 M14 Q56

11 The Role of Financial Policy

by Roger Farmer - 24498 (EFG ME)

Abstract

I review the contribution and influence of Milton Friedmans 1968

presidential address to the American Economic Association I

argue that Friedmans influence on the practice of central

banking was profound and that his argument in favour of monetary

rules was responsible for thirty years of low and stable

inflation in the period from 1979 through 2009 I present a

critique of Friedmans position that market-economies are

self-stabilizing and I describe an alternative reconciliation of

Keynesian economics with Walrasian general equilibrium theory

from that which is widely accepted today by most neo-classical

economists

httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw

5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012

by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)

Abstract

We study immigrant entrepreneurship and firm ownership in 2007

and 2012 using the Survey of Business Owners (SBO) The survival

and growth of immigrant-owned businesses over time relative to

native-founded companies is evaluated by linking the 2007 SBO to

the Longitudinal Business Database (LBD) We quantify the

dependency of the United States as a whole as well as individual

states on the contributions of immigrant entrepreneurs in terms

of firm formation and job creation We describe differences in

the types of businesses started by immigrants and the quality of

jobs created by their firms First-generation immigrants create

about 25 of new firms in the United States but this share

exceeds 40 in some states In addition Asian and Hispanic

second-generation immigrants start about 6 of new firms

Immigrant-owned firms on average create fewer jobs than

native-owned firms but much of this is explained by the industry

and geographic location of the firms Immigrant-owned firms pay

comparable wages conditional on firm traits to native-owned

firms but are less likely to offer benefits

httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885

49 Pages Posted 9 Apr 2018

Axel Dreher University of Heidelberg

Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics

Sarah Langlotz University of Heidelberg

There are 2 versions of this paper

Date Written February 15 2018

Abstract

This article analyzes whether foreign aid affects the net flows of refugees from recipient

countries Combining refugee data on 141 origin countries over the 1976-2013 period with

bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos

aid receipts on both total refugee flows to the world and flows to donor countries The

interaction of donor-government fractionalization and a recipient countryrsquos probability of

receiving aid provides a powerful and excludable instrumental variable when we control for

country- and time-fixed effects that capture the levels of the interacted variables Although

our results suggest that aid induces recipient governments to encourage the return of their

citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor

countries in the short term However we observe long-run effects after four three-year

periods which appear to be driven by lagged positive effects of aid on growth

Keywords foreign aid Official Development Assistance migration refugees displaced

people humanitarian crises repatriation policies

JEL Classification F220 F350 F590 H840 O150 O190

The Political Economy of Ideas On Ideas Versus

Interests in Policymaking CEPR Discussion Paper No DP12820

44 Pages Posted 5 Apr 2018

Sharun Mukand University of Warwick - Department of Economics

Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)

National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written March 2018

Abstract

We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and

institutional change We make an explicit distinction between ideas and vested interests and

show how they feed into each other In doing so the paper integrates the Keynes-Hayek

perspective on the importance of ideas with the currently more fashionable Stigler-Becker

(in-terests only) approach to political economy We distinguish between two kinds of

ideational politics acircldquo the battle among different worldviews on the efficacy of policy

(worldview politics) versus the politics of victimhood pride and identity (identity politics)

Political entrepreneurs discover identity and policy memes (narratives cues framing) that

shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our

framework identifies a complementarity between worldview politics and identity politics and

illustrates how they may reinforce each other In particular an increase in identity

polarization may be associated with a shift in views about how the world works Furthermore

an increase in income inequality is likely to result in a greater incidence of ideational politics

Finally we show how ideas may not just constrain but also bite the interests that helped

propagate them in the first instance

Should Unemployment Insurance Be Centralized in a

State Union CESifo Working Paper Series No 6898

27 Pages Posted 19 Apr 2018

Robert Fenge University of Rostock - Department of Economics

Max Friese University of Rostock

Date Written February 21 2018

Abstract

This paper compares the decentral organization of unemployment insurance in member

states of a state union with the central organization at the upper unionrsquo level In a model of

two countries the labor force and the firm owners can migrate between the states Labor

markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a

decentral scenario the states organize independently unemployment insurance and decide

about the rate on wages contributed to the insurance budget Due to open borders they have

to take account of migration effects However with perfect mobility between the states each

government chooses a socially optimal contribution rate such that workers are fully insured

against unemployment In the central scenario the governments overestimate the costs of

insurance when bargaining about the contribution rate and observing the common insurance

budget of both countries This leads to a less than socially optimal contribution rate

Keywords unemployment insurance policy state union centralization migration

externalities

JEL Classification F660 H770 J650

Paris Climate Agreement and the Global Economy

Winners and Losers World Bank Policy Research Working Paper No 8392

Posted 3 Apr 2018

Muthukumara Mani World Bank

Zekarias Hussein Purdue University

G Badri Narayanan Purdue University - Center for Global Trade Analysis

Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)

Date Written April 2 2018

Abstract

The 2015 Paris Climate Agreement was the first instance of countries adhering to take a

collective action against global warming More than 190 countries came forward and

submitted their contributions in the form of Intended Nationally Determined Contributions

reflective of their ability and capacity to reduce greenhouse gas emissions as each country set

its own targets and actions For some countries it meant a significant decline in their

emissions by 2030 while others like China the United States and India decided on a more

gradual phasing out extending beyond 2030 This paper estimates the economic impacts of

implementation of the Paris Climate Agreement in terms of its implications for welfare gross

domestic product investments and trade for major countries and regions It uses a

computable general equilibrium framework to model global regional and country impacts

The analysis suggests that the economic impacts will be mostly felt in the European Union if

the Paris Agreement is fully implemented The European Union is likely to suffer a welfare

loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand

and Mexico will also be affected with an expected welfare loss of about 15 percent Some of

the major emitters such as China and India will experience minimal impacts to their welfare

and the United States will experience a welfare loss of only about 07 by 2030 The sectoral

analysis of production and trade suggests a significant loss to fossil fuelbased sectors while

clean energy sectors can experience significant gains

Keywords International Trade and Trade Rules Energy and Mining Energy and

Environment Energy Demand Global Environment Energy Policies amp Economics Science of

Climate Change Climate Change and Environment Climate Change and Health

Immigrants Residential Choices and Their

Consequences CEPR Discussion Paper No DP12842

59 Pages Posted 12 Apr 2018

Christoph Albert Universitat Pompeu Fabra Students

Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)

There are 2 versions of this paper

Date Written April 2018

Abstract

This paper investigates the causes and effects of the spatial distribution of immigrants across

US cities We document that a) immigrants concentrate in large high-wage expensive cities

b) the earnings gap between immigrants and natives is higher in larger more expensive cities

and c) immigrants consume less locally than natives In order to explain these findings we

develop a quantitative spatial equilibrium model in which immigrants consume a fraction of

their income in their countries of origin Thus immigrants care not only about local prices but

also about price levels in their home countries This gives them a comparative advantage

relative to natives for living in high-wage high-price high-productivity cities where they also

accept lower wages than natives These incentives are stronger for immigrants coming from

lower-price index countries of origin We rely on immigrant heterogeneity to estimate the

model With the estimated model we show that current levels of immigration have reduced

economic activity in smaller less productive cities by around 5 percent while they have

expanded it in large productive cities by around 6 percent This has increased total aggregate

output per worker by around 03 percent We also discuss the welfare implications of these

results

Keywords Immigration location choices spatial equilibrium

JEL Classification F22 J31 J61 R11

The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844

48 Pages Posted 12 Apr 2018

Thierry Mayer Sciences Po

Vincent Vicard Banque de France

Soledad Zignago Banque de France

There are 2 versions of this paper

Date Written April 2018

Abstract

In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each

country member has reaped from the European Union Thirty years after the terminology of

Non-Europe was used to give estimates of the gains from further integration we use modern

versions of the gravity model to estimate the trade creation implied by the EU and apply

those to counterfactual exercises where for instance the EU returns to a normal shallow-

type regional agreement or reverts to WTO rules Those scenarios are envisioned with or

without the exit of the United Kingdom from the EU (Brexit) happening which points to

interesting cross-country differences and potential cascade effects in doing and undoing of

trade agreements

Keywords European Union Gravity trade integration

JEL Classification F1

The Political Impact of Immigration Evidence from

the United States CEPR Discussion Paper No DP12848

57 Pages Posted 12 Apr 2018

Anna Maria Mayda

Georgetown University - Department of Economics IZA Institute of Labor Economics

Giovanni Peri University of California Davis - Department of Economics

Walter Steingress Government of Canada - Bank of Canada

Date Written April 2018

Abstract

In this paper we study the impact of immigration to the United States on the vote for the

Republican Party by analyzing county-level data on election outcomes between 1990 and

2010 Our main contribution is to separate the effect of high-skilled and low-skilled

immigrants by exploiting the different geography and timing of the inflows of these two

groups of immigrants We find that an increase in the first type of immigrants decreases the

share of the Republican vote while an inflow of the second type increases it These effects are

mainly due to the local impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find that the pro-Republican

impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards the Republican Party in places

where low-skilled immigrants are more likely to be perceived as competition in the labor

market and for public resources

Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party

JEL Classification F22 J61

15 Escaping Import Competition and Downstream Tariffs

by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)

Abstract

We propose and provide evidence for a new source of gains from

trade Firms invest in product differentiation to escape import

competition In the data and in the model these investments are

associated with increases in measured productivity introduction

of new goods and shifts to skill-intensive sectors Investment

in differentiation downstream leads upstream firms to also

invest in differentiation For China these downstream tariff

reductions lead to big increases in measured productivity for

upstream suppliers The effect on measured productivity is

larger for upstream than for downstream firms and we explain

this difference theoretically through heterogeneous changes in

markups

httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw

20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy

by Chong Xiang Stephen Yeaple - 24524 (ITI)

Abstract

A countrys welfare depends on its ability to accumulate

cognitive and noncognitive human capital However we do not

fully understand what makes some countries successful at

producing human capital and even struggle with measurement eg

international test scores are informative about the cognitive

dimension but neglect the non-cognitive dimension In this

paper we develop a multi-country open-economy

general-equilibrium framework in which countries ability to turn

resources into human capital along the cognitive and

non-cognitive dimensions is revealed by the endogenous

educational and occupational choices of its citizens and their

subsequent performance on international exams Our model allows

us to estimate countries underlying productivities of cognitive

and non-cognitive human capital We find that high test scores

do not necessarily imply high cognitive productivities (eg

Switzerland Hong Kong) and that many countries with low test

scores have high non-cognitive productivities (eg the US and

UK)

We then aggregate over these two dimensions to construct a single

educational quality index and illustrate its intuition using an

iso-education-quality curve We use our model to decompose

variation in output per capita across countries into a component

involving the educational quality index and another involving

output TFP This exact decomposition shows that the differences

in cognitive and noncognitive productivities across countries

have large implications for differences in output per worker

These results help quantify the potential payoffs of education

policies and clarify their objective eg excessive attention

to test scores may decrease aggregate output

International trade plays an important role in our model because

the gains from trade help to compensate a country for uneven

productivity across human capital types In counterfactual

exercises we show that if barriers to trade are completely

eliminated we would obtain a very different

iso-education-quality curve This implies large improvements of

overall education quality and large gains from trade for the

countries with strong comparative advantages in producing

cognitive (eg S Korea would gain 301 to 441 of its

output) or non-cognitive human capital (eg the Netherlands

would gain 188 to 556)

httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Il Contributo Della Demografia Alla Crescita

Economica Duecento Anni Di ldquoStoriardquo Italiana (The

Contribution of Demography to Italys Economic

Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431

37 Pages Posted 20 Apr 2018

Federico Barbiellini Amidei Bank of Italy

Matteo Gomellini Bank of Italy

Paolo Piselli Bank of Italy

Date Written March 28 2018

Abstract

Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita

economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro

Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra

come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave

lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con

ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente

negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale

contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre

sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash

lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del

lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili

legati allrsquoevoluzione nella struttura per etagrave

English Abstract This paper examines the contribution of demography to economic growth

in Italy by comparing the countryrsquos past present and future We use an accounting framework

to decompose GDP and per capita GDP growth and we show how changes in the age structure

of the population produced a positive demographic dividend in the past By contrast in the

last twenty-five years and arguably in the future demography has made and will continue to

make a direct negative contribution to economic growth Expected migration flows will

noticeably limit the extent of this negative contribution but they will not be able to reverse its

sign We analyze three possible developments potentially driven by demography itself or

fostered by policy actions ndash longer working lives an increase in female labour market

participation and higher education levels ndash which could counteract the pure negative

accounting effects produced by the evolution of the age structure

Note Downloadable document is in Italian

Keywords economic history demography demographic dividend forecasts

JEL Classification J11 N30

The Effects of Cash Transfers on Adult Labor Market

Outcomes World Bank Policy Research Working Paper No 8404

29 Pages Posted 16 Apr 2018

Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)

David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics

Berk Ozler World Bank - Development Economics Research Group (DECRG)

Date Written April 12 2018

Abstract

The basic economic model of labor supply has a very clear prediction of what should be

expected when an adult receives an unexpected cash windfall they should work less and earn

less This intuition underlies concerns that many types of cash transfers ranging from

government benefits to migrant remittances will undermine work ethics and make recipients

lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off

that can make this intuition misleading in low- and middle-income countries including

missing markets price effects from conditions attached to transfers and dynamic and general

equilibrium effects The paper uses this as a lens through which to examine the evidence on

the adult labor market impacts of a wide range of cash transfer programs government

transfers charitable giving and humanitarian transfers remittances cash assistance for job

search cash transfers for business start-up and bundled interventions Overall cash transfers

that are made without an explicit employment focus (such as conditional and unconditional

cash transfers and remittances) tend to result in little to no change in adult labor The main

exceptions are transfers to the elderly and some refugees who reduce work In contrast

transfers made for job search assistance or business start-up tend to increase adult labor

supply and earnings with the likely main channels being the alleviation of liquidity and risk

constraints

Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to

Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health

Care Services Industry

Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877

24 Pages Posted 23 Apr 2018

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

Date Written April 2018

Abstract

External trade affects the internal spatial structure of an economy promoting growth in some

cities or regions and decline in others Internal adjustment to these changes has often proved

to be extremely slow and painful This paper combines elements of urban and international

economics to draw out the implications of trade shocks for city performance Localisation

economies in production of internationally tradable goods mean that cities divide into two

types those producing tradables and those specialising in sectors producing just for the

national market (non-tradables) Negative trade shocks (and possibly also some positive

ones) reduce the number of cities engaged in tradable production increasing the number

producing just non-tradables This has a negative effect across all non-tradable cities which

lose population and land value Remaining tradable cities boom gaining population and land

value Depending on the initial position city size dispersion may increase this raising the

share of urban land-rents in national income and reducing the share of labour

Keywords de-industrialisation globalisation Polarisation urban

JEL Classification F12 R11 R12

Place-Based Policies for Development World Bank Policy Research Working Paper No 8410

75 Pages Posted 24 Apr 2018

Gilles Duranton University of Pennsylvania - Real Estate Department

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written April 17 2018

Abstract

Many development policies such as placement of infrastructure or local economic

development schemes are place-based Such policies are generally intended to stimulate

private sector investment and economic growth in the treated place and as such they are

difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of

such policies and assessing their social value It then reviews the literature on place-based

policies in the contexts of transport improvements economic corridors special economic

zones lagging regions and urban policies

Keywords Transport Services Labor Markets Urban Governance and Management Urban

Housing and Land Settlements Municipal Management and Reform Urban Housing

Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity

Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage

Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General

Manufacturing Construction Industry Pulp amp Paper Industry

Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4

79 Pages Posted 8 Dec 2017

Alexander A Popov European Central Bank (ECB)

Date Written December 6 2017

Abstract

This paper reviews and appraises the body of empirical research on the association between

financial markets and economic growth that has accumulated over the past quarter-century

The bulk of the historical evidence suggests that financial development affects economic

growth in a positive monotonic way yet recent research endeavors have provided useful and

important qualifications of this conventional wisdom Moreover the proliferation of micro-

level datasets has enabled researchers to study more precise links between theory and

measurement The paper highlights the mechanisms through which financial markets benefit

society as well as the channels through which finance can slow down long-term growth

Keywords financial markets growth

JEL Classification O4 G1

Why Has Economic Growth Slowed When Innovation Appears to be Accelerating

by Robert J Gordon - 24554 (DAE EFG PR)

Abstract

Measured between quarters with identical unemployment rates U

S economic growth slowed by more than half from 32 percent per

year during 1970-2006 to only 14 percent during 2006-16 and

only half of this GDP growth slowdown is accounted for diminished

productivity growth The paper starts from the proposition that

GDP growth matters not just productivity growth because slower

GDP growth provides fewer resources to address the nations

problems including faltering education aging infrastructure

and the looming shortfall in funding for Social Security and

Medicare and it also implies lower net investment and a reduced

rate at which new capital can embody the latest technology

The paper documents the contribution to slower GDP growth of the

separate components of demography -- fertility mortality life

expectancy and immigration Particular emphasis is placed on

the interaction between rising inequality and the slower secular

rise of life expectancy in the US compared to other developed

countries both in the form of a large gap in life expectancy

between rich and poor and the stagnation of life expectancy for

the lowest income quintile Further contributions to slowing

growth are made by a decline in the population share of both

legal and illegal immigration and a turnaround from rising to

declining labor force participation Rising inequality creates a

gap between the growth of average real per-capita income relative

to that of median real income and alternative measures of the

evolution of this gap are compared and assessed

Causes of declining productivity growth begin with the slowdown

in the rate of increase of educational attainment resulting from

the interplay of demand and supply factors including the

flattening of the college wage premium and the rising relative

price of college education Why did productivity growth decline

after 2006 despite an increase in the rate at which new US

patents were issued in 2006-16 compared to earlier decades Part

of the slowdown is attributed to the maturity of the IT

revolution which also helps to explain the trajectory of the

college wage premium Aspects of the productivity growth

slowdown include the declining productivity of research workers

diminishing returns to drug innovation and the evolutionary

rather than revolutionary impact of robots and artificial

intelligence which are replacing workers slowly and only in a

minority of industrial sectors throughout the economy Also

considered are alternative explanations of slower productivity

growth including low investment and mismeasurement

httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Childbearing Postponement its Option Value and the

Biological Clock CEPR Discussion Paper No DP12884

48 Pages Posted 23 Apr 2018

David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic

University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Aude Pommeret Universiteacute de Savoie

Date Written April 2018

Abstract

Having children is like investing in a risky project Postponing birth is like delaying an

irreversible investment It has an option value which depends on its costs and benefits and in

particular on the additional risks motherhood brings We develop a parsimonious theory of

childbearing postponement along these lines We derive its implications for asset

accumulation income optimal age at first birth and childlessness The structural parameters

are estimated by matching the predictions of the model to data from the National Longitudinal

Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase

with childbearing and this increase is stronger for more educated people This effect alone

can explain why the age at first birth and the childlessness rate both increase with education

We use the model to simulate two hypothetical policies Providing free medically assisted

reproduction technology does not affect the age at first birth much but lowers the

childlessness rate Insuring mothers against income risk is powerful in lowering the age at

first birth

Keywords Assisted reproduction technology Career uncertainty Late parenthood Real

option

JEL Classification D91 J13

Economic Upgrading Through Global Value Chain

Participation Which Policies Increase the Value

Added Gains World Bank Policy Research Working Paper No 8007

45 Pages Posted 1 May 2018

Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)

Daria Taglioni European Central Bank (ECB) - Directorate General Economics

Deborah E Winkler World Bank

Date Written March 16 2017

Abstract

The emergence of global value chains has opened up new ways to achieve development and

industrialization However new evidence shows that not all countries have gained from

participating in global value chains and that country-specific characteristics matter for

economic upgrading in global value chains This paper uses two panel data sets of developing

and industrialized countries at the sectoral level to relate global value chain participation as a

buyer and seller to domestic value added These are combined with a wide range of policy

measures at the country level that can play a role in economic upgrading through global value

chains by targeting global value chain integration or the quality and conditions of input and

output factors First the study finds that global value chain integration increases domestic

value added especially on the selling side which holds across all income levels Second the

results highlight the importance of policy for economic upgrading through global value chain

integration Although the study cannot claim causal evidence all the assessed policy areas are

consistently shown to mediate the effects of global value chains and magnify the gains for

domestic value added Third a detailed analysis shows that several policy areas mediate the

gains from global value chains more through integration as a seller Finally the study

observes that many of the results are driven by high- and upper-middle-income countries

Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp

Beverage Industry Construction Industry Business Cycles and Stabilization Policies General

Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper

Industry Plastics amp Rubber Industry Global Environment

Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami

by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)

Abstract

How does immigration affect labor market opportunities in a

receiving country This paper contributes to the voluminous

literature by reporting findings from a new (but very old) data

set Beginning in 1951 the Conference Board constructed a

monthly job vacancy index by counting the number of help-wanted

ads published in local newspapers in 51 metropolitan areas We

use the Help-Wanted Index (HWI) to document how immigration

changes the number of job vacancies in the affected labor

markets Our analysis begins by revisiting the Mariel episode

The data reveal a marked decrease in Miamis HWI relative to many

alternative control groups in the first 4 or 5 years after

Mariel followed by recovery afterwards We find a similar

initial decline in the number of job vacancies after two other

supply shocks that hit Miami over the past few decades the

initial wave of Cuban refugees in the early 1960s as well as the

1995 refugees who were initially detoured to Guantanamo Bay We

also look beyond Miami and estimate the generic spatial

correlations that dominate the literature correlating changes in

the HWI with immigration across metropolitan areas These

correlations consistently indicate that more immigration is

associated with fewer job vacancies The trends in the HWI seem

to most strongly reflect changing labor market conditions for

low-skill workers (in terms of both wages and employment) and a

companion textual analysis of help-wanted ads in Miami before and

after the Mariel supply shock suggests a slight decline in the

relative number of low-skill job vacancies

httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895

21 Pages Posted 1 May 2018

Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and

Statistics (CREST) Centre for Economic Policy Research (CEPR)

Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National

Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics

(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 2018

Abstract

Somatic distance or differences in physical appearance proves to be extremely important in

the gravity model of bilateral trade in conformity with results in other areas of economics and

outside of it in the social sciences This is also true quite independently of survey evidence

about bilateral trust These findings are obtained in a sample of the 15 members of the

European Economic Association in 1996 Robustness tests also show that somatic distance

has a more reliable influence on bilateral trade than the other cultural variables The article

finally discusses the interpretation and the breadth of application of these results

Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust

The Paradox of Global Thrift CEPR Discussion Paper No DP12894

59 Pages Posted 1 May 2018

Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate

School of Economics (Barcelona GSE)

Federica Romei LUISS Guido Carli University

Date Written April 2018

Abstract

This paper describes a paradox of global thrift Consider a world in which interest rates are

low and monetary policy cannot stabilize the economy because it is frequently constrained by

the zero lower bound Now imagine that governments complement monetary policy with

prudential financial and fiscal policies because they perceive that limiting private and public

borrowing during booms will help stabilize the economy by reducing the risk of financial

crises and by creating space for fiscal interventions during busts We show that these policies

while effective from the perspective of individual countries might backfire if applied on a

global scale In a financially integrated world in fact prudential policies generate a rise in the

global supply of savings or equivalently a drop in global aggregate demand In turn weaker

global aggregate demand depresses output in countries whose monetary policy is constrained

by the zero lower bound Due to this effect the world might paradoxically experience a fall in

output and welfare following the implementation of well-intended prudential policies

Keywords aggregate demand externalities Capital Flows current account policies fiscal

policies international cooperation Liquidity traps macroprudential policies zero lower

bound

JEL Classification E32 E44 E52 F41 F42

Multihorizon Currency Returns and Purchasing

Power Parity CEPR Discussion Paper No DP12893

59 Pages Posted 1 May 2018

Mikhail Chernov UCLA Anderson

Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics

There are 2 versions of this paper

Date Written April 2018

Abstract

Exposures of expected future depreciation rates to the current interest rate differential

violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon

Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the

two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the

depreciation rate inflation differential domestic and foreign yield curves Short-term

departures from PPP generate the first pattern The risk premiums for these departures

generate the second pattern

Keywords affine term structure model cointegration multiple horizons purchasing power

parity uncovered interest parity

Networks and Trade CEPR Discussion Paper No DP12891

33 Pages Posted 1 May 2018

Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for

Economic Policy Research (CEPR)

Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written April 2018

Abstract

Trade occurs between firms both across borders and within countries and the vast majority

of trade transactions includes at least one large firm with many trading partners This paper

reviews the literature on firm-to-firm connections in trade A growing body of evidence

coming from domestic and international transaction data has established empirical

regularities which have inspired the development of new theories emphasizing firm

heterogeneity among both buyers and suppliers in production networks Theoretical work

has considered both static and dynamic matching environments in a framework of many-to-

many matching The literature on trade and production networks is at an early stage and

there are a large number of unanswered empirical and theoretical questions

Keywords International Trade offshoring production networks productivity

JEL Classification F10 F12 F14 L11 L21

One More Time What are Institutions and How Do

They Change World Bank Policy Research Working Paper No 8422

39 Pages Posted 1 May 2018 Last revised 3 May 2018

Roumeen Islam World Bank

Date Written April 30 2018

Abstract

This paper defines institutions presents their basic characteristics and discusses forces for

institutional change It draws on a wealth of research and study by scholars in different fields

and follows from the flagship 2002 World Development Report on this topic including

relevant new research since then that illuminates key issues The definition of institutions

includes rules and organizations (specifically rules guiding peoples actions) The paper

emphasizes the diversity of institutions that can effectively perform similar functions the

arguments for and against standardization of institutions across specific transactions or

groups and the implications of these choices It highlights the relationship between informal

and formal institutions It discusses forces for institutional change influencing all economies

ranging from external shocks (whether they be economic or weather-related shocks or driven

by wars) to internal dynamics such as those following population growth or compositional

changes and those following technological innovations Many of these forces have a two-way

relationship with institutions they are affected by them and in turn influence whether and

when they change A special section is devoted to institutional transplants and their

effectiveness The paper concludes with a discussion of whether and under what conditions

institutional change can be externally directed and the lessons for aid donors

Keywords International Trade and Trade Rules Social Policy Common Property Resource

Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System

Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and

Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational

Sciences Competitiveness and Competition Policy

Globalization Government Popularity and the Great

Skill Divide

CEPR Discussion Paper No DP12897

56 Pages Posted 1 May 2018

Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics

Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and

Development (EBRD)

Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science

There are 2 versions of this paper

Date Written April 2018

Abstract

How does international trade affect the popularity of governments and leaders We provide

the first large-scale systematic evidence that the divide between skilled and unskilled

workers worldwide is producing corresponding differences in the response of political

preferences to trade shocks Using a unique data set including 118 countries and nearly

450000 individuals we find that growth in high skill intensive exports (of goods and

services) increases approval of the leader and incumbent government among skilled

individuals Growth in high skill intensive imports has the opposite effect There is no effect

on political approval among the unskilled To identify exogenous variation in international

trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our

findings suggest that the political effects of international trade differ with skill intensity and

that skilled individuals respond differently from their unskilled counterparts to trade shocks

Keywords International trade political approval political polarization skill intensity of

trade

Migratory Pressures in the Long Run International

Migration Projections to 2050 Banco de Espana Article 3817

9 Pages Posted 3 Jan 2018

Rodolfo G Campos Banco de Espantildea

Date Written December 5 2017

Abstract

This article presents bilateral international migration projections to 2050 based on a new

methodology that takes into account the population growth both in countries of origin and

countries of destination To do this the methodology used by Hanson and McIntosh (2016) to

project the future migratory flows to a sample of OECD countries is generalised to all

countries worldwide The United Nations population growth forecasts are used as a basis for

projecting future migratory flows The main findings of the exercise indicate that the number

of migrants is projected to increase from 28 of the world population in 2010 to around

35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa

Against this background and despite the slowdown in demographic growth in Latin America

the United States is expected to continue to receive high net immigration flows and to remain

the country with the highest stock of immigrants globally while continental Europe will post

larger net immigration flows

Immigration and Electoral Support for the Far-Left

and the Far-Right CESifo Working Paper Series No 6918

53 Pages Posted 7 May 2018

Anthony Edo Paris School of Economics (PSE)

Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)

Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and

Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of

Labor Economics

Date Written March 05 2018

Abstract

Immigration has become one of the most divisive political issues in the United States the

United Kingdom France and several other Western countries We estimate the impact of

immigration on voting for far-left and far-right candidates in France using panel data on

presidential elections from 1988 to 2017 To derive causal estimates we instrument more

recent immigration flows by past settlement patterns in 1968 We find that immigration

increases support for far-right candidates and has no robust effect on far-left voting The

increased support for far-right candidates is driven by low educated immigrants from non-

Western countries

Keywords voting immigration political economy

JEL Classification D720 F220 J150 P160

Institutions Trade and Development A Quantitative

Analysis CESifo Working Paper Series No 6920

64 Pages Posted 7 May 2018

Cosimo Beverelli World Trade Organization (WTO)

Alexander Keck World Trade Organization (WTO)

Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo

Institute for Economic Research GEP at the University of Nottingham

Yoto Yotov Drexel University - Department of Economics amp International Business

Date Written March 05 2018

Abstract

We propose and apply methods to quantify the impact of national institutions on international

trade and development We are able to identify the direct impact of country-specific

institutions on international trade within the structural gravity framework Our approach

naturally addresses the prominent issue of endogenous institutions The empirical analysis

offers robust evidence that stronger institutions promote trade A counterfactual analysis

reveals that the changes in institutional quality in the poor countries in our sample between

1996 and 2006 have had via their impact on imports from rich countries significant and

heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily

applicable to identifying the impact of a wide range of country-specific variables on

international trade

Keywords institutional quality international trade development structural gravity

JEL Classification F130 F140 F160

5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-

evaluating the Role of Monetary Policy in Economic Fluctuations

by Christiane Baumeister James D Hamilton - 24597 (EFG ME)

Abstract

Reporting point estimates and error bands for structural vector

autoregressions that are only set identified is a very common

practice However unless the researcher is persuaded on the

basis of prior information that some parameter values are more

plausible than others this common practice has no formal

justification When the role and reliability of prior

information is defended Bayesian posterior probabilities can be

used to form an inference that incorporates doubts about the

identifying assumptions We illustrate how prior information can

be used about both structural coefficients and the impacts of

shocks and propose a new distribution which we call the

asymmetric t distribution for incorporating prior beliefs about

the signs of equilibrium impacts in a nondogmatic way We apply

these methods to a three-variable macroeconomic model and

conclude that monetary policy shocks were not the major driver of

output inflation or interest rates during the Great Moderation

httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw

11 The Political Impact of Immigration Evidence from the United States

by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)

Abstract

In this paper we study the impact of immigration to the United

States on the vote for the Republican Party by analyzing

county-level data on election outcomes between 1990 and 2010

Our main contribution is to separate the effect of high-skilled

and low-skilled immigrants by exploiting the different geography

and timing of the inflows of these two groups of immigrants We

find that an increase in the first type of immigrants decreases

the share of the Republican vote while an inflow of the second

type increases it These effects are mainly due to the local

impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find

that the pro-Republican impact of low-skilled immigrants is

stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards

the Republican Party in places where low-skilled immigrants are

more likely to be perceived as competition in the labor market

and for public resources

httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw

23 The Impact of Exports on Innovation Theory and Evidence

by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)

Abstract

This paper investigates the effect of export shocks on

innovation On the one hand a positive shock increases market

size and therefore innovation incentives for all firms On the

other hand it increases competition as more firms enter the

export market This in turn reduces profits and therefore

innovation incentives particularly for firms with low

productivity Overall the positive impact of the export shock on

innovation is magnified for high productivity firms whereas it

may negatively affect innovation in low productivity firms We

test this prediction with patent customs and production data

covering all French manufacturing firms To address potential

endogeneity issues we construct firm-level export proxies which

respond to aggregate conditions in a firms export destinations

but are exogenous to firm-level decisions We show that

patenting robustly increases more with export demand for

initially more productive firms This effect is reversed for the

least productive firms as the negative competition effect

dominates

httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Sovereign Defaults in Court CESifo Working Paper Series No 6931

75 Pages Posted 8 May 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

There are 3 versions of this paper

Date Written March 08 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords sovereign default enforcement government financing debt restructuring

JEL Classification F340 G150 H630 K220

ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172

54 Pages Posted 14 May 2018

Martina Cecioni Bank of Italy

Date Written May 3 2018

Abstract

The paper provides empirical evidence on the effects of ECB conventional and unconventional

monetary policy on the euro exchange rate focusing on the period from January 2013 to

September 2017 Innovations to conventional and unconventional monetary policies are

identified through changes in respectively short- and long-term interest rates immediately

after Governing Council meetings Both types of measures contributed to the depreciation of

the euro from mid-2014 surprises associated with conventional measures had a stronger and

more persistent effect than those associated with unconventional ones Time-varying

estimates of the effects of conventional surprises since 1999 show that the responsiveness of

exchange rates to monetary news increased markedly from 2013 State-dependence analysis

finds that the exchange rate became more sensitive to monetary policy when the ECB adopted

a policy of negative interest rates and when conventional and unconventional monetary

surprises moved in the same direction

Keywords unconventional monetary policy exchange rates European Central Bank

JEL Classification E52 E58 F31

The ECBs Fiscal Policy

by Hans-Werner Sinn - 24613 (ME)

Abstract

While the ECB helped mitigate the euro crisis in the aftermath of

Lehman it has stretched its monetary mandate and moved into

fiscal territory This text describes and summarizes the crucial

role played by the ECB in the intervention spiral resulting from

its bid to manage the crisis It also outlines ongoing

competitiveness problems in southern Europe discusses the

so-called austerity policy of the Troika comments on QE and

presents two alternative paths for the future development of

Europe

httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Real Convergence in the Euro Area A Long-Term

Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6

102 Pages Posted 5 Dec 2017

Juan Luis Diaz del Hoyo European Central Bank (ECB)

Ettore Dorrucci European Central Bank (ECB)

Frigyes Ferdinand Heinz European Central Bank (ECB)

Sona Muzikarova European Central Bank (ECB)

Date Written December 1 2017

Abstract

In the euro area there is mixed evidence that the GDP per capita of lower-income economies

has been catching up with that of higher-income economies since the start of monetary union

The significant real convergence performance of some of the most recent members contrasts

with that of the economies of southern Europe which have not met expectations However

attributing all the blame for this outcome to the introduction of the single currency simply

misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this

paper shows that certain member countries began to face a ldquonon-convergence traprdquo long

before the euro years We also provide stylised facts on (i) the central role of total factor

productivity in driving real convergence in the euro area over time alongside other factors

and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and

institutional quality the other two key components of sustainable economic convergence We

conclude that it is critical that the euro area countries facing convergence challenges enhance

the resilience of their economic structures by improving the relevant institutions and

governance

Keywords sustainable economic convergence real convergence nominal convergence GDP

per capita Maastricht convergence criteria institutional quality labour productivity total

factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU

JEL Classification E01 F15 J11 O11 O43 O47 O52 O57

Monetary Policy Transmission in the Eastern

Caribbean Currency Union IMF Working Paper No 1870

31 Pages Posted 22 May 2018

Alla Myrvoda International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written March 2018

Abstract

This paper empirically investigates international and domestic monetary policy transmission

mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-

through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into

domestic interest rates through the interest rate channel While economic theory suggests

that the international pass-through should be high in small open economies with fixed

exchange rates and open capital accounts our findings based on regression analysis point to

a low long-run pass-through coefficient of the US interest rate The domestic transmission

channel however is found to operate through changes in the MSR The results hold for

different interest rates (deposit and lending) and are supported by survey-based findings

Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint

Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy

transmission interest rate pass-through ECCU monetary policy transmission interest rate

pass-through ECCU General Monetary Policy (Targets Instruments and Effects)

JEL Classification E43 E50 E52 F31 F33 F36 O54

On the Impact of Structural Reforms on Output and

Employment Evidence from a Cross-Country Firm-

Level Analysis IMF Working Paper No 1873

36 Pages Posted 22 May 2018

Luiza Antoun de Almeida International Monetary Fund (IMF)

Vybhavi Balasundharam University of Michigan at Ann Arbor

Date Written April 2018

Abstract

This paper analyzes the effects of selected structural reforms on output and employment in

the short and medium term It uses a comprehensive cross-country firm-level dataset

covering both advanced and emerging market economies over the period 2003-2014 In line

with previous studies it finds that structural reforms have in general a positive impact on

output and employment in the medium term Furthermore the paper also assesses whether

the impact of structural reforms varies with firm-specific characteristics such as size

leverage profitability and sector We find evidence that firm characteristics do influence the

effectiveness of structural reforms These findings have relevant policy implications as they

help policymakers tailor the design of structural reforms to maximize their payoffs taking

into account their heterogeneous impact on firms

Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed

countries Emerging markets structural reforms firm-level data Orbis dataset potential

growth

JEL Classification L51 D04 D22

Production Integration in the European Union CESifo Working Paper Series No 6944

34 Pages Posted 17 May 2018

Hakan Nordstrom Swedish Board of Trade

Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic

Studies and Ifo Institute)

Date Written March 21 2018

Abstract

Measured by trade in intermediate inputs economic integration has increased between 2000

and 2014 between members of the European Union and even more with non-members

Integration is negatively related to economic size and positively to the number of years as a

member Germany is the largest hub in the production network and the centre of gravity has

moved eastward Older member states are increasingly exporting service inputs and new

member states primary and manufacturing inputs Wages are increasing faster in countries

with low initial wages indicating wage convergence as a result of production integration

Keywords global value chains economic integration input-output models wage

convergence

JEL Classification E100 F100 F600 J310

Democratic Tipping Points CESifo Working Paper Series No 6945

36 Pages Posted 17 May 2018

Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy

Research (CEPR) Institute for the Study of Labor (IZA)

There are 2 versions of this paper

Date Written March 21 2018

Abstract

I examine whether transitory events can tip the scales against authoritarian regimes and lead

to persistent democratization I think of situations where this is a possibility as democratic

tipping points The transitory events I focus on are rainfall shocks in the most agricultural

countries in the world I show that while these shocks only affect agricultural output

contemporaneously they have persistent effects on political institutions Authoritarian

regimes experiencing negative rainfall shocks are more likely to be democratic three five and

ten years later

Keywords transitory shocks persistent democratization

Globalization and the New Normal IMF Working Paper No 1875

41 Pages Posted 22 May 2018

Bertrand Candelon University of Maastricht - Department of Economics

Alina Carare International Monetary Fund (IMF)

Jean-Baptiste Hasse

Aix-Marseille University

Date Written April 2018

Abstract

This study expands the empirical specification of Cerra and Saxena (2008) and allows short-

termoutput growth regimes to be determined by globalization Relying on a non-linear

dynamic panelrepresentation it reconciles the earlier results in the literature regarding the

two oppositenarratives of the effects of globalization on output growth Countries experience

higher growth onaverage the more open and integrated they are into the world However

once they reach a certainglobalization threshold (endogenously estimated) countries may

also experience a new normalpersistently lower short-term output growth following a

financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization

process for low- and middle-income countriesTo solely reap the globalization benefits on

growth sound policies should be in place to mitigatethe negative effects stemming from

increased vulnerabilities brought by globalization

Keywords Globalization Financial crisis Banking crisis Output growth New Normal

Globalization Financial crises Banking crises Output growth

JEL Classification F30 F43 F62 F65

Public Policy in an AI Economy

by Austan Goolsbee - 24653 (PE PR)

Abstract

This paper considers the role of policy in an AI-intensive

economy (interpreting AI broadly) It emphasizes the speed of

adoption of the technology for the impact on the job market and

the implications for inequality across people and across places

It also discusses the challenges of enacting a Universal Basic

Income as a response to widespread AI adoption discuss pricing

privacy and competition policy the question of whether AI could

improve policy making itself

httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Aggregate and Distributional Effects of Financial

Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883

62 Pages Posted 22 May 2018

Davide Furceri International Monetary Fund (IMF)

Prakash Loungani International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Date Written April 2018

Abstract

We take a fresh look at the aggregate and distributional effects of policies to

liberalizeinternational capital flows-financial globalization Both country- and industry-level

resultssuggest that such policies have led on average to limited output gains while

contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-

off Behindthis average lies considerable heterogeneity in effects depending on country

characteristicsLiberalization increases output in countries with high financial depth and

those that avoidfinancial crises while distributional effects are more pronounced in countries

with lowfinancial depth and inclusion and where liberalization is followed by a crisis

Difference-indifferenceestimates using sectoral data suggest that liberalization episodes

reduce the shareof labor income particularly for industries with higher external financial

dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic

shocks and thosewith a higher elasticity of substitution between capital and labor The

sectoral resultsunderpin a causal interpretation of the findings using macro data

Keywords Globalization Inequality Capital Account Openness Crises Institutions

JEL Classification F13 G32 O11

The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921

44 Pages Posted 15 May 2018

Francisco Roch International Monetary Fund (IMF)

Harald Uhlig University of Chicago - Department of Economics

There are 2 versions of this paper

Date Written May 2018

Abstract

Motivated by the recent European debt crisis this paper investigates the scope for a bailout

guarantee in a sovereign debt crisis Defaults may arise from negative income shocks

government impatience or a sunspot-coordinated buyers strike We introduce a bailout

agency and characterize the strategy with the minimal actuarially fair intervention which

guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual

financing The intervention makes it cheaper for governments to borrow inducing them

borrow more leaving default probabilities possibly rather unchanged The maximal backstop

will be pulled precisely when fundamentals worsen

Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-

term debt OMT Self-fulfilling Crises

JEL Classification F34 F41

Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia

by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki

Syamsulhakim - 24670 (CH DEV PE)

Abstract

Conditional cash transfer (CCT) programs have spread worldwide

and are designed to promote comprehensive human capital

investments in children starting from encouraging pre-natal and

maternal care and early childhood health interventions and

continuing through incentivizing school attendance Yet

evaluating these claims over more than a few years is hard as

most CCT experiments extend the program to the control group

after a short experimental period This paper experimentally

estimates the impacts of Indonesias cash transfer program (PKH)

six years after the program launched using data from about

14000 households in 360 sub-districts across Indonesia taking

advantage of the fact that treatment and control locations

remained largely intact throughout the period We find that PKH

continues to have large static incentive effects on many of the

targeted indicators increasing usage of trained health

professionals for childbirth dramatically and halving the share

of children age 7-15 who are not enrolled in school Wage labor

for 13-15 year olds was reduced by at least one-third We also

begin to observe impacts on outcomes that may require cumulative

investments for example six years later we observe large

reductions in stunting and some evidence of increased high school

completion rates The results suggest that CCT investments can

have substantial effects on the accumulation of human capital

and that these effects can persist even when programs are

operating at large-scale without researcher intervention

httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Services Development and Comparative Advantage in

Manufacturing World Bank Policy Research Working Paper No 8450

47 Pages Posted 23 May 2018

Xuepeng Liu Kennesaw State University - Department of Economics and Finance

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Zhi Wang George Mason University - Schar School of Policy and Government

Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre

for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of

Economics amp Management

Date Written May 22 2018

Abstract

Most manufacturing activities use inputs from the financial and business services sectors But

these services sectors also compete for resources with manufacturing activities provoking

concerns about de-industrialization -- financial services in industrial countries like the United

States and the United Kingdom and business services in developing countries like India and

the Philippines This paper examines the implications of services development for the export

performance of manufacturing sectors It develops a methodology to quantify the indirect role

of services in international trade in goods and constructs new measures of revealed

comparative advantage based on domestic value added in gross exports The paper shows

that the development of financial and business services enhances the revealed comparative

advantage of manufacturing sectors that use these services intensively but not that of other

manufacturing sectors It also finds that a country can partially overcome the handicap of an

underdeveloped domestic services sector by relying more on imported services inputs Thus

lower services trade barriers in developing countries can help to promote their

manufacturing exports

Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General

Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry

Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and

Trade Rules Trade and Services Financial Economics Finance and Development Economic

Growth Economic Theory amp Research Industrial Economics

Thou Shalt Not Breach The Impact on Sovereign

Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887

37 Pages Posted 22 May 2018

Federico Kalan International Monetary Fund (IMF)

Adina Popescu International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written April 2018

Abstract

There is evidence that fiscal rules in particular well-designed rules are associated with lower

sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not

been examined in the literature This paper estimates the effect of the Excessive Deficit

Procedure (EDP) on sovereign spreads of European Union member states Based on a sample

including the 28 European Union countries over the period 1999 to 2016 sovereign spreads

of countries placed under an EDP are found to be on average higher compared to countries

that are not under an EDP The interpretation of this result is not straight-forward as different

channels may be at play in particular those related with the credibility and the design of the

EU fiscal framework The specification accounts for typical macroeconomic fiscal and

financial determinants of sovereign spreads the System Generalized Method of Moments

estimator is used to control for endogeneity and results are robust to a range of checks on

variables and estimators

Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models

with Panel Data

JEL Classification E62 H60 C23

ldquoUnconventionalrdquo Monetary Policy as Conventional

Monetary Policy A Perspective from the US In the

1920s

FEDS Working Paper No 2018-019

45 Pages Posted 6 Jun 2018

Mark A Carlson Board of Governors of the Federal Reserve System

Burcu Duygan-Bump Federal Reserve Board

Date Written 2018-03-09

Abstract

To implement monetary policy in the 1920s the Federal Reserve utilized administered

interest rates and conducted open market operations in both government securities and

private money market securities sometimes in fairly considerable amounts We show how the

Fed was able to effectively use these tools to influence conditions in money markets even

those in which it was not an active participant Moreover our results suggest that the

transmission of monetary policy to money markets occurred not just through changing the

supply of reserves but importantly through financial market arbitrage and the rebalancing of

investor portfolios The tools used in the 1920s by the Federal Reserve resemble the

extraordinary monetary policy tools used by central banks recently and provide further

evidence on their effectiveness even in ordinary times

Keywords Monetary policy Unconventional monetary policy Central banking Administered

rates Money markets Quantitative easing

JEL Classification E52 E58 N22

New Perspectives on the Decline of US

Manufacturing Employment FEDS Working Paper No 2018-023

37 Pages Posted 7 Jun 2018

Teresa Fort Dartmouth College - Tuck School of Business

Justin R Pierce Federal Reserve Board

Peter Schott Yale School of Management National Bureau of Economic Research (NBER)

Date Written 2018-04-13

Abstract

We use relatively unexplored dimensions of US microdata to examine how US manufacturing

employment has evolved across industries firms establishments and regions from 1977 to

2012 We show that these data provide support for both trade- and technology-based

explanations of the overall decline of employment over this period while also highlighting the

difficulties of estimating an overall contribution for each mechanism Toward that end we

discuss how further analysis of these trends might yield sharper insights

Keywords Employment Manufacturing Output Technology Trade

AI and the Economy

by Jason Furman Robert Seamans - 24689 (PR)

Abstract

We review the evidence that artificial intelligence (AI) is

having a large effect on the economy Across a variety of

statistics--including robotics shipments AI startups and patent

counts--there is evidence of a large increase in AI-related

activity We also review recent research in this area which

suggests that AI and robotics have the potential to increase

productivity growth but may have mixed effects on labor

particularly in the short run In particular some occupations

and industries may do well while others experience labor market

upheaval We then consider current and potential policies around

AI that may help to boost productivity growth while also

mitigating any labor market downsides including evaluating the

pros and cons of an AI specific regulator expanded antitrust

enforcement and alternative strategies for dealing with the

labor-market impacts of AI including universal basic income and

guaranteed employment

httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Economic Policy for Artificial Intelligence

by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)

Abstract

Recent progress in artificial intelligence (AI) - a general

purpose technology affecting many industries - has been focused

on advances in machine learning which we recast as a

quality-adjusted drop in the price of prediction How will this

sharp drop in price impact society Policy will influence the

impact on two key dimensions diffusion and consequences

First in addition to subsidies and IP policy that will influence

the diffusion of AI in ways similar to their effect on other

technologies three policy categories - privacy trade and

liability - may be uniquely salient in their influence on the

diffusion patterns of AI Second labor and antitrust policies

will influence the consequences of AI in terms of employment

inequality and competition

httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Missing Profits of Nations

by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)

Abstract

By combining new macroeconomic statistics on the activities of

multinational companies with the national accounts of tax havens

and the worlds other countries we estimate that close to 40 of

multinational profits are shifted to low-tax countries each year

Profit shifting is highest among US multinationals the tax

revenue losses are highest for the European Union and developing

countries We show theoretically and empirically that in the

current international tax system tax authorities of high-tax

countries do not have incentives to combat profit shifting to tax

havens They instead focus their enforcement effort on

relocating profits booked in other high-tax countries--in effect

stealing revenue from each other This policy failure can

explain the persistence of profit shifting to low-tax countries

despite the high costs involved for high-tax countries We

provide a new cross-country database of GDP corporate profits

trade balances and factor shares corrected for profit shifting

showing that the global rise of the corporate capital share is

significantly under-estimated

httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums

by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)

Abstract

This paper studies the synchronization of financial cycles across

17 advanced economies over the past 150 years The comovement in

credit house prices and equity prices has reached historical

highs in the past three decades The sharp increase in the

comovement of global equity markets is particularly notable We

demonstrate that fluctuations in risk premiums and not risk-free

rates and dividends account for a large part of the observed

equity price synchronization after 1990 We also show that US

monetary policy has come to play an important role as a source of

fluctuations in risk appetite across global equity markets

These fluctuations are transmitted across both fixed and floating

exchange rate regimes but the effects are more muted in floating

rate regimes

httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Geography of Linguistic Diversity and the Provision of Public Goods

by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)

Abstract

This paper analyzes the importance of local interaction between

individuals of different linguistic groups for the provision of

public goods at the national level The micro-founded conceptual

framework we develop predicts that a countrys public goods (i)

decrease in its overall linguistic fractionalization and (ii)

either increase or decrease in its local learning multiplier a

measure of how local interaction affects antagonism towards other

groups in the society at large After constructing a 5 km by 5

km dataset on language use for 223 countries we empirically

explore these theoretical predictions While overall

fractionalization worsens public goods outcomes we find a

positive causal effect of local learning Conditional on a

countrys overall diversity public goods outcomes are maximized

when there are a few large-sized groups and the diversity of each

location mirrors that of the country as a whole Our large-scale

study spanning the entire globe confirms experimental

micro-evidence in favor of contact theory

httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Misfits in the Car Industry Offshore Assembly

Decisions at the Variety Level CEPR Discussion Paper No DP12940

39 Pages Posted 21 May 2018

Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics

Thierry Mayer Sciences Po

Date Written May 2018

Abstract

This paper estimates the role of countryvariety comparative advantage in the decision to

offshore assembly of more than 2000 models of 197 car brands headquartered in 23

countries While offshoring in the car industry has risen from 2000 to 2016 the top five

offshoring brands account for half the car assembly relocated to low-wage countries We show

that the decision to offshore a particular car model depends on two types of cost

(dis)advantage of the home country relative to foreign locations The first type the assembly

costs common to all models is estimated via a structural triadic gravity equation The second

effect model-level comparative advantage is an interaction between proxies for the models

skill and capital intensity and headquarter countrys abundance in these factors

Keywords cars Gravity offshoring

JEL Classification F1

Global Crises and Populism The Role of Eurozone

Institutions CEPR Discussion Paper No DP12944

46 Pages Posted 21 May 2018

Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)

Helios Herrera University of Warwick

Massimo Morelli Bocconi University

Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for

Economic Performance (CEP)

Date Written May 2018

Abstract

Populist parties are likely to gain consensus when mainstream parties and status quo

institutions fail to manage the shocks faced by their economies Institutional constraints

which limit the possible actions in the face of shocks result in poorer performance and

frustration among voters who turn to populist movements We rely on this logic to explain the

different support of populist parties among European countries in response to the

globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a

greater success of populist parties in response to these shocks in Euro zone countries and our

empirical analysis confirms this prediction This is consistent with voters frustration for the

greater inability of the Euro zone governments to react to di cult-to-manage globalization

shocks and financial crises Our evidence has implications for the speed of construction of

political unions A slow staged process of political unification can expose the EU to a risk of

political backlash if hard to manage shocks hit the economies during the integration process

Keywords Financial Dependence Frustration Globalization populism Relocation

JEL Classification D72 D78 F14 F16

Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954

50 Pages Posted 31 May 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Date Written May 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity

Translog

JEL Classification F14 F15 F33

Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960

76 Pages Posted 5 Jun 2018

Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR

Daragh Clancy European Stability Mechanism

Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs

Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic

Policy Research (CEPR)

There are 2 versions of this paper

Date Written May 2018

Abstract

This paper explores a natural connection between fiscal multipliers and foreign holdings of

public debt Although fiscal expansions can raise domestic economic activity through various

channels they can also have crowding-out effects if the resources used to acquire public debt

reduce domestic consumption and investment Thus these crowding-out effects are likely to

be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-

war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the

present To do so we assemble a novel database of public debt holdings by domestic and

foreign creditors for a large set of advanced economies We combine this data with standard

measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is

increasing in the share of public debt held by foreigners In particular the fiscal multiplier is

smaller than one when the foreign share is low such as in the US in the 1950s and 1960s

and Japan today and larger than one when the foreign share is high such as in the US and

Ireland today

Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt

JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63

Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961

26 Pages Posted 30 May 2018

Leonid V Azarnert Ariel University Center

Date Written April 09 2018

Abstract

This paper studies the effect of refugee resettlement on human capital accumulation The

analysis is performed in a growth model with endogenous fertility I show how refugee

resettlement from a more advanced and wealthier economy to a less advanced and less

wealthy economy combined with income transfers is Pareto-improving for indigenous

populations in both countries I also derive conditions for the proposed resettlement policy to

stimulate human capital accumulation and hence economic growth in both economies

Keywords refugee resettlement fertility human capital growth

JEL Classification D300 F220 J100 O100

The Impact of Trade Liberalization on Firm Productivity and Innovation

by Pian Shu Claudia Steinwender - 24715 (ITI PR)

Abstract

This chapter reviews the empirical economics literature on the

impact of trade liberalization on firms innovation-related

outcomes We define and examine four types of shocks to trade

flows import competition export opportunities access to

imported intermediates and foreign input competition Our

review reveals interesting heterogeneities at the country and

firm levels In emerging countries trade liberalization appears

to spur productivity and innovation In developed countries

export opportunities and access to imported intermediates tend to

encourage innovation but the evidence on import competition is

mixed especially for firms in the United States At the firm

level the positive effects of trade on innovation are more

pronounced at the initially more productive firms while the

negative effects are more pronounced at the initially less

productive firms

httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The IT Revolution and the Globalization of RampD

by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)

Abstract

Since the 1990s RampD has become less geographically concentrated

and has seen especially fast growth in emerging markets One of

the distinguishing features of the RampD globalization phenomenon

is its concentration within the softwareIT domain the increase

in foreign RampD has been largely concentrated within software and

IT-intensive multinationals and new RampD destinations are also

more software and IT-intensive multinationals than traditional

RampD destinations In this paper we document three important

phenomena (1) the globalization of RampD (2) the growing

importance of software and IT to firm innovation and (3) the

rise of new RampD hubs We argue that the shortage in

softwareIT-related human capital resulting from the large IT-

and software-biased shift in innovation drove US MNCs abroad and

particularly drove them abroad to new hubs with large

quantities of STEM workers who possessed IT and software skills

Our findings support the view that the globalization of US

multinational RampD has reinforced the technological leadership of

US-based firms in the information technology domain and that

multinationals ability to access a global talent base could

support a high rate of innovation even in the presence of the

rising (human) resource cost of frontier RampD

httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969

60 Pages Posted 5 Jun 2018

Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco

Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)

Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of

Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)

Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

There are 2 versions of this paper

Date Written June 2018

Abstract

This paper studies the synchronization of financial cycles across 17 advanced economies over

the past 150 years The comovement in credit house prices and equity prices has reached

historical highs in the past three decades The sharp increase in the comovement of global

equity markets is particularly notable We demonstrate that fluctuations in risk premiums

and not risk-free rates and dividends account for a large part of the observed equity price

synchronization after 1990 We also show that US monetary policy has come to play an

important role as a source of fluctuations in risk appetite across global equity markets These

fluctuations are transmitted across both fixed and floating exchange rate regimes but the

effects are more muted in floating rate regimes

Keywords asset prices equity return premium financial centers financial cycles policy

spillovers

JEL Classification E50 F33 F42 F44 G12 N10 N20

Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974

32 Pages Posted 11 Jun 2018

Hideki Nakamura Osaka City University

Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)

LUISS Guido Carli DPTEA

Date Written June 2018

Abstract

This paper presents a model of technical change that combines two lines of research together

It is a task based model in which automation turns labor tasks to mechanized ones and there

is also a continuous addition of new labor tasks as in the expanding variety literature We

impose three simple restrictions on the model The first is that all new tasks are adopted The

second is that all new automation innovations are adopted and the third is that the share of

labor does not converge to zero in the long run We show that these restrictions imply that

unemployment due to automation is expected to converge to zero over time

Keywords automation growth Labor Income Share technical change unemployment

JEL Classification J64 O14 O30 O40

Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976

56 Pages Posted 11 Jun 2018

Sergio de Ferra Stockholm University

Federica Romei LUISS Guido Carli University

Date Written June 2018

Abstract

In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound

have limited the ability of policy-makers in the European monetary union to achieve their

stabilization objective This paper investigates the interaction between sovereign default risk

and the conduct of monetary policy when borrowers can act strategically and they share with

their lenders a single currency in a monetary union We address this question in an

endogenous sovereign default model of heterogeneous countries in a monetary union where

the monetary authority may be constrained by the zero lower bound We uncover three main

results First in normal times debtors have a stronger incentive to default to induce more

expansionary monetary policy Second the zero lower bound or constraints on monetary

policy may act as a disciplining device to enforce repayment of sovereign debt Third

sovereign default risk induces countries with a preference for tight monetary policy to accept

a laxer policy stance These results help to shed light on the recent European experience of

high default risk expansionary monetary policy and low nominal interest rates

Keywords Heterogeneous Countries monetary union sovereign default zero lower bound

JEL Classification F34 F42 F45 H63

Evolution of Modern Business Cycle Models Accounting for the Great Recession

by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)

Abstract

Modern business cycle theory focuses on the study of dynamic

stochastic general equilibrium models that generate aggregate

fluctuations similar to those experienced by actual economies

We discuss how this theory has evolved from its roots in the

early real business cycle models of the late 1970s through the

turmoil of the Great Recession four decades later We document

the strikingly different pattern of comovements of macro

aggregates during the Great Recession compared to other postwar

recessions especially the 1982 recession We then show how two

versions of the latest generation of real business cycle models

can account respectively for the aggregate and the

cross-regional fluctuations observed in the Great Recession in

the United States

httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw

What Happened Financial Factors in the Great Recession

by Mark Gertler Simon Gilchrist - 24746 (EFG ME)

Abstract

Since the onset of the Great Recession an explosion of both

theoretical and empirical research has investigated how the

financial crisis emerged and how it was transmitted to the real

sector The goal of this paper is to describe what we have

learned from this new research and how it can be used to

understand what happened during the Great Recession In the

process we also present some new evidence on the role of the

household balance sheet channel versus the disruption of banking

We examine a panel of quarterly state level data on house

prices mortgage debt and employment along with a measure of

banking distress Then exploiting both panel data and time

series methods we analyze the contribution of the house price

decline versus the banking distress indicator to the overall

decline in employment during the Great Recession We confirm a

common finding in the literature that the household balance sheet

channel is important for regional variation in employment

However we also find that the disruption in banking was central

to the overall employment contraction

httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Changing Structure of Immigration to the OECD

What Welfare Effects on Member Countries CESifo Working Paper Series No 6992

40 Pages Posted 27 Jun 2018

Michał Burzyński Universite du Luxembourg

Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management

UK IZA Institute of Labor Economics

Hillel Rapoport Paris School of Economics (PSE)

Date Written April 24 2018

Abstract

We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and

2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we

develop a general equilibrium model that accounts for the main channels of transmission of

immigration shocks ndash the employment and wage effects the fiscal effect and the market size

effect ndash and for the interactions between them We parameterize our model for 20 selected

OECD member states We find that the three waves induce positive effects on the real income

of natives however the size of these gains varies considerably across countries and across

skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to

the previous ones This is due to the changing origin mix of immigrants which translates into

lower levels of human capital and smaller fiscal gains However differences across cohorts

explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic

benefits from immigration

Keywords immigration welfare crisis inequality general equilibrium

JEL Classification C680 F220 J240

Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470

19 Pages Posted 11 Jun 2018

Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia

Daniel Lederman World Bank - Latin America and Caribbean Region

Laura Zoratto World Bank

Date Written June 7 2018

Abstract

Recent literature has shown evidence of positive contributions of export promotion agencies

around the world in raising exports through the intensive and extensive margins of trade The

number of export promotion agencies has increased substantially over the past two decades

and most of them focus on assisting exporters in understanding and finding markets for their

products This paper describes the characteristics of export promotion agencies around the

world using a novel database from the World Bank in collaboration with the International

Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the

literature on the impacts of export promotion agencies

Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin

Trade Policy Trade and Multilateral Issues Trade and Services

Optimal Inflation and the Identification of the Phillips

Curve CEPR Discussion Paper No DP12981

29 Pages Posted 11 Jun 2018

Michael McLeay Bank of England - Monetary Assessment and Strategy Division

Silvana Tenreyro London School of Economics (LSE)

Date Written June 2018

Abstract

This paper explains why inflation follows a seemingly exogenous statistical process unrelated

to the output gap In other words it explains why it is difficult to empirically identify a Phillips

curve We show why this result need not imply that the Phillips curve does not hold -- on the

contrary our conceptual framework is built under the assumption that the Phillips curve

always holds The reason is simple if monetary policy is set with the goal of minimising

welfare losses (measured as the sum of deviations of inflation from its target and output from

its potential) subject to a Phillips curve a central bank will seek to increase inflation when

output is below potential This targeting rule will impart a negative correlation between

inflation and the output gap blurring the identification of the (positively sloped) Phillips

curve

Keywords identification Inflation targeting Phillips curve

GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980

43 Pages Posted 11 Jun 2018

Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII

Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 19 2018

Abstract

Geography economic size or common history help predicting signed regional trade

agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic

determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms

addressed in this paper We estimate the time-varying probability for a country pair to sign a

trade agreement and build upon structural gravity in general equilibrium to determine how

the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results

confirm that the endogenous geography of RTAs is shaped by the development of GVCs

Keywords preferential trade agreements global value chains structural gravity

JEL Classification F130 F140 F150

Diversity and Growth CEPR Discussion Paper No DP13011

37 Pages Posted 26 Jun 2018

Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and

Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group

(DECRG)

There are 2 versions of this paper

Date Written June 2018

Abstract

The diversity of social interaction within economic communities affects productivity and

growth and is itself shaped by economic conditions These reciprocal effects raise the

possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty

on a new path of social integration and economic growth through external intervention or an

internal political initiative This paper describes a simple analytical model that captures these

reciprocal effects and sheds light on the role of government capacity community leadership

federation and external credit or aid in achieving economic growth through social integration

The Economics of Language CEPR Discussion Paper No DP13002

85 Pages Posted 26 Jun 2018

Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School

Date Written June 2018

Abstract

The paper brings together methodological theoretical and empirical analysis into the single

framework of linguistic diversity It reflects both historical and contemporary research by

economists and other social scientists on the impact of language on economic outcomes and

public policies We examine whether and how language influences human thinking (including

emotions) and behavior analyze the effects of linguistic distances on trade migrations

financial markets language learning and its returns The quantitative foundations of linguistic

diversity which rely on group identification linguistic distances as well as fractionalization

polarization and disenfranchisement indices are discussed in terms of their empirical

challenges and uses We conclude with an analysis of linguistic policies and shifts of languages

and examine their welfare effects and the trade-offs between the development of labor

markets and the social costs that they generate in various countries

Financial and Fiscal Interaction in the Euro Area

Crisis This Time Was Different CEPR Discussion Paper No DP13016

39 Pages Posted 3 Jul 2018

Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in

Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank

(ECB)

Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE

Date Written June 2018

Abstract

This paper highlights the anomalous characteristics of the Euro Area `twin crises by

contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the

business cycle fluctuations of the previous decades We report three stylised facts First the

contraction in output was marked by an anomalous downfall in investment while

consumption savings and unemployment followed their historical relation with GDP Second

households and financial corporations debts and house prices deviated from their pre-crisis

trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and

so was the fiscal consolidation that followed Our analysis points to the financial nature of the

crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in

large part explained by extraordinary measures in support of the financial sector which show

up in the stock-flow adjustments and reveal a key interaction between the fiscal and the

financial sectors

Keywords Euro Area Government Debt Recessions

JEL Classification C11 C32 C54 E52 E62 F45

The Shocks Matter Improving Our Estimates of

Exchange Rate Pass-Through CEPR Discussion Paper No DP13037

43 Pages Posted 9 Jul 2018

Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic

Research (NBER)

Ida Hjortsoe

Bank of England

Tsvetelina Nenova Bank of England

There are 4 versions of this paper

Date Written July 2018

Abstract

A major challenge for monetary policy is predicting how exchange rate movements will

impact inflation We propose a new focus directly incorporating the underlying shocks that

cause exchange rate fluctuations when evaluating how these fluctuations pass through to

import and consumer prices A standard open-economy model shows that the relationship

between exchange rates and prices depends on the shocks which cause the exchange rate to

move We build on this to develop a structural Vector Autoregression (SVAR) framework for a

small open economy and apply it to the UK We show that prices respond differently to

exchange rate movements based on what caused the movements For example exchange rate

pass-through is low in response to domestic demand shocks and relatively high in response to

domestic monetary policy shocks This framework can improve our ability to estimate how

pass-through can change over short periods of time For example it can explain why sterlings

post-crisis depreciation caused a sharper increase in prices than expected while the effect of

sterlings 2013-15 appreciation was more muted We also apply this framework to forecast

the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote

to leave the European Union

Keywords consumer prices exchange rate pass-through import prices inflation vector

autoregressions

JEL Classification E31 F3 F41

Why Has Economic Growth Slowed When Innovation

Appears to Be Accelerating CEPR Discussion Paper No DP13039

29 Pages Posted 9 Jul 2018

Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)

Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written July 2018

Abstract

U S economic growth slowed by more than half from 32 percent per year during 1970-2006

to only 14 percent during 2006-16 and this decline was divided equally between slower

growth in hours of work and slower growth in output per hour In explaining slower growth

in hours particular emphasis is placed on the slower secular rise of life expectancy in the US

compared to other developed countries Further contributions to slowing growth are made by

a decline in the population share of both legal and illegal immigration and a turnaround from

rising to declining labor force participation Causes of declining productivity growth begin

with the slowdown in the rate of increase of educational attainment Why did productivity

growth decline after 2006 despite an increase in the rate at which new US patents were

issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the

maturity of the IT revolution which also helps to explain the trajectory of the college wage

premium Aspects of the productivity growth slowdown include the declining productivity of

research workers diminishing returns to drug innovation and the evolutionary rather than

revolutionary impact of robots and artificial intelligence

Keywords Economic Growth Immigration Innovation labor force participation Mortality

productivity

JEL Classification D24 E24

On DSGE Models

by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)

Abstract

The outcome of any important macroeconomic policy change is the

net effect of forces operating on different parts of the economy

A central challenge facing policy makers is how to assess the

relative strength of those forces Dynamic Stochastic General

Equilibrium (DSGE) models are the leading framework that

macroeconomists have for dealing with this challenge in an open

and transparent manner This paper reviews the state of DSGE

models before the financial crisis and how DSGE modelers

responded to the crisis and its aftermath In addition we

discuss the role of DSGE models in the policy process

httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports

by Andrew K Rose - 24817 (IFM ITI)

Abstract

I investigate whether countries that use unconventional monetary

policy (UMP) experience export booms I use a popular gravity

model of trade which requires neither the exogeneity of UMP nor

instrumental variables for UMP In practice countries that

engage in UMP experience a drop in exports vis-a-vis countries

that are not engaged in such policies holding other things

constant Quantitative easing is associated with exports that

are about 10 lower to countries not engaged in UMP this amount

is significantly different from zero and similar to the effect of

negative nominal interest rates Thus there is no evidence that

countries have gained export markets through unconventional

monetary policy currency wars that have been launched have also

been lost UMP is also associated with a comparable drop in

imports and exchange rates suggesting that countries engage in

UMP when they are experiencing adverse macroeconomic shocks

concurrent with those that eviscerate international trade

httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Granular Comparative Advantage

by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)

Abstract

Large firms play a pivotal role in international trade shaping

the export patterns of countries We propose and quantify a

granular multi-sector model of trade which combines fundamental

comparative advantage across sectors with granular comparative

advantage embodied in outstanding individual firms We develop

an SMM-based estimation procedure which takes full account of

the general equilibrium of the model to jointly estimate these

fundamental and granular forces using French micro-data with

information on firm domestic and export sales across

manufacturing industries We find that granularity accounts for

about 20 of the variation in realized export intensity across

sectors and is more pronounced in the most export-intensive

sectors In turn idiosyncratic firm dynamics accounts for a

large share of the evolution of a countrys comparative advantage

over time Governments face strong incentives to target trade

policy at large individual foreign exporters and to use lenient

antitrust regulation at home to substitute for

beggar-thy-neighbor trade policy

httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The State of New Keynesian Economics A Partial Assessment

by Jordi Gali - 24845 (EFG ME)

Abstract

I provide an overview of recent developments in monetary

economics with an emphasis on extensions of the New Keynesian

framework that assume a zero lower bound on the short term

nominal rate as well as models with household heterogeneity

httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Artificial Intelligence Economics and Industrial Organization

by Hal Varian - 24839 (IO PR)

Abstract

Machine learning (ML) and artificial intelligence (AI) have been

around for many years However in the last 5 years remarkable

progress has been made using multilayered neural networks in

diverse areas such as image recognition speech recognition and

machine translation AI is a general purpose technology that is

likely to impact many industries In this chapter I consider how

machine learning availability might affect the industrial

organization of both firms that provide AI services and

industries that adopt AI technology My intent is not to

provide an extensive overview of this rapidly-evolving area but

instead to provide a short summary of some of the forces at work

and to describe some possible areas for future research

httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066

20 Pages Posted 24 Jul 2018

Maurice Obstfeld International Monetary Fund (IMF)

Date Written July 2018

Abstract

As international capital markets expanded in breadth and depth after the middle 1990s

global current account imbalances also expanded markedly Some have linked the origin of

the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes

answers to four questions about the recent history of global imbalances Why did global

imbalances expand after the mid-1990s What circumstances and concomitant factors

provide clues about the origins of the GFC If one accepts that a mono-causal story about the

GFC based on global imbalances is inaccurate how should one view the potential threats from

excessive global imbalances today And finally what policy implications follow

Keywords current account global financial crisis (GFC) global imbalances IMF External

Sector Report

Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share

by David Autor Anna Salomons - 24871 (EFG LS)

Abstract

Many technological innovations replace workers with machines but

this capital-labor substitution need not reduce aggregate labor

demand because it simultaneously induces four countervailing

responses own-industry output effects cross-industry

input-output effects between-industry shifts and final demand

effects We quantify these channels using four decades of

harmonized cross-country and industry data where we measure

automation as industry-level movements in total factor

productivity (TFP) that are common across countries We find

that automation displaces employment and reduces labors share of

value-added in the industries in which it originates (a direct

effect) In the case of employment these own-industry losses

are reversed by indirect gains in customer industries and induced

increases in aggregate demand By contrast own-industry labor

share losses are not recouped elsewhere Our framework can

account for a substantial fraction of the reallocation of

employment across industries and the aggregate fall in the labor

share over the last three decades It does not however explain

why the labor share fell more rapidly during the 2000s

httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Dynamic Effects of Co-Ethnic Networks on

Immigrants Economic Success CESifo Working Paper Series No 7084

43 Pages Posted 21 Jul 2018

Michele Battisti University of Palermo LUISS Guido Carli University

Giovanni Peri University of California Davis - Department of Economics

Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Date Written June 06 2018

Abstract

This paper investigates how the size of co-ethnic networks at the time of arrival affect the

economic success of immigrants in Germany Applying panel analysis with a large set of fixed

effects and controls we isolate the association between initial network size and long-run

immigrant outcomes We also look at those who were assigned to an initial location

independently of their choice allows a causal interpretation of our estimates We find that

immigrants initially located in places with larger co-ethnic networks are more likely to be

employed at first but have a lower probability of investing in human capital

Keywords networks immigration human capital employment

JEL Classification J240 J610 R230

Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070

36 Pages Posted 31 Jul 2018

Karol Borowiecki University of Southern Denmark

Kathryn Graddy Brandeis University - Department of Economics

Date Written July 2018

Abstract

In order to investigate the role of immigrant artists on the development of artistic clusters in

US cities we use the US Census and American Community Survey collected every 10 years

since 1850 We identify artists and art teachers authors musicians and music teachers actors

and actresses architects and journalists their geographical location and their status as a

native or an immigrant We look at the relative growth rate of the immigrant population in

these occupations over a ten year period and how it affects the relative growth rate of native-

born individuals in these artistic occupations We find that cities that experienced immigrant

artist inflows also see a greater inflow of native artists

Keywords artistic occupations artists Immigration

JEL Classification J4 J6 N3 N9 Z1

Global Value Chains and Inequality with Endogenous Labor Supply

by Eunhee Lee Kei-Mu Yi - 24884 (ITI)

Abstract

We assess the role of global value chains in transmitting global

integration shocks to aggregate trade as well as distributional

outcomes We develop a multi-country general equilibrium trade

model that features multi-stage production with different stages

having different productivities and using factors (occupations)

with different intensities The model also features a Roy

mechanism in which heterogeneous workers endogenously choose

their sector and occupation Country- and worker-level

comparative advantages interact A reduction in trade costs

leads to countries specializing in their comparative advantage

sectors and production stages This specialization changes labor

demand and also leads to more workers shifting to their

comparative advantage sectors and occupations We calibrate our

model to the US China and the rest of the world in 2000 and

we simulate a decline in Chinas trade costs with the US

designed to mimic Chinas entry into the WTO Our simulation

results imply an increase in the skill premium in both the US

and China and the GVC ie specialization across stages is

critical to this outcome

httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective

by Robert J Gordon - 24891 (EFG)

Abstract

In the late 1960s the stable negatively sloped Phillips Curve

(PC) was overturned by the Friedman-Phelps natural rate model

Their PC was vertical in the long run at the natural unemployment

rate and their short-run curve shifted up whenever unemployment

was pushed below the natural rate This paper criticizes the

underlying assumption of the Friedman-Phelps approach that the

labor market continuously clears and that changes in unemployment

down or up occur only in response to fooling of workers firms

or both A preferable and resolutely Keynesian approach

explains quantity rationing by inertia in price and wage setting

The positive correlation of inflation and unemployment in the

1970s and again in the 1990s is explained by joining the

negatively sloped Phillips Curve with a positively sloped dynamic

demand curve For any given growth of nominal GDP higher

inflation caused by adverse supply shocks implies slower real GDP

growth and higher unemployment This triangle model based on

inflation inertia demand and supply worked well to explain why

inflation and unemployment were both positively and negatively

correlated between the 1960s and 1990s but in the past decade

the slope of the short-run Phillips Curve has flattened as

inflation exhibited a muted response to high unemployment in

2009-13 and low unemployment in 2016-2018 It remains to be

seen whether a continuation of low unemployment will cause a

modest and fixed extra amount of inflation thus reviving the

stable Phillips curve of the early 1960s or whether inflation

will continuously accelerate as Friedman and Phelps would have

predicted

httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Tax Policy Measures in Advanced and Emerging

Economies A Novel Database IMF Working Paper No 18110

61 Pages Posted 1 Aug 2018

David Amaglobeli International Monetary Fund (IMF)

Valerio Crispolti International Monetary Fund (IMF)

Era Dabla-Norris International Monetary Fund (IMF)

Pooja Karnane International Monetary Fund (IMF)

Florian Misch International Monetary Fund (IMF)

Date Written May 2018

Abstract

This paper describes a new comprehensive database of tax policy measures in 23 advanced

and emerging market economies over the last four decades We extract this information from

more than 900 OECD Economic Surveys and 37000 tax-related news from the International

Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset

lies in its granularity changes in the rates and bases of personal and corporate income taxes

value added and sale taxes social security contributions excise and property taxes are

systematically documented In addition the database provides information on the

announcement and implementation dates whether the measures represent major changes

are part of a broader tax package and phased in over several years The paper also presents a

range of stylized facts suggesting that information from this database is useful to deepen the

analysis of tax policy changes for research and policy purposes

Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value

added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets

Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax

Policy Implementation Lags Methodology for Collecting Estimating and Organizing

Macroeconomic Data General

JEL Classification C82 E61 H20 P16

Inequality Aversion Populism and the Backlash

Against Globalization CEPR Discussion Paper No DP13107

69 Pages Posted 21 Aug 2018

Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

Pietro Veronesi

University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 3 versions of this paper

Date Written August 2018

Abstract

Motivated by the recent rise of populism in western democracies we develop a model in

which a populist backlash emerges endogenously in a growing economy In the model voters

dislike inequality especially the high consumption of the ``elites Economic growth

exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality

rich-country voters optimally elect a populist promising to end globalization Redistribution is

of limited value in containing the backlash against globalization Countries with more

inequality higher financial development and current account deficits are more vulnerable to

populism both in the model and in the data Evidence on who voted for Brexit and Trump in

2016 also largely supports the model

Keywords Brexit Globalization inequality populism risk aversion Trump

JEL Classification D72 F65 G11 G12 G18 P16

Underemployment in the US and Europe

by David NF Bell David G Blanchflower - 24927 (IFM LS ME)

Abstract

Large numbers of part-time workers around the world both those

who choose to be part-time and those who are there involuntarily

and would prefer a full-time job report they want more hours

Full-timers who say they want to change their hours mostly say

they want to reduce them When recession hit in most countries

the number of hours of those who said they wanted more hours

rose sharply and there was a fall in the number of hours that

full-timers wanted their hours reduced by Even though the

unemployment rate has returned to its pre-recession levels in

many advanced countries underemployment in most has not

We produce estimates for a new and better underemployment rate

for twenty-five European countries In most underemployment

remains elevated We provide evidence for the UK and the US as

well as some international evidence that underemployment rather

than unemployment lowers pay in the years after the Great

Recession We also find evidence for the US that falls in the

home ownership rate have helped to keep wage pressure in check

Underemployment replaces unemployment as the main influence on

wages in the years since the Great Recession

httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Does Machine Translation Affect International Trade Evidence from a Large Digital Platform

by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)

Abstract

Artificial intelligence (AI) is surpassing human performance in a

growing number of domains However there is limited evidence of

its economic effects Using data from a digital platform we

study a key application of AI machine translation We find

that the introduction of a machine translation system has

significantly increased international trade on this platform

increasing exports by 175 Furthermore heterogeneous

treatment effects are all consistent with a substantial reduction

in translation-related search costs Our results provide causal

evidence that language barriers significantly hinder trade and

that AI has already begun to improve economic efficiency in at

least one domain

httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The US Personal Saving Rate IMF Working Paper No 18128

35 Pages Posted 1 Aug 2018

Sam Ouliaris International Monetary Fund (IMF)

Celine Rochon University of Oxford IMF

Date Written June 2018

Abstract

This paper develops a time series model for aggregate consumption to predict the US

personal saving rate It then uses the model to test whether there has been a structural break

in consumption behavior because of the 2008 financial crisis Before the crisis the personal

saving rate was trending downwards However in 2008 there was a significant rise in the

saving rate that continued until the end of 2012 suggesting a permanent change in household

behavior To assess this issue formally the unknown parameters of the model are estimated

using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to

predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate

after 2008 was due to sizable but transitory incomewealth shocks or to changes in the

underlying elasticities between saving and its determinants (hence structural) The statistical

evidence suggests there was no structural break in the household saving behavior implying

that the rise in the saving rate during 2008-2012 was caused by the negative shocks to

income employment and wealth This result explains why the saving rate resumed its decline

in 2013 as real disposable income employment and net worth recovered Assuming that the

real growth in these determinants remains strong the estimated model predicts continued

negative pressures on the current account deficit and further external imbalances attributable

to the US household sector

Keywords United States Western Hemisphere consumption behavior personal saving rate

vector error-correction model structural break Consumer Economics Empirical Analysis

Personal Finance Forecasting and Simulation

JEL Classification D12 D14 E21 E27

Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123

49 Pages Posted 24 Aug 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 2 versions of this paper

Date Written June 28 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog

JEL Classification F140 F150 F330

How Do Migration and Remittances Affect Inequality

A Case Study of Mexico IMF Working Paper No 18136

22 Pages Posted 1 Aug 2018

Zsoka Koczan International Monetary Fund (IMF)

Franz Loyola International Monetary Fund (IMF)

Date Written June 2018

Abstract

The poverty-reducing effects of remittances have been well-documented however their

effects on inequality are less clear This paper examines the impact of remittances on

inequality in Mexico using household-level information on the receiving side It hopes to

speak to their insurance role by examining how remittances are affected by domestic and

external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that

remittances lower inequality and that they become more pro-poor over time as migration

opportunities become more widespread This also strengthens their insurance effects

mitigating some of the negative impact of shocks on the poorest

Keywords Migration Remittances Financial crises Income inequality Income distribution

Poverty reduction inequality Firm Behavior International Lending and Debt Problems

JEL Classification D21 F32 F34 J61 D31 F22 F24

Exchange Rate Forecasting on a Napkin

ECB Working Paper No 2151

Contact MICHELE CAZORZI

European Central Bank (ECB)

Email michelecazorziecbint

Auth-Page httpsssrncomauthor=343031

Co-Author MICHAŁ RUBASZEK

National Bank of Poland Warsaw

School of Economics (SGH)

Email michalrubaszeknbppl

Auth-Page httpsssrncomauthor=850188

Full Text httpsssrncomabstract=3183690

ABSTRACT This paper shows that there are two regularities in

foreign exchange markets in advanced countries with flexible

regimes First real exchange rates are mean-reverting as

implied by the Purchasing Power Parity model Second the

adjustment takes place via nominal exchange rates These features

of the data can be exploited even on the back of a napkin to

generate nominal exchange rate forecasts that outperform the

random walk The secret is to avoid estimating the pace of mean

reversion and assume that relative prices are unchanged Direct

forecasting or panel data techniques are better than the random

walk but fail to beat this simple calibrated model

______________________________

Home Sweet Home The Effect of Sugar Protectionism

on Emigration in Italy 1876-1913 CEIS Working Paper No 437

49 Pages Posted 29 Jun 2018

Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics

Alberto Dalmazzo University of Siena - Department of Economics

Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and

Ifo Institute for Economic Research)

Date Written June 8 2018

Abstract

Protectionist policies are often considered or even implemented as a reaction to increasing

globalization This is not new in history This paper uses the introduction of import duties on

sugar in the late nineteenth century Italy to measure the impact of protectionism on migration

out flows at the time of the fi

rst globalization Both for climate reasons and the nature of the soil the cultivation and

processing of sugar beets was geographically concentrated in a small area leading de facto to

a regional protectionist policy Our theoretical model illustrates how a tariff that favours local

producers may affect residents incentives to migrate abroad The predictions of the model

are tested with the synthetic control method which uses the variation in sugar cultivation

across areas to estimate the effect of interest Our results show that protectionism effectively

reduced the relative incentive to migrate away from sugar-producing areas

Keywords protectionism regional economics migrations 19th century Italy

JEL Classification N93 J4 C23

Integrating Services in the Economic Fitness

Approach World Bank Policy Research Working Paper No 8485

35 Pages Posted 28 Aug 2018

Andrea Zaccaria Sapienza University of Rome

Saurabh Mishra International Monetary Fund (IMF)

Masud Z Cader World Bank - International Finance Corporation (IFC)

Luciano Pietronero Sapienza University of Rome

Date Written June 21 2018

Abstract

Economic Complexity is a set of network-based and algorithmic methods for the study of

economic development and competitiveness In this framework Economic Fitness is an

innovative approach that improves the mathematical and conceptual scheme For

convenience these methods were originally conceived on trade in goods This paper extends

the Economic Fitness methodology to include a trade in services element to yield a universal

matrix of world trade and thus provide a more complete picture of a countrys development

and global competitiveness The paper applies two algorithms to the universal trade in goods

and services matrix to contrast country competitiveness and change in complexity and

diversification when services are added to the traditional goods-only matrix The results show

that (i) the competitiveness of many countries was previously over- or underestimated that

is many countries gain or lose positions in the ranking of economic fitness when services

trade is considered alongside goods and (ii) complex services tend to cluster with complex

manufacturing suggesting a common capabilities structure These findings show how

developing complex services aids diversification strategies for developing countries

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry

Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp

Paper Industry Trade and Services Macroeconomic Management ICT Applications

Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491

39 Pages Posted 28 Aug 2018

Edith Laget World Bank

Alberto Osnago World Bank

Nadia Rocha World Trade Organization

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written June 25 2018

Abstract

Preferential trade agreements have become deeper over time often encompassing policy

areas that go beyond traditional trade policy such as investment competition and intellectual

property rights protection In the literature a prominent argument why countries sign deep

agreements is to promote and facilitate the operation of global value chains This paper

exploits a new data set on the content of trade agreements and data on trade in value added

and in parts and components to quantify the impact of the depth of trade agreements on

bilateral cross-border production linkages The results show that adding a policy area to a

trade agreement increases the domestic value added of intermediates (forward global value

chain linkages) and the foreign value added of intermediates (backward global value chain

linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of

deep trade agreements is higher for higher value-added industries suggesting that deep

agreements help countries to integrate in industries with higher levels of value added For a

larger sample of countries and years the results confirm that an additional provision in a

trade agreement increases bilateral trade in parts and components by 03 percent The

content of trade agreements also matters for global value chain integration but the impact

varies by income group Provisions outside the current mandate of the World Trade

Organization (investment and competition policy) drive the effect of trade agreements on

North-South trade in parts and components Provisions under the current World Trade

Organization mandate (tariff reduction and customs facilitation) drive the effect of trade

agreements on South-South trade in parts and components

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Competition Policy Competitiveness and

Competition Policy Trade Finance and Investment

The Effect of Immigration on Natives School

Achievement Does Length of Stay in the Host

Country Matter World Bank Policy Research Working Paper No 8492

62 Pages Posted 28 Aug 2018

Laurent Bossavie The World Bank

Date Written June 25 2018

Abstract

Using a rich data set of primary school students this paper estimates the effects of immigrant

concentration in the classroom on the academic achievement of natives In contrast with

previous contributions it exploits rare information on age-at-migration to estimate separate

spillover effects by duration of stay of immigrant classmates To identify treatment effects it

uses cohort-by-cohort deviations in immigrant concentration within schools combined with

attractive features of the Dutch school system Overall the paper finds no effect of the

concentration of immigrant students on natives test scores However although immigrant

students who have been in the country for some time have virtually no effect on natives the

analysis finds a small negative effect of recent immigrants in the classroom on natives test

scores The effect is significant only for language test scores but insignificant for mathematics

test scores When significant effect sizes are quite small compared to other educational

interventions and classroom peer effects estimated in other contexts

Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities

Educational Sciences International Migration Migration and Development Human Migrations

amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities

Trade and Immigration 1870-2010

by David S Jacks John P Tang - 25010 (DAE)

Abstract

In this chapter we describe long-run trends in global

merchandise trade and immigration from 1870 to 2010 We revisit

the reasons why these two forces moved largely in parallel in the

decades leading up to World War I collapsed during the interwar

period and then rebounded (but with much more pronounced growth

in trade than in immigration) More substantively we also

document a large redistribution in the regional sources of goods

and people with a shift from the former industrialized core

countries--especially Europe--to those in the former

periphery--especially Asia--as well as a very striking change in

the composition of merchandise trade towards manufactured goods

precisely dating from 1950 Finally using a triple differences

framework in combination with a dramatic change in US immigration

policy we find evidence that immigration and trade potentially

acted as substitutes at least for the United States in the

interwar period

httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Attitudes Towards Euro Area Reforms Evidence from

a Randomized Survey Experiment CESifo Working Paper Series No 7141

35 Pages Posted 28 Aug 2018

Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics

Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students

Date Written July 09 2018

Abstract

We present the first evidence on public attitudes towards two prominent euro area reform

proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)

and assess potential impediments to their implementation by means of a randomized survey

experiment in Germany We find that there is a low willingness among German voters to

accept fiscal risk-sharing through common unemployment insurance while a sovereign

insolvency procedure aimed at strengthening market discipline is supported by a majority of

the electorate Our randomized treatments confronting survey participants with potential

adverse effects of the reforms lead to significant downward shifts in approval rates Altruism

cosmopolitanism political preferences and income are important predictors of support for

the reform proposals We also show that there is a striking contrast between the low level of

support for transfers to other euro area member states and a broad acceptance of inner

German transfers

Keywords public attitudes euro area reforms European unemployment insurance

sovereign insolvency procedure

JEL Classification H550 H240 J260 D140

The Economic Effects of Refugee Return and Policy

Implications World Bank Policy Research Working Paper No 8497

65 Pages Posted 28 Aug 2018

Uri Dadush World Bank

Date Written June 27 2018

Abstract

The recent surge in the number of forcibly displaced who cross international borders in

search of protection has prompted interest in evaluating policies that achieve the possible

end points of the phenomenon As envisaged by United Nations High Commissioner for

Refugees (UNHCR) these are the integration in the country of destination relocation in a

third country and return to the country of origin The focus of this paper is on the third

aspect namely the appropriate conduct of return policy viewed from the perspective of the

host country More specifically the main question is whether it is in the economic self-interest

of host countries to return forcibly displaced persons In addressing the question four

ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their

return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of

refugees and of their return and (iv) how return policy should be formulated and executed

The available evidence and analyses allow this papers main conclusion namely that the costs

of hosting asylum seekers and refugees are front-loaded while the benefits accruing from

their integration into the labor market and the host economy typically take years to

materialize It follows that from the economic perspective their return after a short stay may

represent a costlier option than continuing to invest in their successful integration Countries

with a flexible labor market strong investment climate and a welcoming attitude to

immigrants tend to see the economic benefits of refugee inflows materialize faster

The Effect of Remittances on the Current Account in

Developing and Emerging Economies World Bank Policy Research Working Paper No 8498

26 Pages Posted 28 Aug 2018

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written June 27 2018

Abstract

This paper presents an analysis of the effect of remittances on the current account in

developing and emerging economies incorporating an assessment of the extent to which

exchange rate regimes impact the relationship The main findings suggest there is a positive

effect of remittances on the current account contemporaneously but that the lagged effect is

negative which could be indicative of the existence of some underlying mechanisms

characteristic of the Dutch disease phenomenon In addition the results show that a more

flexible exchange regime dampens the contemporaneous positive effect that remittances have

on the current account The paper therefore asserts that policy makers face trade-offs

pertaining to the use of exchange rate policy in managing the effects of remittances on the

current account which should be given due consideration when such policy choices are made

Learning About Fiscal Multipliers During the

European Sovereign Debt Crisis Evidence from a

Quasi-Natural Experiment ECB Working Paper No 2154

30 Pages Posted 18 Jun 2018

Gόrnicka Lucyna IMF

Christophe Kamps European Central Bank (ECB)

Gerrit B Koester European Central Bank (ECB)

Nadine Leiner-Killinger European Central Bank (ECB)

Date Written May 30 2018

Abstract

Identifying fiscal multipliers is usually constrained by the absence of a counterfactual

scenario Our new data set allows overcoming this problem by making use of the fact that

recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline

no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the

macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU

countries to which 48 EDP recommendations were applied between 2009 and 2015 we

derive country-specific fiscal multipliers as actually applied by forecasters during the crisis

Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned

during the crisis According to our findings fiscal multipliers as applied by the European

Commission increased over time ndash from about 14 in the early years of the crisis to about 23

in the later years However different from Blanchard and Leigh (2013 2014) we do not find

evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1

during the crisis

Keywords fiscal consolidation fiscal multipliers business cycle

JEL Classification E32 E62 H20 H5

Trade in Developing East Asia How it Has Changed

and Why it Matters World Bank Policy Research Working Paper No 8533

58 Pages Posted 28 Aug 2018

Ileana Cristina Constantinescu World Bank

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written July 13 2018

Abstract

East Asia for long the epitome of successful engagement in trade faces serious challenges

technological change that may threaten the very model of labor intensive industrialization

and a backlash against globalization that may reduce access to important markets A detailed

analysis of the evolution of East Asias trade and trade policy in goods and services leads to

the conclusion that how East Asia copes with these global challenges will depend on how it

addresses three more proximate national and regional challenges The first is the emergence

of one East Asian country China as a global trade giantaccounting for nearly one-seventh of

global exports and one-tenth of global imports -- which is fundamentally altering the trading

patterns and opportunities of its neighbors The second is the asymmetric implementation of

national reform -- remarkable openness to goods trade and investment coexists with relative

restrictiveness of services policies -- which is affecting the evolution of comparative

advantage and productivity in each country The third is the divergence between the

relatively shallow and fragmented agreements that regulate the regions trade and

investment and the growing importance of regional and global value chains as crucial drivers

of productivity growth

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies

Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp

Leather Industry Export Competitiveness Industrial and Consumer Services and Products

Transport and Trade Logistics

Who are Americas Star Firms World Bank Policy Research Working Paper No 8534

70 Pages Posted 28 Aug 2018

Meghana Ayyagari George Washington University - School of Business

Asli Demirguc-Kunt World Bank

Vojislav Maksimovic University of Maryland - Robert H Smith School of Business

There are 2 versions of this paper

Date Written July 13 2018

Abstract

There is wide spread concern about a growing gap between top-performing publicly listed

firms and the rest of the economy and the implications of this for rising inequality in the US

Using conventional return calculations there is indeed a widening gap between star firms

(defined as those in top 10 percent of return on invested capital in any year) and the rest of

the economy over time especially in industries that rely on a skilled labor force However

once measurement error in intangible capital is accounted for this gap shrinks dramatically

and has not been widening over time While pricing power as measured by markups predicts

star firm status a large fraction of star firms have low markups and there is no evidence that

star firms are cutting output or investment more than other firms for the same markup The

effect of star status is persistent Five years later star firms have higher growth profits and

Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with

much higher returns and the potential to exercise market power in the future

Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles

Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common

Carriers Industry Construction Industry General Manufacturing Labor Markets Employment

and Unemployment

Bought Sold and Bought Again The Impact of

Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535

45 Pages Posted 28 Aug 2018

Francois Michel Marie Raphael De Soyres World Bank

Erik Frohm World Bank

Vanessa Gunnella European Central Bank (ECB)

Elena Pavlova European Central Bank (ECB)

Date Written July 13 2018

Abstract

Global value chain participation affects the exchange rate pass-through to export prices and

export volumes The paper develops a partial equilibrium model of international trade with

cross-border production and shows that higher participation in global value chains reduces

the elasticities Specifically a higher share of foreign value added in exports reduces the

exchange rate pass-through to export prices and export volumes A greater share of exports

that return as imports also reduces the responsiveness of export volumes to changes in

bilateral exchange rates Finally exports of inputs that are further re-exported increase the

responsiveness to the trading partners effective exchange rate Using a novel sector-level

panel dataset with 40 countries the analysis tests and finds strong empirical support for the

theoretical predictions The paper further shows that some sectors in some countries can

even experience a decline in gross exports when their currency depreciates

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Trade and Services Macroeconomic Management

Did Austerity Cause Brexit CESifo Working Paper Series No 7159

101 Pages Posted 25 Sep 2018

Thiemo Fetzer University of Warwick

Date Written July 25 2018

Abstract

Did austerity cause Brexit This paper shows that the rise of popular support for the UK

Independence Party (UKIP) as the single most important correlate of the subsequent Leave

vote in the 2016 European Union (EU) referendum along with broader measures of political

dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure

to austerity since 2010 In addition to exploiting data from the population of all electoral

contests in the UK since 2000 I leverage detailed individual level panel data allowing me to

exploit within-individual variation in exposure to specific welfare reforms as well as broader

measures of political preferences The results suggest that the EU referendum could have

resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms

Further auxiliary results suggest that the welfare reforms activated existing underlying

economic grievances that have broader origins than what the current literature on Brexit

suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across

the skill divide through transfer payments This pattern markedly stops from 2010 onwards

as austerity started to bite

Keywords political economy austerity globalization voting EU

JEL Classification H200 H300 H500 P160 D720

Resolving Sovereign Debt Crises The Role of Political

Risk CESifo Working Paper Series No 7161

42 Pages Posted 26 Sep 2018

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Date Written August 02 2018

Abstract

Sovereign defaults are bad news for investors and debtor countries in particular if a default

becomes messy and protracted Why are some debt crises resolved quickly in a matter of

months while others take many years to settle This paper studies the duration of sovereign

debt crises based on a new dataset and case study archive on debt renegotiations between

governments and foreign banks and bondholders Using Cox proportional hazard models I

find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation

delays after controlling for macroeconomic conditions Government crises resignations and

street protests are particularly disruptive for a quick settlement process Overall the evidence

suggests that debtor countries often lack the political ability to resolve a debt crisis

Governments in turmoil are unlikely to exit a default quickly

Keywords sovereign default crisis resolution political economy

JEL Classification F340 F510 H630

Market Potential and Global Growth over the Long

Twentieth Century CESifo Working Paper Series No 7164

53 Pages Posted 27 Sep 2018

David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 3 versions of this paper

Date Written August 02 2018

Abstract

We examine the evolution of market potential and its role in driving economic growth over

the long twentieth century Theoretically we exploit a structural gravity model to derive a

closed-form solution for a widely-used measure of market potential We are thus able to

express market potential as a function of directly observable and easily estimated variables

Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output

for 51 countries We find that market potential exhibits an upward trend across all regions of

the world from the early 1930s and that this trend significantly deviates from the evolution of

world GDP Finally using exogenous variation in trade-related distances to world markets we

demonstrate a significant causal role of market potential in driving global income growth over

this period

Keywords economic geography market potential structural gravity trade costs

JEL Classification F100 N700

Growth Inequality and Poverty A Robust

Relationship World Bank Policy Research Working Paper No 8578

42 Pages Posted 17 Sep 2018

Gustavo A Merrero University of La Laguna

Luis Serveacuten World Bank - Development Research Group (DECRG)

Date Written September 6 2018

Abstract

An extensive literature on poverty traps suggests that high levels of poverty deter growth

However a seemingly basic implication of the underlying theoretical models namely that

countries suffering from higher levels of poverty should grow less rapidly has remained

untested A parallel literature has suggested a variety of mechanisms through which

inequality may affect growth in opposing directions Because inequality and poverty are

different aspects of the income distribution inequality can also affect growth through poverty

an indirect channel that has not been explicitly analyzed This paper contributes to fill both

gaps Using a large cross-country panel data set it estimates a reduced-form growth equation

adding both inequality and poverty to an otherwise standard set of growth determinants

Given inequality the correlation of growth with poverty is consistently negative In contrast

given poverty the correlation of growth with inequality can be positive or negative

depending on the empirical specification and econometric approach used Yet the indirect

effect of inequality on growth through its correlation with poverty is robustly negative Closer

inspection shows that these results are driven by the sample observations featuring high (but

not extremely high) poverty rates These empirical findings are consistent with the

predictions from an analytical framework with learning-by-doing and knowledge spillovers

in which consumers cannot save and invest if their initial endowment is below a minimum

consumption level

Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty

Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty

Impact Evaluation Educational Sciences

Comparison of Welfare Gains in the Armington

Krugman and Melitz Models Insights from a

Structural Gravity Approach World Bank Policy Research Working Paper No 8570

63 Pages Posted 17 Sep 2018

Edward Jay Balistreri Iowa State University

David G Tarr International Trade Analysis

Date Written August 28 2018

Abstract

How large are the estimated gains from trade from a reduction in trade costs in the

heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)

models Surprisingly little is known beyond the one-sector model This paper analyzes this

question using a global trade model that contains ten regions and various numbers of sectors

(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant

across the model comparisons based on a structural gravity estimate Various model features

and scenarios are introduced that are important to real economies almost none of which has

been examined across the three market structures with a constant trade response In

response to global reductions in iceberg trade costs in all the multi-sector models the

ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model

captures between 75 and 95 percent on the additional gains above the Armington model that

are estimated by the Melitz model However for individual regions there are numerous cases

of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual

regions however the welfare ranking of the Armington Krugman and Melitz market

structures is model data parameter and scenario dependent The results highlight the need

for data and structural considerations in policy analysisltkrugman

Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade

and Multilateral Issues

The Economic Effects of Brexit - Evidence from the

Stock Market CEPR Discussion Paper No DP13147

35 Pages Posted 17 Sep 2018

Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London

School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)

Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Thomas Sampson London School of Economics amp Political Science (LSE)

Ahmed Usman University of Nottingham

Date Written August 2018

Abstract

We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess

investors expectations about the effects of leaving the European Union on the UK economy

Our results suggest that initial stock price movements were driven by fears of a cyclical

downturn and by the sterling depreciation following the referendum We also find tentative

evidence that market reactions to two subsequent speeches by Theresa May (her

Conservative Party conference and Lancaster House speeches) were more closely correlated

with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that

investors may have updated their expectations in light of the possibility of a hard Brexit We

do not find a correlation between the share of EU migrants in different industries and stock

market returns

Keywords Brexit depreciation event study Recession Stock market tariffs

JEL Classification F15 F23 G14

Understanding Euro Area Inflation Dynamics Why so

Low for so Long

IMF Working Paper No 18188

26 Pages Posted 1 Oct 2018

Yasser Abdih International Monetary Fund (IMF)

Li Lin International Monetary Fund (IMF)

Anne-Charlotte Paret Banque de France

Date Written August 2018

Abstract

Despite closing output gaps and tightening labor markets inflation has remained low inthe

euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-

sometimes attributed to low global inflation-has been primarily causedby a remarkable

persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to

be specific to the euro area (in comparison with the United States)Monetary policy needs to

stay accommodative to help guide inflation back to target

Keywords Inflation Inflation expectations Inflation persistence Monetary policy

Econometric models Euro Area Phillips curve inflation persistence and expectations

General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)

JEL Classification E10 E31 E32 E37 E52 C22 C50

Financial Development Exchange Rate Regimes and

Growth Dynamics World Bank Policy Research Working Paper No 8562

34 Pages Posted 28 Aug 2018

Woubet Kassa The World Bank

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written August 20 2018

Abstract

This paper utilizes data for African countries to analyze the extent to which financial

development affects the dynamics of the relationship between exchange rate flexibility and

economic growth The findings indicate that financial development exerts a positive influence

on the relationship between exchange rate flexibility and GDP growth as well as total factor

productivity growth The paper also documents a positive impact of trade openness on the

relationship between exchange rate flexibility and growth Moreover the results show a

strong and positive association between exchange rate flexibility and financial development

The findings therefore suggest that discussions and decisions on exchange rate policy should

be undertaken with consideration for structural policies that address the development of the

financial sector In addition the paper asserts that policy makers should adopt a stance that

facilitates some flexibility in exchange rates to foster development of the financial

infrastructure in these economies

Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp

Research Economic Growth Currencies and Exchange Rates Educational Sciences

Macroeconomic Management

Unequal Gains Prolonged Pain A Model of

Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160

53 Pages Posted 17 Sep 2018

Emily J Blanchard Dartmouth College - Tuck School of Business

Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)

Date Written September 2018

Abstract

We develop a model of democratic political responses to macroeconomic shocks in the short

and long run We show that when economic adjustment is slower than potential political

change exogenous changes in the global marketplace can trigger populist surges in favor of

distortionary economic policies Applied to trade policy our model demonstrates that an

exogenous terms-of-trade improvement or skill-biased technological change will lead to a

spike in protectionism that blunts the younger generations incentive to acquire education In

the long run the initial surge in protectionism will gradually diminish if and only if education

enables less-skilled workers to catch up with the overall economy The more unequal the

initial distribution of human capital the greater and longer-lasting the protectionist backlash

will be unequal gains prolonged pain Evidence on key data markers suggested by the model

exhibits patterns consistent with recent populist support for Brexit and Trump

Keywords Dynamic Political Economy education Endogenous Tari Human Capital

Overlapping Generations Overshooting populism protectionism

JEL Classification D7 E6 F5

Threat or Help The Effects of Unskilled Immigrant

Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185

4 Pages Posted 17 Sep 2018

Sharmila Devadas Central Bank of Malaysia

Date Written March 1 2017

Abstract

While unskilled immigrant workers have relatively low formal human capital theory suggests

that they can still contribute to productivity improvements by helping to increase efficiency

and upgrading the skills of the native labor force Empirical studies indicate that positive

productivity effects do occur This body of evidence does not provide a compelling argument

for the closing of national borders to unskilled foreigners on economic grounds

Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements

Construction Industry Common Carriers Industry Food amp Beverage Industry General

Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business

Cycles and Stabilization Policies International Migration Indigenous Communities Migration

and Development

Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899

4 Pages Posted 17 Sep 2018

Dorina Peteva Georgieva World Bank

Norman Loayza World Bank - Research Department

Fabian Mendez Ramos Development Research Group The World Bank

Date Written February 1 2018

Abstract

Growth in global trade has been slow since 2012 While global trade downturns are not

unprecedented the observed change in the relationship of trade to GDP poses the question

whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon

brought about by structural changes This new dynamic coupled with the rise of protectionist

policies and rhetoric in many countries positions trade at the forefront of policy discussions

This brief reviews recent patterns in global trade examines the factors affecting trade--

distinguishing between transitory and structural components of the slowdown--and discusses

policies shaping the path of future trade

Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation

International Trade and Trade Rules International Economics and Trade Transport and

Trade Logistics Trade and Regional Integration Private Sector Development Industrial and

Consumer Services and Products Competitiveness and Competition Policy Marketing Labor

Markets Private Sector Development Law Private Sector Economics Industry Law and

Development Social Policy Legal Reform Social Development Treaties Economics and

Institutions Public Sector Management and Reform Macroeconomics and Economic Growth

Public Sector Development Regulatory Regimes International Law Non Governmental

Organiz

The Productivity J-Curve How Intangibles Complement General Purpose Technologies

by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)

Abstract

General purpose technologies (GPTs) such as AI enable and require

significant complementary investments including business process

redesign co-invention of new products and business models and

investments in human capital These complementary investments

are often intangible and poorly measured in the national

accounts even if they create valuable assets for the firm We

develop a model that shows how this leads to an underestimation

of output and productivity in the early years of a new GPT and

how later when the benefits of intangible investments are

harvested productivity will be overestimated Our model

generates a Productivity J-Curve that can explain the

productivity slowdowns often accompanying the advent of GPTs as

well as the follow-on increase in productivity later We use our

model to assess how AI-related intangible capital is currently

affecting measured total factor productivity (TFP) and output

We also conduct a historical analysis of the roles of intangibles

tied to RampD software and computer hardware finding substantial

and ongoing effects of software in particular and hardware to a

lesser extent

httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw

g10

New Technologies Global Value Chains and Developing Economies

by Dani Rodrik - 25164 (DEV EFG ITI)

Abstract

Many of the exports of developing countries are channeled through

global value chains (GVCs) which also act as conduits for new

technologies However new capabilities and productive

employment remain limited so far to a tiny sliver of globally

integrated firms GVCs and new technologies exhibit features

that limit the upside and may even undermine developing

countries economic performance In particular new technologies

present a double whammy to low-income countries First they are

generally biased towards skills and other capabilities This

bias reduces the comparative advantage of developing countries in

traditionally labor-intensive manufacturing (and other)

activities and decreases their gains from trade Second GVCs

make it harder for low-income countries to use their labor cost

advantage to offset their technological disadvantage by reducing

their ability to substitute unskilled labor for other production

inputs These are two independent shocks that compound each

other The evidence to date on the employment and trade fronts

is that the disadvantages may have more than offset the

advantages

httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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Bank Runs and Moral Hazard A Review of Deposit

Insurance World Bank Policy Research Working Paper No 8589

31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018

Deniz Anginer World Bank Research

Asli Demirguc-Kunt World Bank

Date Written September 19 2018

Abstract

Deposit insurance is a widely adopted policy to promote financial stability in the banking

sector Deposit insurance helps ensure depositors confidence in the financial system and

prevents contagious bank runs but it also comes with an unintended consequence of

encouraging banks to take on excessive risk This paper reviews the economic costs and

benefits of deposit insurance and highlights the importance of institutions and specific design

features for how well deposit insurance schemes work in practice

Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System

Reform Economic Growth

The Future of Work Race With-Not Against-The

Machine World Bank Research amp Policy Briefs Paper No 129680

4 Pages Posted 17 Sep 2018

Lay Lian Chuah World Bank - Development Research Group (DECRG)

Norman Loayza World Bank - Research Department

Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment

Research (IAB) University of Regensburg - Department of Economics and Econometrics

Date Written August 1 2018

Abstract

Will the revolution in digital and information technologies make us obsolete Will jobs be lost

and never replaced Will wages drop to intolerable levels History and economic theory and

evidence suggest that in the long term such fears are misplaced However in the short and

medium term dislocation can be severe for certain types of work places and populations In

the transition period policies are needed to facilitate labor market flexibility and mobility

introduce and strengthen safety nets and social protection and improve education and

training

Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security

An Economists Guide to Climate Change Science

by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)

Abstract

Climate change management is a global challenge that requires

social science as much as it requires natural science We

provide a brief introduction to the physical science of climate

change written to provide essential background for economists

and other social scientists We also highlight some key areas in

which economists--including those studying macroeconomics

political economy and development--are in a unique position to

help climate science advance

httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw

g10

The Intensive Margin in Trade

by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-

Clare - 25195 (ITI)

Abstract

The Melitz model highlights the importance of the extensive

margin (the number of firms exporting) for trade flows Using

the World Banks Exporter Dynamics Database (EDD) featuring

firm-level exports from 50 countries we find that around 50 of

variation in exports is along the extensive margin --- a

quantitative victory for the Melitz framework The remaining 50

on the intensive margin (exports per exporting firm) contradicts

a special case of Melitz with Pareto-distributed firm

productivity which has become a tractable benchmark This

benchmark model predicts that conditional on the fixed costs of

exporting all variation in exports across trading partners

should occur on the extensive margin We find that moving from a

Pareto to a lognormal distribution allows the Melitz model to

match the role of the intensive margin in the EDD We use

likelihood methods and the EDD to estimate a generalized Melitz

model with a joint lognormal distribution for firm-level

productivity fixed costs and demand shifters and use exact hat

algebra to quantify the effects of a decline in trade costs on

trade flows and welfare in the estimated model The welfare

effects turn out to be quite close to those in the standard

Melitz-Pareto model when we choose the Pareto shape parameter to

fit the average trade elasticity implied by our estimated

Melitz-lognormal model although there are significant

differences regarding the effects on trade flows

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g10

Are Banks Engines of Export Financial Structures

and Export Dynamics World Bank Policy Research Working Paper No 8621

41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018

Raoul Minetti Michigan State University - Department of Economics

Alen Mulabdic World Bank

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Susan Chun Zhu Michigan State University - Department of Economics

Date Written October 25 2018

Abstract

This paper studies the impact of financial structures on the dynamics of the export sector

using rich data from over 60 countries The results reveal that bank-oriented financial

systems boost the size of the export sector more than market-oriented financial systems

However especially in middle- and low-income countries this effect mostly stems from banks

slowing down exporters exit rather than promoting firms entry into export The reduced exit

from the export sector appears to reflect domestic banks tendency to evergreen loans to

exporters (soft budget constraint) more than banks buffering role in difficult times Foreign

banks mitigate this effect and enhance the dynamism of the export sector

Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631

31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018

Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University

Hibret Belete Maemir World Bank

Hassen Abda Wako UNU-MERIT

Date Written October 30 2018

Abstract

A growing body of work has shown that the quality of national institutions that enforce

written contracts plays an important role in shaping a countrys comparative advantage

Using highly disaggregated bilateral and unique harmonized firm-level trade data across a

large number of countries this paper contributes to this literature by providing a

comprehensive analysis of the mechanisms through which institutional frictions affect the

pattern of aggregate trade flow distinguishing the effects on the intensive and extensive

margins The analysis finds that contractual friction distorts countries trade pattern beyond

its effect on domestic production structure by deterring the probability of exporting (the

extensive margin) and export sales after entry (the intensive margin) particularly in

industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup

problems) The analysis also finds that contractual frictions matter more for the intensive

margin than the extensive margin of exporting In addition better contracting institutions

increase the probability of survival of new export products in more contract-intensive

industries These results have important policy implications for developing countries that

seek to boost export growth but many of which suffer from poor contracting institutions

Nominal Exchange Rate Dynamics and Monetary

Policy Uncovered Interest Rate Parity and Purchasing

Power Parity Revisited CEPR Discussion Paper No DP13235

33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018

Yossi Saadon Bank of Israel - Research Department

Nathan Sussman Hebrew University of Jerusalem

Date Written October 2018

Abstract

The increasing globalization of trade in goods and services and the deepening of financial

markets have reduced frictions that may impede the operation of the PPP and UIP

relationships in the short run In this paper we estimate the short term relative PPP and UIP

relationships Using data from Israel which has a deep market for inflation expectations for

12 months we show that relative PPP and UIP cannot be rejected Deviations from

equilibrium last less than a year Data from Israels capital account of the balance of payments

shows that the deviations are not destabilizing Our findings suggest that greater globalization

and financial deepening contribute to the effectiveness of monetary policy

Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy

purchasing power parity uncovered interest rate parity

Macroeconomic Effects of Chinas Financial Policies

by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)

Abstract

The Chinese economy has undergone three major phases the

1978-1997 period marked as the SOE-led economy the 1998-2015

phase as the investment-driven economy and the new normal

economy since 2016 All three economies have been shaped by the

governments financial policies defined as a set of credit

policy monetary policy and regulatory policy We analyze the

macroeconomic effects of these financial policies throughout the

three phases and provide the stylized facts to substantiate our

analysis The stylized facts differ qualitatively across

different phases or economies We argue that the impacts of

Chinas financial policies work through transmission channels

different from those in developed economies and that a regime

switch from one economy to another was driven mainly by regime

changes in financial policies

httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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Factor Incomes in Global Value Chains The Role of Intangibles

by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)

Abstract

Recent studies document a decline in the share of labour and a

simultaneous increase in the share of residual (factorless)

income in national GDP We argue the need for study of factor

incomes in cross-border production to complement country studies

We define a GVC production function that tracks the value added

in each stage of production in any country-industry We define a

new residual as the difference between the value of the final

good and the payments to all tangibles (capital and labour) in

any stage We focus on GVCs of manufactured goods and find the

residual to be large We interpret it as income for intangibles

that are (mostly) not covered in current national accounts

statistics We document decreasing labour and increasing capital

income shares over the period 2000-14 This is mainly due to

increasing income for intangible assets in particular in GVCs of

durable goods We provide evidence that suggests that the 2000s

should be seen as an exceptional period in the global economy

during which multinational firms benefitted from reduced labour

costs through offshoring while capitalising on existing

firm-specific intangibles such as brand names at little

marginal cost

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Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade

in Value Added using Enterprise and Establishment Level Data

by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner

Jeffrey A Young - 25249 (ITI)

Abstract

This paper presents experimental tables created by the US

Bureau of Economic Analysis comparing industry-specific shares of

the components of total output of globally engaged firms located

in the United States that are part of a multinational enterprise

with those of firms that are part of an enterprise entirely

located in the United States Recent research has shown both the

importance of accounting for trade in value added when estimating

bilateral trade flows and that multinational enterprises located

in the United States account for the lions share of US trade

in goods and services However trade in value added is

typically accounted for using input-output tables that are

aggregated across all types of firms The experimental tables

are consistent with other research showing that value added as a

share of output is lower for foreign-owned firms compared with

domestic-owned firms and that exports and imports as a share of

output is larger for foreign-owned firms We also find

heterogeneity in the composition of output among different types

of domestic-owned firms Future work will analyze this

heterogeneity in more detail using establishment-level data on

production and trade

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The Falling Elasticity of Global Trade to Economic

Activity Testing the Demand Channel CESifo Working Paper No 7228

42 Pages Posted 31 Oct 2018

Marc Auboin World Trade Organization (WTO)

floriana borino World Trade Organization (WTO)

Date Written 2018

Abstract

Since the recovery from the great financial crisis in 2010 global real trade flows grew much

slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to

GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this

global trade slowdown and related falling trade-to-income elasticity was structural or

cyclical Some papers emphasized the slowing pace of international vertical specialization

Other works emphasized the prominent role of aggregate demand notably when weighted by

its trade component Our paper goes in this latter direction We estimated the standard

import equation for 38 advanced and developing countries over the period 1995-2015 using

an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-

output tables at country level and compared results with regressions using GDP The

integration of IAD allows us to predict 76 to 86 of the changes in global imports a better

performance than if using GDP The use of IAD also enabled us to measure the relative

importance of each component of demand according to their trade intensity The model is

able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone

explaining 80 of it The slowdown in global value chains explains more than half of the

remaining share of the global trade slowdown not explained by demand factors

Protectionism does not come up as statistically significant

Keywords investment global outlook trade policy trade forecasting business cycles

JEL Classification E220 F010 F130 F170 F440

Will Brexit Age Well Cohorts Seasoning and the Age-

Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288

38 Pages Posted 5 Nov 2018

Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic

Policy Research (CEPR)

Rebecca Mari Bocconi University

Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics

There are 3 versions of this paper

Date Written October 2018

Abstract

In the UKs 2016 referendum on EU membership young voters were more likely than their

elders to vote Remain Applying new methods to a half century of data we show that this

pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as

they age recent cohorts are also more pro-European than their predecessors Much of the

pro-Europeanism of these recent cohorts is accounted for by their greater years of education

Going forward the ageing of the electorate will thus be offset at least in part by the

replacement of older cohorts with younger better-educated and more pro-European ones

But we also document large nationwide swings in sentiment that have little to do with either

seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive

determinants of future changes in European sentiment Rather nationwide changes in

sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be

key

JEL Classification F0

Buying Votes and International Organizations The

Dirty Work-Hypothesis CEPR Discussion Paper No DP13290

62 Pages Posted 5 Nov 2018

Axel Dreher Heidelberg University

Valentin Lang University of Zurich

B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics

James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government

Date Written October 2018

Abstract

We show how major shareholders can exploit their power over international organizations to

hide their foreign-policy interventions from domestic audiences We argue that major powers

exert influence bilaterally when domestic audiences view the intervention favorably When

domestic audiences are more skeptical of a target country favors are granted via

international organizations We test this theory empirically by examining how the United

States uses bilateral aid and IMF loans to buy other countries votes in the United Nations

Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-

2015 period our results show that states allied with the US receive more bilateral aid when

voting in line with the United States in the UNSC while concurring votes of states less allied

with the US are rewarded with loans from the IMF Temporary UNSC members that vote

against the United States do not receive such perks

Keywords Aid IMF United Nations Security Council voting World Bank

JEL Classification F35 O11 O19

Page 2: Papers CIG 2018 - uniroma1.it

Asset Prices and Macroeconomic Outcomes A Survey

BIS Working Paper No 676

106 Pages Posted 11 Dec 2017

Stijn Claessens

Ayhan Kose

Abstract

This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes It

focuses on three major questions First what are the basic theoretical linkages between asset prices and

macroeconomic outcomes Second what is the empirical evidence supporting these linkages And third

what are the main challenges to the theoretical and empirical findings The survey addresses these

questions in the context of four major asset price categories equity prices house prices exchange rates

and interest rates with a particular focus on their international dimensions It also puts into perspective

the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic

outcomes and discusses possible future research directions

Keywords equity prices exchange rates house prices interest rates credit output consumption

investment real-financial linkages macrofinancial linkages imperfections frictions

Economic Convergence in the Euro Area Coming Together or Drifting Apart

IMF Working Paper No 1810

48 Pages Posted 8 Feb 2018

Jeffrey R Franks

International Monetary Fund affiliation not provided to SSRN

Bergljot Barkbu

International Monetary Fund (IMF)

Rodolphe Blavy

International Monetary Fund (IMF) - African Department

William Oman

International Monetary Fund (IMF)

Hanni Schoelermann

International Monetary Fund (IMF)

Date Written January 2018

Abstract

We examine economic convergence among euro area countries on multiple dimensions While there was

nominal convergence of inflation and interest rates real convergence of per capita income levels has not

occurred among the original euro area members since the advent of the common currency Income

convergence stagnated in the early years of the common currency and has reversed in the wake of the

global economic crisis New euro area members in contrast have seen real income convergence Business

cycles became more synchronized but the amplitude of those cycles diverged Financial cycles showed a

similar pattern sychronizing more over time but with divergent amplitudes Income convergence requires

reforms boosting productivity growth in lagging countries while cyclical and financial convergence can be

enhanced by measures to improve national and euro area fiscal policies together with steps to deepen the

single market

Keywords Business cycles Economic integration Euro Area Financial cycles Convergence

synchronization Economic and Monetary Union Optimum Currency Area Financial Aspects of Economic

Integration

JEL Classification E32 F15 F36 O47

Structural Reforms Growth and Inequality An Overview of Theory Measurement and Evidence

CESifo Working Paper Series No 6812

52 Pages Posted 21 Feb 2018

Nauro F Campos

Brunel University London - Economics and Finance Centre for Economic Policy Research (CEPR) University

of Michigan at Ann Arbor - The William Davidson Institute IZA Institute of Labor Economics

Paul De Grauwe

London School of Economics amp Political Science (LSE) CESifo (Center for Economic Studies and Ifo Institute

for Economic Research) Centre for Economic Policy Research (CEPR)

Yuemei Ji

University College London - School of Slavonic and East European Studies

Multiple version iconThere are 2 versions of this paper

Date Written January 15 2018

Abstract

This paper provides a critical overview of the state of the art in the economics literature on structural

reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence

We start with a simple theoretical framework for the relationship between structural reforms economic

growth and income inequality We argue that whether structural reforms have a positive or negative

impact depends on various factors The type of reform timing sequence and political constraints play

crucial roles in determining the effectiveness of reforms on economic growth and income inequality We

conclude by proposing a 7-point agenda for future research

Keywords structural reforms growth inequality

JEL Classification D600

Immigration assimilation and the future of public education

RyuichiTanaka LidiaFarre FrancescOrtega a

University of Tokyo Japan b

University of Barcelona Spain c

Queens College CUNY USA d

IAE-CSIC Spain

European Journal of Political Economy

Volume 52 March 2018 Pages 141-165

Abstract

This paper analyzes the effects of immigration on the size and quality of public education using a

quantitative political economy model that allows for a heterogeneous immigrant population Our analysis

distinguishes between short and long-run effects and accounts for the consequences of naturalization and

assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that

immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in

public education spending and almost a 1 percentage-point increase in the share of native households

using private schools Depending on the eventual degree of assimilation these trends will be greatly

intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that

assimilation in terms of family size and the value assigned to childrens education are the most relevant

dimensions quantitatively We also show that immigration policies that favor one group over another can

significantly alter the overall effects of immigration on the schooling system

Global Financial Cycles and the Exchange Rate

Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696

18 Pages Posted 14 Feb 2018

Maurice Obstfeld International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department

Date Written February 2018

Abstract

This paper examines the relevance of exchange rate regimes in the transmission of global

financial shocks to domestic financial and macroeconomic conditions Our findings suggest

that even in todays highly financially integrated world the nominal exchange rate regime

does matter-at least for emerging market economies The transmission of global financial

shocks to domestic variables is magnified under fixed exchange rate regimes relative to more

flexible regimes For advanced economies however the jury is still out as the recent paucity

of truly fixed regimes among these economies poses a challenge for estimating the effect of

exchange rate flexibility

Keywords emerging market economies global financial cycle trilemma

JEL Classification F31 F36 F41

Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815

47 Pages Posted 21 Feb 2018

Yvonne Giesing

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)

Date Written January 15 2018

Abstract

This paper establishes a causal link between the emigration of skilled workers and firm

performance in source countries Using firm-level panel data from ten Eastern European

countries we show that the emigration of skilled workers lowers firm total factor

productivity We exploit time country and industry differences in the opening of EU labor

markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from

new EU member states We argue that a potential channel behind this effect relates to the

reduction in firm-specific human capital due to a higher worker turnover

Keywords migration firm productivity human capital EU enlargement

JEL Classification O150 D240 F220 J240

Reserve Currency Blocs A Changing International

Monetary System IMF Working Paper No 1820

43 Pages Posted 20 Feb 2018

Camilo E Tovar International Monetary Fund

Tania Mohd Nor International Monetary Fund (IMF)

Date Written January 2018

Abstract

What is the extent of currency diversification in the international monetary system How

hasit evolved over time In this paper we quantify the degree of currency diversification

usingregression methods of currency co-movements to determine the extent to which

nationalcurrencies across the world belong to a reserve currency bloc We then use these

estimates tocalculate the economic size of each currency bloc A key contribution of our paper

is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the

internationalmonetary system has transitioned from a bi-polar system - consisting of the US

dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated

tocontinue to dominate having the largest share in global GDP (40 percent) followed by

therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence

forthe RMB bloc appears to be most evident among the BRICS currencies The British

poundand the Japanese yen blocs appear to play minor roles

Keywords Economic integration Foreign exchange International monetary system

Currency Bloc Internatinal Monetary System International Monetary Arrangements and

Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics

JEL Classification F15 F31 F33 F36 F41 O24

17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services

by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)

Abstract

About 8 cents out of every dollar spent in the United States is

spent on imports What if because of a wall or some other

extreme policy intervention imports were to remain on the other

side of the US border How much would US consumers be willing to

pay to prevent this hypothetical policy change from taking place

The answer to this question represents the welfare cost from

autarky or equivalently the welfare gains from trade In this

article we discuss how to evaluate these gains using the demand

for foreign factor services The estimates of gains from trade

for the US economy that we review range from 2 to 8 percent of

GDP

httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw

A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763

11 Pages Posted 6 Mar 2018

Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute

of Labor Economics

Prachi Mishra Government of India - Reserve Bank of India

Chris Papageorgiou International Monetary Fund (IMF) - Research Department

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)

University of Michigan at Ann Arbor - The William Davidson Institute

Date Written February 2018

Abstract

In this imaginary dialogue a populist and an economist discuss the role of economic shocks to

explain populism A simple correlation between economic shocks and populism is weak

However economic shocks can explain well the phenomenon of populism in countries with

low pre-existent level of trust This is confirmed both at the macro cross-country level and

also by micro evidence obtained from surveys Finally this finding is consistent with the

ideational approach in political science which emphasizes how the populist narrative

opposes the corrupt elite to the virtuous people

Keywords Europe Political parties populism

JEL Classification A10 A12

International Capital Flow Pressures IMF Working Paper No 1830

59 Pages Posted 14 Mar 2018

Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)

Signe Krogstrup IMF

There are 3 versions of this paper

Date Written February 2018

Abstract

This paper presents a new measure of capital flow pressures in the form of a recast

ExchangeMarket Pressure index The measure captures pressures that materialize in actual

internationalcapital flows as well as pressures that result in exchange rate adjustments The

formulation istheory-based relying on balance of payments equilibrium conditions and

international assetportfolio considerations Based on the modified exchange market pressure

index the paperalso proposes the Global Risk Response Index which reflects the country-

specific sensitivityof capital flow pressures to measures of global risk aversion For a large

sample of countriesover time we demonstrate time variation in the effects of global risk on

exchange marketpressures the evolving importance of the global factor across types of

countries and thechanging risk-on or risk-off status of currencies

Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange

Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven

Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General

JEL Classification F23 G11 G20 F32

Sovereign Defaults in Court CEPR Discussion Paper No DP12777

76 Pages Posted 13 Mar 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

Date Written March 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords debt restructuring enforcement government financing sovereign default

JEL Classification F34 G15 H63 K22

Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859

48 Pages Posted 20 Mar 2018

Florian Dorn

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-

University Munich Center for Economic Studies (CES)

Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written February 05 2018

Abstract

This paper re-examines the link between globalization and income inequality We use data for

140 countries over the period 1970-2014 and employ an IV approach to deal with the

endogeneity of globalization measures We find that the link between globalization and

income inequality differs across different groups of countries There is a robust positive

relationship between globalization and inequality in the transition countries including China

and most countries of Middle and Eastern Europe In the sample of the most advanced

economies neither OLS nor 2SLS results show any significant positive relationship between

globalization and inequality We conclude that institutions providing income insurance and

education which characterize most advanced economies but are less developed in transition

economies may have moderated effects of globalization on income inequality

Keywords globalization income inequality redistribution instrumental variable estimation

panel econometrics development levels transition economies China

JEL Classification D310 D630 F020 F600 C260 H110 H200

The US Gains from Trade Valuation Using the

Demand for Foreign Factor Services CEPR Discussion Paper No DP12788

34 Pages Posted 20 Mar 2018

Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of

Technology (MIT) - Department of Economics

Andres Rodriguez-Clare Inter-American Development Bank (IDB)

There are 2 versions of this paper

Date Written March 2018

Abstract

About 8 cents out of every dollar spent in the United States is spent on imports What if

because of a wall or some other extreme policy intervention imports were to remain on the

other side of the US border How much would US consumers be willing to pay to prevent this

hypothetical policy change from taking place The answer to this question represents the

welfare cost from autarky or equivalently the welfare gains from trade In this article we

discuss how to evaluate these gains using the demand for foreign factor services The

estimates of gains from trade for the US economy that we review range from 2 to 8 percent of

GDP

A Multidimensional Approach to Trade Policy

Indicators IMF Working Paper No 1832

38 Pages Posted 12 Mar 2018

Diego Cerdeiro International Monetary Fund (IMF)

Rachel Nam International Monetary Fund (IMF)

Date Written February 2018

Abstract

We present and discuss a set of indicators to help assess countries trade policies The

indicators relate to three policy areas - trade in goods trade in services and FDI Given

concerns about the direction of global trade policy we also consider a set of more granular

measures that reflect the evolution of countries policies since the 2008 financial crisis We

propose a simple approach to present the multidimensional aspects of trade policy that by

shedding light on relative openness across areas can facilitate policy discussions In the cross-

section of countries we find a diversity in the type of measures adopted both between and

(since the 2008 financial crisis) within policy areas lending support to the approach based on

multiple indicators The indicators time series suggest that advanced and especially

emerging economies are moving toward more open regimes over time although recently

progress has with some exceptions slowed across the board Lastly our findings also call for

stronger efforts to objectively quantify the different aspects of countries trade regimes More

data both across countries and in terms of policy areas that significantly affect trade are

needed for better-informed policy discussions

Keywords Foreign direct investment Trade policy indicators trade in goods services trade

trade barriers General Country and Industry Studies of Trade

JEL Classification F10 F14

Corporate Indebtedness and Low Productivity

Growth of Italian Firms IMF Working Paper No 1833

47 Pages Posted 12 Mar 2018

Gareth Anderson Bank of England

Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department

Date Written February 2018

Abstract

Productivity growth in Italy has been persistently anemic and has lagged that of the euro area

over the period 1999-2015 while the indebtedness of its corporate sector has increased

Using the ORBIS firm-level database this paper studies the long-term impact of persistent

corporate-debt accumulation on the productivity growth of Italian firms and investigates

whether total factor productivity growthvaries with the level of corporate indebtedness We

employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi

(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and

cross-sectional dependence arising from unobserved common factors (for example oil price

shocks labor and product market frictions and stance of global financial cycle) Filtering out

the effects of unobserved common factors and controlling for firm specific characteristics we

find significant negative effects of persistent corporate debt build-up on total factor

productivity growth and weak evidence of a threshold level of corporate debt beyond which

productivity growth drops off significantly Our results have strong policy implications for

example the design of the tax system should discourage persistent corporate debt

accumulation and effective and timely frameworks to reduce corporate debt overhangs are

essential

Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel

threshold models cross-sectional dependence Models with Panel Data Firm Behavior

Empirical Analysis General

JEL Classification C23 D22 D24 G30

Regulatory Cycles Revisiting the Political Economy of

Financial Crises IMF Working Paper No 188

90 Pages Posted 21 Mar 2018

Jihad C Dagher International Monetary Fund (IMF) - Research Department

There are 2 versions of this paper

Date Written January 2018

Abstract

Financial crises are traditionally analyzed as purely economic phenomena The political

economy of financial booms and busts remains both under-emphasized and limited to isolated

episodes This paper examines the political economy of financial policy during ten of the most

infamous financial booms and busts since the 18th century and presents consistent evidence

of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during

these episodes were often amplified by political regulatory stimuli credit subsidies and an

increasing light-touch approach to financial supervision The regulatory backlash that ensues

from financial crises can only be understood in the context of the deep political ramifications

of these crises Post-crisis regulations do not always survive the following boom The

interplay between politics and financial policy over these cycles deserves further attention

History suggests that politics can be the undoing of macro-prudential regulations

Keywords Political economy Political economy Financial crises Financial Regulation Boom-

Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and

Voting Behavior Positive Analysis of Policy-Making and Implementation General

Government Policy and Regulation General

JEL Classification D72 D78 G10 G18 N00 P16

Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872

26 Pages Posted 21 Mar 2018

Sanjit Dhami University of Leicester - Department of Economics

Ali al-Nowaihi University of Leicester - Department of Economics

Date Written February 12 2018

Abstract

We examine the various senses in which economist use the term ldquorationalityrdquo and then outline

some of the commonly drawn implications and auxiliary assumptions Finally we confront the

implications with the empirical evidence drawing on the insights from the exciting new field

of behavioral economics

Keywords rationality self-regarding preferences efficient markets heuristics optimization

JEL Classification B400

Nudging and Environmental Corporate

Responsibility A Natural Experiment CEIS Working Paper No 426

22 Pages Posted 3 Apr 2018

Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics

Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department

of Economics and Statistics

Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies

(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)

Date Written April 3 2018

Abstract

We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on

environmentally responsible products withwithout the increase of the responsible product

price We find that the simple use of a small shelf-poster explaining the importance of buying

a green product (withwithout a concurring price increase) generates significant changes in

market shares for some of the product classes for both food and non-food products Part of

the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-

increase treatment

Keywords nudging environmental sustainability randomised field experiment

JEL Classification C93 D12 M14 Q56

11 The Role of Financial Policy

by Roger Farmer - 24498 (EFG ME)

Abstract

I review the contribution and influence of Milton Friedmans 1968

presidential address to the American Economic Association I

argue that Friedmans influence on the practice of central

banking was profound and that his argument in favour of monetary

rules was responsible for thirty years of low and stable

inflation in the period from 1979 through 2009 I present a

critique of Friedmans position that market-economies are

self-stabilizing and I describe an alternative reconciliation of

Keynesian economics with Walrasian general equilibrium theory

from that which is widely accepted today by most neo-classical

economists

httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw

5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012

by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)

Abstract

We study immigrant entrepreneurship and firm ownership in 2007

and 2012 using the Survey of Business Owners (SBO) The survival

and growth of immigrant-owned businesses over time relative to

native-founded companies is evaluated by linking the 2007 SBO to

the Longitudinal Business Database (LBD) We quantify the

dependency of the United States as a whole as well as individual

states on the contributions of immigrant entrepreneurs in terms

of firm formation and job creation We describe differences in

the types of businesses started by immigrants and the quality of

jobs created by their firms First-generation immigrants create

about 25 of new firms in the United States but this share

exceeds 40 in some states In addition Asian and Hispanic

second-generation immigrants start about 6 of new firms

Immigrant-owned firms on average create fewer jobs than

native-owned firms but much of this is explained by the industry

and geographic location of the firms Immigrant-owned firms pay

comparable wages conditional on firm traits to native-owned

firms but are less likely to offer benefits

httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885

49 Pages Posted 9 Apr 2018

Axel Dreher University of Heidelberg

Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics

Sarah Langlotz University of Heidelberg

There are 2 versions of this paper

Date Written February 15 2018

Abstract

This article analyzes whether foreign aid affects the net flows of refugees from recipient

countries Combining refugee data on 141 origin countries over the 1976-2013 period with

bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos

aid receipts on both total refugee flows to the world and flows to donor countries The

interaction of donor-government fractionalization and a recipient countryrsquos probability of

receiving aid provides a powerful and excludable instrumental variable when we control for

country- and time-fixed effects that capture the levels of the interacted variables Although

our results suggest that aid induces recipient governments to encourage the return of their

citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor

countries in the short term However we observe long-run effects after four three-year

periods which appear to be driven by lagged positive effects of aid on growth

Keywords foreign aid Official Development Assistance migration refugees displaced

people humanitarian crises repatriation policies

JEL Classification F220 F350 F590 H840 O150 O190

The Political Economy of Ideas On Ideas Versus

Interests in Policymaking CEPR Discussion Paper No DP12820

44 Pages Posted 5 Apr 2018

Sharun Mukand University of Warwick - Department of Economics

Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)

National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written March 2018

Abstract

We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and

institutional change We make an explicit distinction between ideas and vested interests and

show how they feed into each other In doing so the paper integrates the Keynes-Hayek

perspective on the importance of ideas with the currently more fashionable Stigler-Becker

(in-terests only) approach to political economy We distinguish between two kinds of

ideational politics acircldquo the battle among different worldviews on the efficacy of policy

(worldview politics) versus the politics of victimhood pride and identity (identity politics)

Political entrepreneurs discover identity and policy memes (narratives cues framing) that

shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our

framework identifies a complementarity between worldview politics and identity politics and

illustrates how they may reinforce each other In particular an increase in identity

polarization may be associated with a shift in views about how the world works Furthermore

an increase in income inequality is likely to result in a greater incidence of ideational politics

Finally we show how ideas may not just constrain but also bite the interests that helped

propagate them in the first instance

Should Unemployment Insurance Be Centralized in a

State Union CESifo Working Paper Series No 6898

27 Pages Posted 19 Apr 2018

Robert Fenge University of Rostock - Department of Economics

Max Friese University of Rostock

Date Written February 21 2018

Abstract

This paper compares the decentral organization of unemployment insurance in member

states of a state union with the central organization at the upper unionrsquo level In a model of

two countries the labor force and the firm owners can migrate between the states Labor

markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a

decentral scenario the states organize independently unemployment insurance and decide

about the rate on wages contributed to the insurance budget Due to open borders they have

to take account of migration effects However with perfect mobility between the states each

government chooses a socially optimal contribution rate such that workers are fully insured

against unemployment In the central scenario the governments overestimate the costs of

insurance when bargaining about the contribution rate and observing the common insurance

budget of both countries This leads to a less than socially optimal contribution rate

Keywords unemployment insurance policy state union centralization migration

externalities

JEL Classification F660 H770 J650

Paris Climate Agreement and the Global Economy

Winners and Losers World Bank Policy Research Working Paper No 8392

Posted 3 Apr 2018

Muthukumara Mani World Bank

Zekarias Hussein Purdue University

G Badri Narayanan Purdue University - Center for Global Trade Analysis

Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)

Date Written April 2 2018

Abstract

The 2015 Paris Climate Agreement was the first instance of countries adhering to take a

collective action against global warming More than 190 countries came forward and

submitted their contributions in the form of Intended Nationally Determined Contributions

reflective of their ability and capacity to reduce greenhouse gas emissions as each country set

its own targets and actions For some countries it meant a significant decline in their

emissions by 2030 while others like China the United States and India decided on a more

gradual phasing out extending beyond 2030 This paper estimates the economic impacts of

implementation of the Paris Climate Agreement in terms of its implications for welfare gross

domestic product investments and trade for major countries and regions It uses a

computable general equilibrium framework to model global regional and country impacts

The analysis suggests that the economic impacts will be mostly felt in the European Union if

the Paris Agreement is fully implemented The European Union is likely to suffer a welfare

loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand

and Mexico will also be affected with an expected welfare loss of about 15 percent Some of

the major emitters such as China and India will experience minimal impacts to their welfare

and the United States will experience a welfare loss of only about 07 by 2030 The sectoral

analysis of production and trade suggests a significant loss to fossil fuelbased sectors while

clean energy sectors can experience significant gains

Keywords International Trade and Trade Rules Energy and Mining Energy and

Environment Energy Demand Global Environment Energy Policies amp Economics Science of

Climate Change Climate Change and Environment Climate Change and Health

Immigrants Residential Choices and Their

Consequences CEPR Discussion Paper No DP12842

59 Pages Posted 12 Apr 2018

Christoph Albert Universitat Pompeu Fabra Students

Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)

There are 2 versions of this paper

Date Written April 2018

Abstract

This paper investigates the causes and effects of the spatial distribution of immigrants across

US cities We document that a) immigrants concentrate in large high-wage expensive cities

b) the earnings gap between immigrants and natives is higher in larger more expensive cities

and c) immigrants consume less locally than natives In order to explain these findings we

develop a quantitative spatial equilibrium model in which immigrants consume a fraction of

their income in their countries of origin Thus immigrants care not only about local prices but

also about price levels in their home countries This gives them a comparative advantage

relative to natives for living in high-wage high-price high-productivity cities where they also

accept lower wages than natives These incentives are stronger for immigrants coming from

lower-price index countries of origin We rely on immigrant heterogeneity to estimate the

model With the estimated model we show that current levels of immigration have reduced

economic activity in smaller less productive cities by around 5 percent while they have

expanded it in large productive cities by around 6 percent This has increased total aggregate

output per worker by around 03 percent We also discuss the welfare implications of these

results

Keywords Immigration location choices spatial equilibrium

JEL Classification F22 J31 J61 R11

The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844

48 Pages Posted 12 Apr 2018

Thierry Mayer Sciences Po

Vincent Vicard Banque de France

Soledad Zignago Banque de France

There are 2 versions of this paper

Date Written April 2018

Abstract

In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each

country member has reaped from the European Union Thirty years after the terminology of

Non-Europe was used to give estimates of the gains from further integration we use modern

versions of the gravity model to estimate the trade creation implied by the EU and apply

those to counterfactual exercises where for instance the EU returns to a normal shallow-

type regional agreement or reverts to WTO rules Those scenarios are envisioned with or

without the exit of the United Kingdom from the EU (Brexit) happening which points to

interesting cross-country differences and potential cascade effects in doing and undoing of

trade agreements

Keywords European Union Gravity trade integration

JEL Classification F1

The Political Impact of Immigration Evidence from

the United States CEPR Discussion Paper No DP12848

57 Pages Posted 12 Apr 2018

Anna Maria Mayda

Georgetown University - Department of Economics IZA Institute of Labor Economics

Giovanni Peri University of California Davis - Department of Economics

Walter Steingress Government of Canada - Bank of Canada

Date Written April 2018

Abstract

In this paper we study the impact of immigration to the United States on the vote for the

Republican Party by analyzing county-level data on election outcomes between 1990 and

2010 Our main contribution is to separate the effect of high-skilled and low-skilled

immigrants by exploiting the different geography and timing of the inflows of these two

groups of immigrants We find that an increase in the first type of immigrants decreases the

share of the Republican vote while an inflow of the second type increases it These effects are

mainly due to the local impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find that the pro-Republican

impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards the Republican Party in places

where low-skilled immigrants are more likely to be perceived as competition in the labor

market and for public resources

Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party

JEL Classification F22 J61

15 Escaping Import Competition and Downstream Tariffs

by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)

Abstract

We propose and provide evidence for a new source of gains from

trade Firms invest in product differentiation to escape import

competition In the data and in the model these investments are

associated with increases in measured productivity introduction

of new goods and shifts to skill-intensive sectors Investment

in differentiation downstream leads upstream firms to also

invest in differentiation For China these downstream tariff

reductions lead to big increases in measured productivity for

upstream suppliers The effect on measured productivity is

larger for upstream than for downstream firms and we explain

this difference theoretically through heterogeneous changes in

markups

httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw

20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy

by Chong Xiang Stephen Yeaple - 24524 (ITI)

Abstract

A countrys welfare depends on its ability to accumulate

cognitive and noncognitive human capital However we do not

fully understand what makes some countries successful at

producing human capital and even struggle with measurement eg

international test scores are informative about the cognitive

dimension but neglect the non-cognitive dimension In this

paper we develop a multi-country open-economy

general-equilibrium framework in which countries ability to turn

resources into human capital along the cognitive and

non-cognitive dimensions is revealed by the endogenous

educational and occupational choices of its citizens and their

subsequent performance on international exams Our model allows

us to estimate countries underlying productivities of cognitive

and non-cognitive human capital We find that high test scores

do not necessarily imply high cognitive productivities (eg

Switzerland Hong Kong) and that many countries with low test

scores have high non-cognitive productivities (eg the US and

UK)

We then aggregate over these two dimensions to construct a single

educational quality index and illustrate its intuition using an

iso-education-quality curve We use our model to decompose

variation in output per capita across countries into a component

involving the educational quality index and another involving

output TFP This exact decomposition shows that the differences

in cognitive and noncognitive productivities across countries

have large implications for differences in output per worker

These results help quantify the potential payoffs of education

policies and clarify their objective eg excessive attention

to test scores may decrease aggregate output

International trade plays an important role in our model because

the gains from trade help to compensate a country for uneven

productivity across human capital types In counterfactual

exercises we show that if barriers to trade are completely

eliminated we would obtain a very different

iso-education-quality curve This implies large improvements of

overall education quality and large gains from trade for the

countries with strong comparative advantages in producing

cognitive (eg S Korea would gain 301 to 441 of its

output) or non-cognitive human capital (eg the Netherlands

would gain 188 to 556)

httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Il Contributo Della Demografia Alla Crescita

Economica Duecento Anni Di ldquoStoriardquo Italiana (The

Contribution of Demography to Italys Economic

Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431

37 Pages Posted 20 Apr 2018

Federico Barbiellini Amidei Bank of Italy

Matteo Gomellini Bank of Italy

Paolo Piselli Bank of Italy

Date Written March 28 2018

Abstract

Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita

economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro

Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra

come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave

lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con

ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente

negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale

contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre

sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash

lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del

lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili

legati allrsquoevoluzione nella struttura per etagrave

English Abstract This paper examines the contribution of demography to economic growth

in Italy by comparing the countryrsquos past present and future We use an accounting framework

to decompose GDP and per capita GDP growth and we show how changes in the age structure

of the population produced a positive demographic dividend in the past By contrast in the

last twenty-five years and arguably in the future demography has made and will continue to

make a direct negative contribution to economic growth Expected migration flows will

noticeably limit the extent of this negative contribution but they will not be able to reverse its

sign We analyze three possible developments potentially driven by demography itself or

fostered by policy actions ndash longer working lives an increase in female labour market

participation and higher education levels ndash which could counteract the pure negative

accounting effects produced by the evolution of the age structure

Note Downloadable document is in Italian

Keywords economic history demography demographic dividend forecasts

JEL Classification J11 N30

The Effects of Cash Transfers on Adult Labor Market

Outcomes World Bank Policy Research Working Paper No 8404

29 Pages Posted 16 Apr 2018

Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)

David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics

Berk Ozler World Bank - Development Economics Research Group (DECRG)

Date Written April 12 2018

Abstract

The basic economic model of labor supply has a very clear prediction of what should be

expected when an adult receives an unexpected cash windfall they should work less and earn

less This intuition underlies concerns that many types of cash transfers ranging from

government benefits to migrant remittances will undermine work ethics and make recipients

lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off

that can make this intuition misleading in low- and middle-income countries including

missing markets price effects from conditions attached to transfers and dynamic and general

equilibrium effects The paper uses this as a lens through which to examine the evidence on

the adult labor market impacts of a wide range of cash transfer programs government

transfers charitable giving and humanitarian transfers remittances cash assistance for job

search cash transfers for business start-up and bundled interventions Overall cash transfers

that are made without an explicit employment focus (such as conditional and unconditional

cash transfers and remittances) tend to result in little to no change in adult labor The main

exceptions are transfers to the elderly and some refugees who reduce work In contrast

transfers made for job search assistance or business start-up tend to increase adult labor

supply and earnings with the likely main channels being the alleviation of liquidity and risk

constraints

Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to

Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health

Care Services Industry

Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877

24 Pages Posted 23 Apr 2018

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

Date Written April 2018

Abstract

External trade affects the internal spatial structure of an economy promoting growth in some

cities or regions and decline in others Internal adjustment to these changes has often proved

to be extremely slow and painful This paper combines elements of urban and international

economics to draw out the implications of trade shocks for city performance Localisation

economies in production of internationally tradable goods mean that cities divide into two

types those producing tradables and those specialising in sectors producing just for the

national market (non-tradables) Negative trade shocks (and possibly also some positive

ones) reduce the number of cities engaged in tradable production increasing the number

producing just non-tradables This has a negative effect across all non-tradable cities which

lose population and land value Remaining tradable cities boom gaining population and land

value Depending on the initial position city size dispersion may increase this raising the

share of urban land-rents in national income and reducing the share of labour

Keywords de-industrialisation globalisation Polarisation urban

JEL Classification F12 R11 R12

Place-Based Policies for Development World Bank Policy Research Working Paper No 8410

75 Pages Posted 24 Apr 2018

Gilles Duranton University of Pennsylvania - Real Estate Department

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written April 17 2018

Abstract

Many development policies such as placement of infrastructure or local economic

development schemes are place-based Such policies are generally intended to stimulate

private sector investment and economic growth in the treated place and as such they are

difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of

such policies and assessing their social value It then reviews the literature on place-based

policies in the contexts of transport improvements economic corridors special economic

zones lagging regions and urban policies

Keywords Transport Services Labor Markets Urban Governance and Management Urban

Housing and Land Settlements Municipal Management and Reform Urban Housing

Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity

Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage

Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General

Manufacturing Construction Industry Pulp amp Paper Industry

Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4

79 Pages Posted 8 Dec 2017

Alexander A Popov European Central Bank (ECB)

Date Written December 6 2017

Abstract

This paper reviews and appraises the body of empirical research on the association between

financial markets and economic growth that has accumulated over the past quarter-century

The bulk of the historical evidence suggests that financial development affects economic

growth in a positive monotonic way yet recent research endeavors have provided useful and

important qualifications of this conventional wisdom Moreover the proliferation of micro-

level datasets has enabled researchers to study more precise links between theory and

measurement The paper highlights the mechanisms through which financial markets benefit

society as well as the channels through which finance can slow down long-term growth

Keywords financial markets growth

JEL Classification O4 G1

Why Has Economic Growth Slowed When Innovation Appears to be Accelerating

by Robert J Gordon - 24554 (DAE EFG PR)

Abstract

Measured between quarters with identical unemployment rates U

S economic growth slowed by more than half from 32 percent per

year during 1970-2006 to only 14 percent during 2006-16 and

only half of this GDP growth slowdown is accounted for diminished

productivity growth The paper starts from the proposition that

GDP growth matters not just productivity growth because slower

GDP growth provides fewer resources to address the nations

problems including faltering education aging infrastructure

and the looming shortfall in funding for Social Security and

Medicare and it also implies lower net investment and a reduced

rate at which new capital can embody the latest technology

The paper documents the contribution to slower GDP growth of the

separate components of demography -- fertility mortality life

expectancy and immigration Particular emphasis is placed on

the interaction between rising inequality and the slower secular

rise of life expectancy in the US compared to other developed

countries both in the form of a large gap in life expectancy

between rich and poor and the stagnation of life expectancy for

the lowest income quintile Further contributions to slowing

growth are made by a decline in the population share of both

legal and illegal immigration and a turnaround from rising to

declining labor force participation Rising inequality creates a

gap between the growth of average real per-capita income relative

to that of median real income and alternative measures of the

evolution of this gap are compared and assessed

Causes of declining productivity growth begin with the slowdown

in the rate of increase of educational attainment resulting from

the interplay of demand and supply factors including the

flattening of the college wage premium and the rising relative

price of college education Why did productivity growth decline

after 2006 despite an increase in the rate at which new US

patents were issued in 2006-16 compared to earlier decades Part

of the slowdown is attributed to the maturity of the IT

revolution which also helps to explain the trajectory of the

college wage premium Aspects of the productivity growth

slowdown include the declining productivity of research workers

diminishing returns to drug innovation and the evolutionary

rather than revolutionary impact of robots and artificial

intelligence which are replacing workers slowly and only in a

minority of industrial sectors throughout the economy Also

considered are alternative explanations of slower productivity

growth including low investment and mismeasurement

httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Childbearing Postponement its Option Value and the

Biological Clock CEPR Discussion Paper No DP12884

48 Pages Posted 23 Apr 2018

David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic

University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Aude Pommeret Universiteacute de Savoie

Date Written April 2018

Abstract

Having children is like investing in a risky project Postponing birth is like delaying an

irreversible investment It has an option value which depends on its costs and benefits and in

particular on the additional risks motherhood brings We develop a parsimonious theory of

childbearing postponement along these lines We derive its implications for asset

accumulation income optimal age at first birth and childlessness The structural parameters

are estimated by matching the predictions of the model to data from the National Longitudinal

Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase

with childbearing and this increase is stronger for more educated people This effect alone

can explain why the age at first birth and the childlessness rate both increase with education

We use the model to simulate two hypothetical policies Providing free medically assisted

reproduction technology does not affect the age at first birth much but lowers the

childlessness rate Insuring mothers against income risk is powerful in lowering the age at

first birth

Keywords Assisted reproduction technology Career uncertainty Late parenthood Real

option

JEL Classification D91 J13

Economic Upgrading Through Global Value Chain

Participation Which Policies Increase the Value

Added Gains World Bank Policy Research Working Paper No 8007

45 Pages Posted 1 May 2018

Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)

Daria Taglioni European Central Bank (ECB) - Directorate General Economics

Deborah E Winkler World Bank

Date Written March 16 2017

Abstract

The emergence of global value chains has opened up new ways to achieve development and

industrialization However new evidence shows that not all countries have gained from

participating in global value chains and that country-specific characteristics matter for

economic upgrading in global value chains This paper uses two panel data sets of developing

and industrialized countries at the sectoral level to relate global value chain participation as a

buyer and seller to domestic value added These are combined with a wide range of policy

measures at the country level that can play a role in economic upgrading through global value

chains by targeting global value chain integration or the quality and conditions of input and

output factors First the study finds that global value chain integration increases domestic

value added especially on the selling side which holds across all income levels Second the

results highlight the importance of policy for economic upgrading through global value chain

integration Although the study cannot claim causal evidence all the assessed policy areas are

consistently shown to mediate the effects of global value chains and magnify the gains for

domestic value added Third a detailed analysis shows that several policy areas mediate the

gains from global value chains more through integration as a seller Finally the study

observes that many of the results are driven by high- and upper-middle-income countries

Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp

Beverage Industry Construction Industry Business Cycles and Stabilization Policies General

Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper

Industry Plastics amp Rubber Industry Global Environment

Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami

by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)

Abstract

How does immigration affect labor market opportunities in a

receiving country This paper contributes to the voluminous

literature by reporting findings from a new (but very old) data

set Beginning in 1951 the Conference Board constructed a

monthly job vacancy index by counting the number of help-wanted

ads published in local newspapers in 51 metropolitan areas We

use the Help-Wanted Index (HWI) to document how immigration

changes the number of job vacancies in the affected labor

markets Our analysis begins by revisiting the Mariel episode

The data reveal a marked decrease in Miamis HWI relative to many

alternative control groups in the first 4 or 5 years after

Mariel followed by recovery afterwards We find a similar

initial decline in the number of job vacancies after two other

supply shocks that hit Miami over the past few decades the

initial wave of Cuban refugees in the early 1960s as well as the

1995 refugees who were initially detoured to Guantanamo Bay We

also look beyond Miami and estimate the generic spatial

correlations that dominate the literature correlating changes in

the HWI with immigration across metropolitan areas These

correlations consistently indicate that more immigration is

associated with fewer job vacancies The trends in the HWI seem

to most strongly reflect changing labor market conditions for

low-skill workers (in terms of both wages and employment) and a

companion textual analysis of help-wanted ads in Miami before and

after the Mariel supply shock suggests a slight decline in the

relative number of low-skill job vacancies

httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895

21 Pages Posted 1 May 2018

Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and

Statistics (CREST) Centre for Economic Policy Research (CEPR)

Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National

Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics

(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 2018

Abstract

Somatic distance or differences in physical appearance proves to be extremely important in

the gravity model of bilateral trade in conformity with results in other areas of economics and

outside of it in the social sciences This is also true quite independently of survey evidence

about bilateral trust These findings are obtained in a sample of the 15 members of the

European Economic Association in 1996 Robustness tests also show that somatic distance

has a more reliable influence on bilateral trade than the other cultural variables The article

finally discusses the interpretation and the breadth of application of these results

Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust

The Paradox of Global Thrift CEPR Discussion Paper No DP12894

59 Pages Posted 1 May 2018

Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate

School of Economics (Barcelona GSE)

Federica Romei LUISS Guido Carli University

Date Written April 2018

Abstract

This paper describes a paradox of global thrift Consider a world in which interest rates are

low and monetary policy cannot stabilize the economy because it is frequently constrained by

the zero lower bound Now imagine that governments complement monetary policy with

prudential financial and fiscal policies because they perceive that limiting private and public

borrowing during booms will help stabilize the economy by reducing the risk of financial

crises and by creating space for fiscal interventions during busts We show that these policies

while effective from the perspective of individual countries might backfire if applied on a

global scale In a financially integrated world in fact prudential policies generate a rise in the

global supply of savings or equivalently a drop in global aggregate demand In turn weaker

global aggregate demand depresses output in countries whose monetary policy is constrained

by the zero lower bound Due to this effect the world might paradoxically experience a fall in

output and welfare following the implementation of well-intended prudential policies

Keywords aggregate demand externalities Capital Flows current account policies fiscal

policies international cooperation Liquidity traps macroprudential policies zero lower

bound

JEL Classification E32 E44 E52 F41 F42

Multihorizon Currency Returns and Purchasing

Power Parity CEPR Discussion Paper No DP12893

59 Pages Posted 1 May 2018

Mikhail Chernov UCLA Anderson

Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics

There are 2 versions of this paper

Date Written April 2018

Abstract

Exposures of expected future depreciation rates to the current interest rate differential

violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon

Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the

two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the

depreciation rate inflation differential domestic and foreign yield curves Short-term

departures from PPP generate the first pattern The risk premiums for these departures

generate the second pattern

Keywords affine term structure model cointegration multiple horizons purchasing power

parity uncovered interest parity

Networks and Trade CEPR Discussion Paper No DP12891

33 Pages Posted 1 May 2018

Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for

Economic Policy Research (CEPR)

Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written April 2018

Abstract

Trade occurs between firms both across borders and within countries and the vast majority

of trade transactions includes at least one large firm with many trading partners This paper

reviews the literature on firm-to-firm connections in trade A growing body of evidence

coming from domestic and international transaction data has established empirical

regularities which have inspired the development of new theories emphasizing firm

heterogeneity among both buyers and suppliers in production networks Theoretical work

has considered both static and dynamic matching environments in a framework of many-to-

many matching The literature on trade and production networks is at an early stage and

there are a large number of unanswered empirical and theoretical questions

Keywords International Trade offshoring production networks productivity

JEL Classification F10 F12 F14 L11 L21

One More Time What are Institutions and How Do

They Change World Bank Policy Research Working Paper No 8422

39 Pages Posted 1 May 2018 Last revised 3 May 2018

Roumeen Islam World Bank

Date Written April 30 2018

Abstract

This paper defines institutions presents their basic characteristics and discusses forces for

institutional change It draws on a wealth of research and study by scholars in different fields

and follows from the flagship 2002 World Development Report on this topic including

relevant new research since then that illuminates key issues The definition of institutions

includes rules and organizations (specifically rules guiding peoples actions) The paper

emphasizes the diversity of institutions that can effectively perform similar functions the

arguments for and against standardization of institutions across specific transactions or

groups and the implications of these choices It highlights the relationship between informal

and formal institutions It discusses forces for institutional change influencing all economies

ranging from external shocks (whether they be economic or weather-related shocks or driven

by wars) to internal dynamics such as those following population growth or compositional

changes and those following technological innovations Many of these forces have a two-way

relationship with institutions they are affected by them and in turn influence whether and

when they change A special section is devoted to institutional transplants and their

effectiveness The paper concludes with a discussion of whether and under what conditions

institutional change can be externally directed and the lessons for aid donors

Keywords International Trade and Trade Rules Social Policy Common Property Resource

Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System

Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and

Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational

Sciences Competitiveness and Competition Policy

Globalization Government Popularity and the Great

Skill Divide

CEPR Discussion Paper No DP12897

56 Pages Posted 1 May 2018

Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics

Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and

Development (EBRD)

Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science

There are 2 versions of this paper

Date Written April 2018

Abstract

How does international trade affect the popularity of governments and leaders We provide

the first large-scale systematic evidence that the divide between skilled and unskilled

workers worldwide is producing corresponding differences in the response of political

preferences to trade shocks Using a unique data set including 118 countries and nearly

450000 individuals we find that growth in high skill intensive exports (of goods and

services) increases approval of the leader and incumbent government among skilled

individuals Growth in high skill intensive imports has the opposite effect There is no effect

on political approval among the unskilled To identify exogenous variation in international

trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our

findings suggest that the political effects of international trade differ with skill intensity and

that skilled individuals respond differently from their unskilled counterparts to trade shocks

Keywords International trade political approval political polarization skill intensity of

trade

Migratory Pressures in the Long Run International

Migration Projections to 2050 Banco de Espana Article 3817

9 Pages Posted 3 Jan 2018

Rodolfo G Campos Banco de Espantildea

Date Written December 5 2017

Abstract

This article presents bilateral international migration projections to 2050 based on a new

methodology that takes into account the population growth both in countries of origin and

countries of destination To do this the methodology used by Hanson and McIntosh (2016) to

project the future migratory flows to a sample of OECD countries is generalised to all

countries worldwide The United Nations population growth forecasts are used as a basis for

projecting future migratory flows The main findings of the exercise indicate that the number

of migrants is projected to increase from 28 of the world population in 2010 to around

35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa

Against this background and despite the slowdown in demographic growth in Latin America

the United States is expected to continue to receive high net immigration flows and to remain

the country with the highest stock of immigrants globally while continental Europe will post

larger net immigration flows

Immigration and Electoral Support for the Far-Left

and the Far-Right CESifo Working Paper Series No 6918

53 Pages Posted 7 May 2018

Anthony Edo Paris School of Economics (PSE)

Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)

Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and

Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of

Labor Economics

Date Written March 05 2018

Abstract

Immigration has become one of the most divisive political issues in the United States the

United Kingdom France and several other Western countries We estimate the impact of

immigration on voting for far-left and far-right candidates in France using panel data on

presidential elections from 1988 to 2017 To derive causal estimates we instrument more

recent immigration flows by past settlement patterns in 1968 We find that immigration

increases support for far-right candidates and has no robust effect on far-left voting The

increased support for far-right candidates is driven by low educated immigrants from non-

Western countries

Keywords voting immigration political economy

JEL Classification D720 F220 J150 P160

Institutions Trade and Development A Quantitative

Analysis CESifo Working Paper Series No 6920

64 Pages Posted 7 May 2018

Cosimo Beverelli World Trade Organization (WTO)

Alexander Keck World Trade Organization (WTO)

Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo

Institute for Economic Research GEP at the University of Nottingham

Yoto Yotov Drexel University - Department of Economics amp International Business

Date Written March 05 2018

Abstract

We propose and apply methods to quantify the impact of national institutions on international

trade and development We are able to identify the direct impact of country-specific

institutions on international trade within the structural gravity framework Our approach

naturally addresses the prominent issue of endogenous institutions The empirical analysis

offers robust evidence that stronger institutions promote trade A counterfactual analysis

reveals that the changes in institutional quality in the poor countries in our sample between

1996 and 2006 have had via their impact on imports from rich countries significant and

heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily

applicable to identifying the impact of a wide range of country-specific variables on

international trade

Keywords institutional quality international trade development structural gravity

JEL Classification F130 F140 F160

5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-

evaluating the Role of Monetary Policy in Economic Fluctuations

by Christiane Baumeister James D Hamilton - 24597 (EFG ME)

Abstract

Reporting point estimates and error bands for structural vector

autoregressions that are only set identified is a very common

practice However unless the researcher is persuaded on the

basis of prior information that some parameter values are more

plausible than others this common practice has no formal

justification When the role and reliability of prior

information is defended Bayesian posterior probabilities can be

used to form an inference that incorporates doubts about the

identifying assumptions We illustrate how prior information can

be used about both structural coefficients and the impacts of

shocks and propose a new distribution which we call the

asymmetric t distribution for incorporating prior beliefs about

the signs of equilibrium impacts in a nondogmatic way We apply

these methods to a three-variable macroeconomic model and

conclude that monetary policy shocks were not the major driver of

output inflation or interest rates during the Great Moderation

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11 The Political Impact of Immigration Evidence from the United States

by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)

Abstract

In this paper we study the impact of immigration to the United

States on the vote for the Republican Party by analyzing

county-level data on election outcomes between 1990 and 2010

Our main contribution is to separate the effect of high-skilled

and low-skilled immigrants by exploiting the different geography

and timing of the inflows of these two groups of immigrants We

find that an increase in the first type of immigrants decreases

the share of the Republican vote while an inflow of the second

type increases it These effects are mainly due to the local

impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find

that the pro-Republican impact of low-skilled immigrants is

stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards

the Republican Party in places where low-skilled immigrants are

more likely to be perceived as competition in the labor market

and for public resources

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23 The Impact of Exports on Innovation Theory and Evidence

by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)

Abstract

This paper investigates the effect of export shocks on

innovation On the one hand a positive shock increases market

size and therefore innovation incentives for all firms On the

other hand it increases competition as more firms enter the

export market This in turn reduces profits and therefore

innovation incentives particularly for firms with low

productivity Overall the positive impact of the export shock on

innovation is magnified for high productivity firms whereas it

may negatively affect innovation in low productivity firms We

test this prediction with patent customs and production data

covering all French manufacturing firms To address potential

endogeneity issues we construct firm-level export proxies which

respond to aggregate conditions in a firms export destinations

but are exogenous to firm-level decisions We show that

patenting robustly increases more with export demand for

initially more productive firms This effect is reversed for the

least productive firms as the negative competition effect

dominates

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Sovereign Defaults in Court CESifo Working Paper Series No 6931

75 Pages Posted 8 May 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

There are 3 versions of this paper

Date Written March 08 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords sovereign default enforcement government financing debt restructuring

JEL Classification F340 G150 H630 K220

ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172

54 Pages Posted 14 May 2018

Martina Cecioni Bank of Italy

Date Written May 3 2018

Abstract

The paper provides empirical evidence on the effects of ECB conventional and unconventional

monetary policy on the euro exchange rate focusing on the period from January 2013 to

September 2017 Innovations to conventional and unconventional monetary policies are

identified through changes in respectively short- and long-term interest rates immediately

after Governing Council meetings Both types of measures contributed to the depreciation of

the euro from mid-2014 surprises associated with conventional measures had a stronger and

more persistent effect than those associated with unconventional ones Time-varying

estimates of the effects of conventional surprises since 1999 show that the responsiveness of

exchange rates to monetary news increased markedly from 2013 State-dependence analysis

finds that the exchange rate became more sensitive to monetary policy when the ECB adopted

a policy of negative interest rates and when conventional and unconventional monetary

surprises moved in the same direction

Keywords unconventional monetary policy exchange rates European Central Bank

JEL Classification E52 E58 F31

The ECBs Fiscal Policy

by Hans-Werner Sinn - 24613 (ME)

Abstract

While the ECB helped mitigate the euro crisis in the aftermath of

Lehman it has stretched its monetary mandate and moved into

fiscal territory This text describes and summarizes the crucial

role played by the ECB in the intervention spiral resulting from

its bid to manage the crisis It also outlines ongoing

competitiveness problems in southern Europe discusses the

so-called austerity policy of the Troika comments on QE and

presents two alternative paths for the future development of

Europe

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Real Convergence in the Euro Area A Long-Term

Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6

102 Pages Posted 5 Dec 2017

Juan Luis Diaz del Hoyo European Central Bank (ECB)

Ettore Dorrucci European Central Bank (ECB)

Frigyes Ferdinand Heinz European Central Bank (ECB)

Sona Muzikarova European Central Bank (ECB)

Date Written December 1 2017

Abstract

In the euro area there is mixed evidence that the GDP per capita of lower-income economies

has been catching up with that of higher-income economies since the start of monetary union

The significant real convergence performance of some of the most recent members contrasts

with that of the economies of southern Europe which have not met expectations However

attributing all the blame for this outcome to the introduction of the single currency simply

misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this

paper shows that certain member countries began to face a ldquonon-convergence traprdquo long

before the euro years We also provide stylised facts on (i) the central role of total factor

productivity in driving real convergence in the euro area over time alongside other factors

and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and

institutional quality the other two key components of sustainable economic convergence We

conclude that it is critical that the euro area countries facing convergence challenges enhance

the resilience of their economic structures by improving the relevant institutions and

governance

Keywords sustainable economic convergence real convergence nominal convergence GDP

per capita Maastricht convergence criteria institutional quality labour productivity total

factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU

JEL Classification E01 F15 J11 O11 O43 O47 O52 O57

Monetary Policy Transmission in the Eastern

Caribbean Currency Union IMF Working Paper No 1870

31 Pages Posted 22 May 2018

Alla Myrvoda International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written March 2018

Abstract

This paper empirically investigates international and domestic monetary policy transmission

mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-

through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into

domestic interest rates through the interest rate channel While economic theory suggests

that the international pass-through should be high in small open economies with fixed

exchange rates and open capital accounts our findings based on regression analysis point to

a low long-run pass-through coefficient of the US interest rate The domestic transmission

channel however is found to operate through changes in the MSR The results hold for

different interest rates (deposit and lending) and are supported by survey-based findings

Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint

Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy

transmission interest rate pass-through ECCU monetary policy transmission interest rate

pass-through ECCU General Monetary Policy (Targets Instruments and Effects)

JEL Classification E43 E50 E52 F31 F33 F36 O54

On the Impact of Structural Reforms on Output and

Employment Evidence from a Cross-Country Firm-

Level Analysis IMF Working Paper No 1873

36 Pages Posted 22 May 2018

Luiza Antoun de Almeida International Monetary Fund (IMF)

Vybhavi Balasundharam University of Michigan at Ann Arbor

Date Written April 2018

Abstract

This paper analyzes the effects of selected structural reforms on output and employment in

the short and medium term It uses a comprehensive cross-country firm-level dataset

covering both advanced and emerging market economies over the period 2003-2014 In line

with previous studies it finds that structural reforms have in general a positive impact on

output and employment in the medium term Furthermore the paper also assesses whether

the impact of structural reforms varies with firm-specific characteristics such as size

leverage profitability and sector We find evidence that firm characteristics do influence the

effectiveness of structural reforms These findings have relevant policy implications as they

help policymakers tailor the design of structural reforms to maximize their payoffs taking

into account their heterogeneous impact on firms

Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed

countries Emerging markets structural reforms firm-level data Orbis dataset potential

growth

JEL Classification L51 D04 D22

Production Integration in the European Union CESifo Working Paper Series No 6944

34 Pages Posted 17 May 2018

Hakan Nordstrom Swedish Board of Trade

Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic

Studies and Ifo Institute)

Date Written March 21 2018

Abstract

Measured by trade in intermediate inputs economic integration has increased between 2000

and 2014 between members of the European Union and even more with non-members

Integration is negatively related to economic size and positively to the number of years as a

member Germany is the largest hub in the production network and the centre of gravity has

moved eastward Older member states are increasingly exporting service inputs and new

member states primary and manufacturing inputs Wages are increasing faster in countries

with low initial wages indicating wage convergence as a result of production integration

Keywords global value chains economic integration input-output models wage

convergence

JEL Classification E100 F100 F600 J310

Democratic Tipping Points CESifo Working Paper Series No 6945

36 Pages Posted 17 May 2018

Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy

Research (CEPR) Institute for the Study of Labor (IZA)

There are 2 versions of this paper

Date Written March 21 2018

Abstract

I examine whether transitory events can tip the scales against authoritarian regimes and lead

to persistent democratization I think of situations where this is a possibility as democratic

tipping points The transitory events I focus on are rainfall shocks in the most agricultural

countries in the world I show that while these shocks only affect agricultural output

contemporaneously they have persistent effects on political institutions Authoritarian

regimes experiencing negative rainfall shocks are more likely to be democratic three five and

ten years later

Keywords transitory shocks persistent democratization

Globalization and the New Normal IMF Working Paper No 1875

41 Pages Posted 22 May 2018

Bertrand Candelon University of Maastricht - Department of Economics

Alina Carare International Monetary Fund (IMF)

Jean-Baptiste Hasse

Aix-Marseille University

Date Written April 2018

Abstract

This study expands the empirical specification of Cerra and Saxena (2008) and allows short-

termoutput growth regimes to be determined by globalization Relying on a non-linear

dynamic panelrepresentation it reconciles the earlier results in the literature regarding the

two oppositenarratives of the effects of globalization on output growth Countries experience

higher growth onaverage the more open and integrated they are into the world However

once they reach a certainglobalization threshold (endogenously estimated) countries may

also experience a new normalpersistently lower short-term output growth following a

financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization

process for low- and middle-income countriesTo solely reap the globalization benefits on

growth sound policies should be in place to mitigatethe negative effects stemming from

increased vulnerabilities brought by globalization

Keywords Globalization Financial crisis Banking crisis Output growth New Normal

Globalization Financial crises Banking crises Output growth

JEL Classification F30 F43 F62 F65

Public Policy in an AI Economy

by Austan Goolsbee - 24653 (PE PR)

Abstract

This paper considers the role of policy in an AI-intensive

economy (interpreting AI broadly) It emphasizes the speed of

adoption of the technology for the impact on the job market and

the implications for inequality across people and across places

It also discusses the challenges of enacting a Universal Basic

Income as a response to widespread AI adoption discuss pricing

privacy and competition policy the question of whether AI could

improve policy making itself

httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Aggregate and Distributional Effects of Financial

Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883

62 Pages Posted 22 May 2018

Davide Furceri International Monetary Fund (IMF)

Prakash Loungani International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Date Written April 2018

Abstract

We take a fresh look at the aggregate and distributional effects of policies to

liberalizeinternational capital flows-financial globalization Both country- and industry-level

resultssuggest that such policies have led on average to limited output gains while

contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-

off Behindthis average lies considerable heterogeneity in effects depending on country

characteristicsLiberalization increases output in countries with high financial depth and

those that avoidfinancial crises while distributional effects are more pronounced in countries

with lowfinancial depth and inclusion and where liberalization is followed by a crisis

Difference-indifferenceestimates using sectoral data suggest that liberalization episodes

reduce the shareof labor income particularly for industries with higher external financial

dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic

shocks and thosewith a higher elasticity of substitution between capital and labor The

sectoral resultsunderpin a causal interpretation of the findings using macro data

Keywords Globalization Inequality Capital Account Openness Crises Institutions

JEL Classification F13 G32 O11

The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921

44 Pages Posted 15 May 2018

Francisco Roch International Monetary Fund (IMF)

Harald Uhlig University of Chicago - Department of Economics

There are 2 versions of this paper

Date Written May 2018

Abstract

Motivated by the recent European debt crisis this paper investigates the scope for a bailout

guarantee in a sovereign debt crisis Defaults may arise from negative income shocks

government impatience or a sunspot-coordinated buyers strike We introduce a bailout

agency and characterize the strategy with the minimal actuarially fair intervention which

guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual

financing The intervention makes it cheaper for governments to borrow inducing them

borrow more leaving default probabilities possibly rather unchanged The maximal backstop

will be pulled precisely when fundamentals worsen

Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-

term debt OMT Self-fulfilling Crises

JEL Classification F34 F41

Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia

by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki

Syamsulhakim - 24670 (CH DEV PE)

Abstract

Conditional cash transfer (CCT) programs have spread worldwide

and are designed to promote comprehensive human capital

investments in children starting from encouraging pre-natal and

maternal care and early childhood health interventions and

continuing through incentivizing school attendance Yet

evaluating these claims over more than a few years is hard as

most CCT experiments extend the program to the control group

after a short experimental period This paper experimentally

estimates the impacts of Indonesias cash transfer program (PKH)

six years after the program launched using data from about

14000 households in 360 sub-districts across Indonesia taking

advantage of the fact that treatment and control locations

remained largely intact throughout the period We find that PKH

continues to have large static incentive effects on many of the

targeted indicators increasing usage of trained health

professionals for childbirth dramatically and halving the share

of children age 7-15 who are not enrolled in school Wage labor

for 13-15 year olds was reduced by at least one-third We also

begin to observe impacts on outcomes that may require cumulative

investments for example six years later we observe large

reductions in stunting and some evidence of increased high school

completion rates The results suggest that CCT investments can

have substantial effects on the accumulation of human capital

and that these effects can persist even when programs are

operating at large-scale without researcher intervention

httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Services Development and Comparative Advantage in

Manufacturing World Bank Policy Research Working Paper No 8450

47 Pages Posted 23 May 2018

Xuepeng Liu Kennesaw State University - Department of Economics and Finance

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Zhi Wang George Mason University - Schar School of Policy and Government

Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre

for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of

Economics amp Management

Date Written May 22 2018

Abstract

Most manufacturing activities use inputs from the financial and business services sectors But

these services sectors also compete for resources with manufacturing activities provoking

concerns about de-industrialization -- financial services in industrial countries like the United

States and the United Kingdom and business services in developing countries like India and

the Philippines This paper examines the implications of services development for the export

performance of manufacturing sectors It develops a methodology to quantify the indirect role

of services in international trade in goods and constructs new measures of revealed

comparative advantage based on domestic value added in gross exports The paper shows

that the development of financial and business services enhances the revealed comparative

advantage of manufacturing sectors that use these services intensively but not that of other

manufacturing sectors It also finds that a country can partially overcome the handicap of an

underdeveloped domestic services sector by relying more on imported services inputs Thus

lower services trade barriers in developing countries can help to promote their

manufacturing exports

Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General

Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry

Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and

Trade Rules Trade and Services Financial Economics Finance and Development Economic

Growth Economic Theory amp Research Industrial Economics

Thou Shalt Not Breach The Impact on Sovereign

Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887

37 Pages Posted 22 May 2018

Federico Kalan International Monetary Fund (IMF)

Adina Popescu International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written April 2018

Abstract

There is evidence that fiscal rules in particular well-designed rules are associated with lower

sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not

been examined in the literature This paper estimates the effect of the Excessive Deficit

Procedure (EDP) on sovereign spreads of European Union member states Based on a sample

including the 28 European Union countries over the period 1999 to 2016 sovereign spreads

of countries placed under an EDP are found to be on average higher compared to countries

that are not under an EDP The interpretation of this result is not straight-forward as different

channels may be at play in particular those related with the credibility and the design of the

EU fiscal framework The specification accounts for typical macroeconomic fiscal and

financial determinants of sovereign spreads the System Generalized Method of Moments

estimator is used to control for endogeneity and results are robust to a range of checks on

variables and estimators

Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models

with Panel Data

JEL Classification E62 H60 C23

ldquoUnconventionalrdquo Monetary Policy as Conventional

Monetary Policy A Perspective from the US In the

1920s

FEDS Working Paper No 2018-019

45 Pages Posted 6 Jun 2018

Mark A Carlson Board of Governors of the Federal Reserve System

Burcu Duygan-Bump Federal Reserve Board

Date Written 2018-03-09

Abstract

To implement monetary policy in the 1920s the Federal Reserve utilized administered

interest rates and conducted open market operations in both government securities and

private money market securities sometimes in fairly considerable amounts We show how the

Fed was able to effectively use these tools to influence conditions in money markets even

those in which it was not an active participant Moreover our results suggest that the

transmission of monetary policy to money markets occurred not just through changing the

supply of reserves but importantly through financial market arbitrage and the rebalancing of

investor portfolios The tools used in the 1920s by the Federal Reserve resemble the

extraordinary monetary policy tools used by central banks recently and provide further

evidence on their effectiveness even in ordinary times

Keywords Monetary policy Unconventional monetary policy Central banking Administered

rates Money markets Quantitative easing

JEL Classification E52 E58 N22

New Perspectives on the Decline of US

Manufacturing Employment FEDS Working Paper No 2018-023

37 Pages Posted 7 Jun 2018

Teresa Fort Dartmouth College - Tuck School of Business

Justin R Pierce Federal Reserve Board

Peter Schott Yale School of Management National Bureau of Economic Research (NBER)

Date Written 2018-04-13

Abstract

We use relatively unexplored dimensions of US microdata to examine how US manufacturing

employment has evolved across industries firms establishments and regions from 1977 to

2012 We show that these data provide support for both trade- and technology-based

explanations of the overall decline of employment over this period while also highlighting the

difficulties of estimating an overall contribution for each mechanism Toward that end we

discuss how further analysis of these trends might yield sharper insights

Keywords Employment Manufacturing Output Technology Trade

AI and the Economy

by Jason Furman Robert Seamans - 24689 (PR)

Abstract

We review the evidence that artificial intelligence (AI) is

having a large effect on the economy Across a variety of

statistics--including robotics shipments AI startups and patent

counts--there is evidence of a large increase in AI-related

activity We also review recent research in this area which

suggests that AI and robotics have the potential to increase

productivity growth but may have mixed effects on labor

particularly in the short run In particular some occupations

and industries may do well while others experience labor market

upheaval We then consider current and potential policies around

AI that may help to boost productivity growth while also

mitigating any labor market downsides including evaluating the

pros and cons of an AI specific regulator expanded antitrust

enforcement and alternative strategies for dealing with the

labor-market impacts of AI including universal basic income and

guaranteed employment

httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Economic Policy for Artificial Intelligence

by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)

Abstract

Recent progress in artificial intelligence (AI) - a general

purpose technology affecting many industries - has been focused

on advances in machine learning which we recast as a

quality-adjusted drop in the price of prediction How will this

sharp drop in price impact society Policy will influence the

impact on two key dimensions diffusion and consequences

First in addition to subsidies and IP policy that will influence

the diffusion of AI in ways similar to their effect on other

technologies three policy categories - privacy trade and

liability - may be uniquely salient in their influence on the

diffusion patterns of AI Second labor and antitrust policies

will influence the consequences of AI in terms of employment

inequality and competition

httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Missing Profits of Nations

by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)

Abstract

By combining new macroeconomic statistics on the activities of

multinational companies with the national accounts of tax havens

and the worlds other countries we estimate that close to 40 of

multinational profits are shifted to low-tax countries each year

Profit shifting is highest among US multinationals the tax

revenue losses are highest for the European Union and developing

countries We show theoretically and empirically that in the

current international tax system tax authorities of high-tax

countries do not have incentives to combat profit shifting to tax

havens They instead focus their enforcement effort on

relocating profits booked in other high-tax countries--in effect

stealing revenue from each other This policy failure can

explain the persistence of profit shifting to low-tax countries

despite the high costs involved for high-tax countries We

provide a new cross-country database of GDP corporate profits

trade balances and factor shares corrected for profit shifting

showing that the global rise of the corporate capital share is

significantly under-estimated

httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums

by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)

Abstract

This paper studies the synchronization of financial cycles across

17 advanced economies over the past 150 years The comovement in

credit house prices and equity prices has reached historical

highs in the past three decades The sharp increase in the

comovement of global equity markets is particularly notable We

demonstrate that fluctuations in risk premiums and not risk-free

rates and dividends account for a large part of the observed

equity price synchronization after 1990 We also show that US

monetary policy has come to play an important role as a source of

fluctuations in risk appetite across global equity markets

These fluctuations are transmitted across both fixed and floating

exchange rate regimes but the effects are more muted in floating

rate regimes

httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Geography of Linguistic Diversity and the Provision of Public Goods

by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)

Abstract

This paper analyzes the importance of local interaction between

individuals of different linguistic groups for the provision of

public goods at the national level The micro-founded conceptual

framework we develop predicts that a countrys public goods (i)

decrease in its overall linguistic fractionalization and (ii)

either increase or decrease in its local learning multiplier a

measure of how local interaction affects antagonism towards other

groups in the society at large After constructing a 5 km by 5

km dataset on language use for 223 countries we empirically

explore these theoretical predictions While overall

fractionalization worsens public goods outcomes we find a

positive causal effect of local learning Conditional on a

countrys overall diversity public goods outcomes are maximized

when there are a few large-sized groups and the diversity of each

location mirrors that of the country as a whole Our large-scale

study spanning the entire globe confirms experimental

micro-evidence in favor of contact theory

httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Misfits in the Car Industry Offshore Assembly

Decisions at the Variety Level CEPR Discussion Paper No DP12940

39 Pages Posted 21 May 2018

Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics

Thierry Mayer Sciences Po

Date Written May 2018

Abstract

This paper estimates the role of countryvariety comparative advantage in the decision to

offshore assembly of more than 2000 models of 197 car brands headquartered in 23

countries While offshoring in the car industry has risen from 2000 to 2016 the top five

offshoring brands account for half the car assembly relocated to low-wage countries We show

that the decision to offshore a particular car model depends on two types of cost

(dis)advantage of the home country relative to foreign locations The first type the assembly

costs common to all models is estimated via a structural triadic gravity equation The second

effect model-level comparative advantage is an interaction between proxies for the models

skill and capital intensity and headquarter countrys abundance in these factors

Keywords cars Gravity offshoring

JEL Classification F1

Global Crises and Populism The Role of Eurozone

Institutions CEPR Discussion Paper No DP12944

46 Pages Posted 21 May 2018

Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)

Helios Herrera University of Warwick

Massimo Morelli Bocconi University

Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for

Economic Performance (CEP)

Date Written May 2018

Abstract

Populist parties are likely to gain consensus when mainstream parties and status quo

institutions fail to manage the shocks faced by their economies Institutional constraints

which limit the possible actions in the face of shocks result in poorer performance and

frustration among voters who turn to populist movements We rely on this logic to explain the

different support of populist parties among European countries in response to the

globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a

greater success of populist parties in response to these shocks in Euro zone countries and our

empirical analysis confirms this prediction This is consistent with voters frustration for the

greater inability of the Euro zone governments to react to di cult-to-manage globalization

shocks and financial crises Our evidence has implications for the speed of construction of

political unions A slow staged process of political unification can expose the EU to a risk of

political backlash if hard to manage shocks hit the economies during the integration process

Keywords Financial Dependence Frustration Globalization populism Relocation

JEL Classification D72 D78 F14 F16

Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954

50 Pages Posted 31 May 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Date Written May 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity

Translog

JEL Classification F14 F15 F33

Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960

76 Pages Posted 5 Jun 2018

Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR

Daragh Clancy European Stability Mechanism

Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs

Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic

Policy Research (CEPR)

There are 2 versions of this paper

Date Written May 2018

Abstract

This paper explores a natural connection between fiscal multipliers and foreign holdings of

public debt Although fiscal expansions can raise domestic economic activity through various

channels they can also have crowding-out effects if the resources used to acquire public debt

reduce domestic consumption and investment Thus these crowding-out effects are likely to

be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-

war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the

present To do so we assemble a novel database of public debt holdings by domestic and

foreign creditors for a large set of advanced economies We combine this data with standard

measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is

increasing in the share of public debt held by foreigners In particular the fiscal multiplier is

smaller than one when the foreign share is low such as in the US in the 1950s and 1960s

and Japan today and larger than one when the foreign share is high such as in the US and

Ireland today

Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt

JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63

Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961

26 Pages Posted 30 May 2018

Leonid V Azarnert Ariel University Center

Date Written April 09 2018

Abstract

This paper studies the effect of refugee resettlement on human capital accumulation The

analysis is performed in a growth model with endogenous fertility I show how refugee

resettlement from a more advanced and wealthier economy to a less advanced and less

wealthy economy combined with income transfers is Pareto-improving for indigenous

populations in both countries I also derive conditions for the proposed resettlement policy to

stimulate human capital accumulation and hence economic growth in both economies

Keywords refugee resettlement fertility human capital growth

JEL Classification D300 F220 J100 O100

The Impact of Trade Liberalization on Firm Productivity and Innovation

by Pian Shu Claudia Steinwender - 24715 (ITI PR)

Abstract

This chapter reviews the empirical economics literature on the

impact of trade liberalization on firms innovation-related

outcomes We define and examine four types of shocks to trade

flows import competition export opportunities access to

imported intermediates and foreign input competition Our

review reveals interesting heterogeneities at the country and

firm levels In emerging countries trade liberalization appears

to spur productivity and innovation In developed countries

export opportunities and access to imported intermediates tend to

encourage innovation but the evidence on import competition is

mixed especially for firms in the United States At the firm

level the positive effects of trade on innovation are more

pronounced at the initially more productive firms while the

negative effects are more pronounced at the initially less

productive firms

httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The IT Revolution and the Globalization of RampD

by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)

Abstract

Since the 1990s RampD has become less geographically concentrated

and has seen especially fast growth in emerging markets One of

the distinguishing features of the RampD globalization phenomenon

is its concentration within the softwareIT domain the increase

in foreign RampD has been largely concentrated within software and

IT-intensive multinationals and new RampD destinations are also

more software and IT-intensive multinationals than traditional

RampD destinations In this paper we document three important

phenomena (1) the globalization of RampD (2) the growing

importance of software and IT to firm innovation and (3) the

rise of new RampD hubs We argue that the shortage in

softwareIT-related human capital resulting from the large IT-

and software-biased shift in innovation drove US MNCs abroad and

particularly drove them abroad to new hubs with large

quantities of STEM workers who possessed IT and software skills

Our findings support the view that the globalization of US

multinational RampD has reinforced the technological leadership of

US-based firms in the information technology domain and that

multinationals ability to access a global talent base could

support a high rate of innovation even in the presence of the

rising (human) resource cost of frontier RampD

httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969

60 Pages Posted 5 Jun 2018

Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco

Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)

Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of

Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)

Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

There are 2 versions of this paper

Date Written June 2018

Abstract

This paper studies the synchronization of financial cycles across 17 advanced economies over

the past 150 years The comovement in credit house prices and equity prices has reached

historical highs in the past three decades The sharp increase in the comovement of global

equity markets is particularly notable We demonstrate that fluctuations in risk premiums

and not risk-free rates and dividends account for a large part of the observed equity price

synchronization after 1990 We also show that US monetary policy has come to play an

important role as a source of fluctuations in risk appetite across global equity markets These

fluctuations are transmitted across both fixed and floating exchange rate regimes but the

effects are more muted in floating rate regimes

Keywords asset prices equity return premium financial centers financial cycles policy

spillovers

JEL Classification E50 F33 F42 F44 G12 N10 N20

Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974

32 Pages Posted 11 Jun 2018

Hideki Nakamura Osaka City University

Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)

LUISS Guido Carli DPTEA

Date Written June 2018

Abstract

This paper presents a model of technical change that combines two lines of research together

It is a task based model in which automation turns labor tasks to mechanized ones and there

is also a continuous addition of new labor tasks as in the expanding variety literature We

impose three simple restrictions on the model The first is that all new tasks are adopted The

second is that all new automation innovations are adopted and the third is that the share of

labor does not converge to zero in the long run We show that these restrictions imply that

unemployment due to automation is expected to converge to zero over time

Keywords automation growth Labor Income Share technical change unemployment

JEL Classification J64 O14 O30 O40

Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976

56 Pages Posted 11 Jun 2018

Sergio de Ferra Stockholm University

Federica Romei LUISS Guido Carli University

Date Written June 2018

Abstract

In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound

have limited the ability of policy-makers in the European monetary union to achieve their

stabilization objective This paper investigates the interaction between sovereign default risk

and the conduct of monetary policy when borrowers can act strategically and they share with

their lenders a single currency in a monetary union We address this question in an

endogenous sovereign default model of heterogeneous countries in a monetary union where

the monetary authority may be constrained by the zero lower bound We uncover three main

results First in normal times debtors have a stronger incentive to default to induce more

expansionary monetary policy Second the zero lower bound or constraints on monetary

policy may act as a disciplining device to enforce repayment of sovereign debt Third

sovereign default risk induces countries with a preference for tight monetary policy to accept

a laxer policy stance These results help to shed light on the recent European experience of

high default risk expansionary monetary policy and low nominal interest rates

Keywords Heterogeneous Countries monetary union sovereign default zero lower bound

JEL Classification F34 F42 F45 H63

Evolution of Modern Business Cycle Models Accounting for the Great Recession

by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)

Abstract

Modern business cycle theory focuses on the study of dynamic

stochastic general equilibrium models that generate aggregate

fluctuations similar to those experienced by actual economies

We discuss how this theory has evolved from its roots in the

early real business cycle models of the late 1970s through the

turmoil of the Great Recession four decades later We document

the strikingly different pattern of comovements of macro

aggregates during the Great Recession compared to other postwar

recessions especially the 1982 recession We then show how two

versions of the latest generation of real business cycle models

can account respectively for the aggregate and the

cross-regional fluctuations observed in the Great Recession in

the United States

httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw

What Happened Financial Factors in the Great Recession

by Mark Gertler Simon Gilchrist - 24746 (EFG ME)

Abstract

Since the onset of the Great Recession an explosion of both

theoretical and empirical research has investigated how the

financial crisis emerged and how it was transmitted to the real

sector The goal of this paper is to describe what we have

learned from this new research and how it can be used to

understand what happened during the Great Recession In the

process we also present some new evidence on the role of the

household balance sheet channel versus the disruption of banking

We examine a panel of quarterly state level data on house

prices mortgage debt and employment along with a measure of

banking distress Then exploiting both panel data and time

series methods we analyze the contribution of the house price

decline versus the banking distress indicator to the overall

decline in employment during the Great Recession We confirm a

common finding in the literature that the household balance sheet

channel is important for regional variation in employment

However we also find that the disruption in banking was central

to the overall employment contraction

httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Changing Structure of Immigration to the OECD

What Welfare Effects on Member Countries CESifo Working Paper Series No 6992

40 Pages Posted 27 Jun 2018

Michał Burzyński Universite du Luxembourg

Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management

UK IZA Institute of Labor Economics

Hillel Rapoport Paris School of Economics (PSE)

Date Written April 24 2018

Abstract

We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and

2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we

develop a general equilibrium model that accounts for the main channels of transmission of

immigration shocks ndash the employment and wage effects the fiscal effect and the market size

effect ndash and for the interactions between them We parameterize our model for 20 selected

OECD member states We find that the three waves induce positive effects on the real income

of natives however the size of these gains varies considerably across countries and across

skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to

the previous ones This is due to the changing origin mix of immigrants which translates into

lower levels of human capital and smaller fiscal gains However differences across cohorts

explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic

benefits from immigration

Keywords immigration welfare crisis inequality general equilibrium

JEL Classification C680 F220 J240

Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470

19 Pages Posted 11 Jun 2018

Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia

Daniel Lederman World Bank - Latin America and Caribbean Region

Laura Zoratto World Bank

Date Written June 7 2018

Abstract

Recent literature has shown evidence of positive contributions of export promotion agencies

around the world in raising exports through the intensive and extensive margins of trade The

number of export promotion agencies has increased substantially over the past two decades

and most of them focus on assisting exporters in understanding and finding markets for their

products This paper describes the characteristics of export promotion agencies around the

world using a novel database from the World Bank in collaboration with the International

Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the

literature on the impacts of export promotion agencies

Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin

Trade Policy Trade and Multilateral Issues Trade and Services

Optimal Inflation and the Identification of the Phillips

Curve CEPR Discussion Paper No DP12981

29 Pages Posted 11 Jun 2018

Michael McLeay Bank of England - Monetary Assessment and Strategy Division

Silvana Tenreyro London School of Economics (LSE)

Date Written June 2018

Abstract

This paper explains why inflation follows a seemingly exogenous statistical process unrelated

to the output gap In other words it explains why it is difficult to empirically identify a Phillips

curve We show why this result need not imply that the Phillips curve does not hold -- on the

contrary our conceptual framework is built under the assumption that the Phillips curve

always holds The reason is simple if monetary policy is set with the goal of minimising

welfare losses (measured as the sum of deviations of inflation from its target and output from

its potential) subject to a Phillips curve a central bank will seek to increase inflation when

output is below potential This targeting rule will impart a negative correlation between

inflation and the output gap blurring the identification of the (positively sloped) Phillips

curve

Keywords identification Inflation targeting Phillips curve

GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980

43 Pages Posted 11 Jun 2018

Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII

Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 19 2018

Abstract

Geography economic size or common history help predicting signed regional trade

agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic

determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms

addressed in this paper We estimate the time-varying probability for a country pair to sign a

trade agreement and build upon structural gravity in general equilibrium to determine how

the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results

confirm that the endogenous geography of RTAs is shaped by the development of GVCs

Keywords preferential trade agreements global value chains structural gravity

JEL Classification F130 F140 F150

Diversity and Growth CEPR Discussion Paper No DP13011

37 Pages Posted 26 Jun 2018

Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and

Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group

(DECRG)

There are 2 versions of this paper

Date Written June 2018

Abstract

The diversity of social interaction within economic communities affects productivity and

growth and is itself shaped by economic conditions These reciprocal effects raise the

possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty

on a new path of social integration and economic growth through external intervention or an

internal political initiative This paper describes a simple analytical model that captures these

reciprocal effects and sheds light on the role of government capacity community leadership

federation and external credit or aid in achieving economic growth through social integration

The Economics of Language CEPR Discussion Paper No DP13002

85 Pages Posted 26 Jun 2018

Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School

Date Written June 2018

Abstract

The paper brings together methodological theoretical and empirical analysis into the single

framework of linguistic diversity It reflects both historical and contemporary research by

economists and other social scientists on the impact of language on economic outcomes and

public policies We examine whether and how language influences human thinking (including

emotions) and behavior analyze the effects of linguistic distances on trade migrations

financial markets language learning and its returns The quantitative foundations of linguistic

diversity which rely on group identification linguistic distances as well as fractionalization

polarization and disenfranchisement indices are discussed in terms of their empirical

challenges and uses We conclude with an analysis of linguistic policies and shifts of languages

and examine their welfare effects and the trade-offs between the development of labor

markets and the social costs that they generate in various countries

Financial and Fiscal Interaction in the Euro Area

Crisis This Time Was Different CEPR Discussion Paper No DP13016

39 Pages Posted 3 Jul 2018

Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in

Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank

(ECB)

Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE

Date Written June 2018

Abstract

This paper highlights the anomalous characteristics of the Euro Area `twin crises by

contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the

business cycle fluctuations of the previous decades We report three stylised facts First the

contraction in output was marked by an anomalous downfall in investment while

consumption savings and unemployment followed their historical relation with GDP Second

households and financial corporations debts and house prices deviated from their pre-crisis

trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and

so was the fiscal consolidation that followed Our analysis points to the financial nature of the

crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in

large part explained by extraordinary measures in support of the financial sector which show

up in the stock-flow adjustments and reveal a key interaction between the fiscal and the

financial sectors

Keywords Euro Area Government Debt Recessions

JEL Classification C11 C32 C54 E52 E62 F45

The Shocks Matter Improving Our Estimates of

Exchange Rate Pass-Through CEPR Discussion Paper No DP13037

43 Pages Posted 9 Jul 2018

Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic

Research (NBER)

Ida Hjortsoe

Bank of England

Tsvetelina Nenova Bank of England

There are 4 versions of this paper

Date Written July 2018

Abstract

A major challenge for monetary policy is predicting how exchange rate movements will

impact inflation We propose a new focus directly incorporating the underlying shocks that

cause exchange rate fluctuations when evaluating how these fluctuations pass through to

import and consumer prices A standard open-economy model shows that the relationship

between exchange rates and prices depends on the shocks which cause the exchange rate to

move We build on this to develop a structural Vector Autoregression (SVAR) framework for a

small open economy and apply it to the UK We show that prices respond differently to

exchange rate movements based on what caused the movements For example exchange rate

pass-through is low in response to domestic demand shocks and relatively high in response to

domestic monetary policy shocks This framework can improve our ability to estimate how

pass-through can change over short periods of time For example it can explain why sterlings

post-crisis depreciation caused a sharper increase in prices than expected while the effect of

sterlings 2013-15 appreciation was more muted We also apply this framework to forecast

the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote

to leave the European Union

Keywords consumer prices exchange rate pass-through import prices inflation vector

autoregressions

JEL Classification E31 F3 F41

Why Has Economic Growth Slowed When Innovation

Appears to Be Accelerating CEPR Discussion Paper No DP13039

29 Pages Posted 9 Jul 2018

Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)

Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written July 2018

Abstract

U S economic growth slowed by more than half from 32 percent per year during 1970-2006

to only 14 percent during 2006-16 and this decline was divided equally between slower

growth in hours of work and slower growth in output per hour In explaining slower growth

in hours particular emphasis is placed on the slower secular rise of life expectancy in the US

compared to other developed countries Further contributions to slowing growth are made by

a decline in the population share of both legal and illegal immigration and a turnaround from

rising to declining labor force participation Causes of declining productivity growth begin

with the slowdown in the rate of increase of educational attainment Why did productivity

growth decline after 2006 despite an increase in the rate at which new US patents were

issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the

maturity of the IT revolution which also helps to explain the trajectory of the college wage

premium Aspects of the productivity growth slowdown include the declining productivity of

research workers diminishing returns to drug innovation and the evolutionary rather than

revolutionary impact of robots and artificial intelligence

Keywords Economic Growth Immigration Innovation labor force participation Mortality

productivity

JEL Classification D24 E24

On DSGE Models

by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)

Abstract

The outcome of any important macroeconomic policy change is the

net effect of forces operating on different parts of the economy

A central challenge facing policy makers is how to assess the

relative strength of those forces Dynamic Stochastic General

Equilibrium (DSGE) models are the leading framework that

macroeconomists have for dealing with this challenge in an open

and transparent manner This paper reviews the state of DSGE

models before the financial crisis and how DSGE modelers

responded to the crisis and its aftermath In addition we

discuss the role of DSGE models in the policy process

httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports

by Andrew K Rose - 24817 (IFM ITI)

Abstract

I investigate whether countries that use unconventional monetary

policy (UMP) experience export booms I use a popular gravity

model of trade which requires neither the exogeneity of UMP nor

instrumental variables for UMP In practice countries that

engage in UMP experience a drop in exports vis-a-vis countries

that are not engaged in such policies holding other things

constant Quantitative easing is associated with exports that

are about 10 lower to countries not engaged in UMP this amount

is significantly different from zero and similar to the effect of

negative nominal interest rates Thus there is no evidence that

countries have gained export markets through unconventional

monetary policy currency wars that have been launched have also

been lost UMP is also associated with a comparable drop in

imports and exchange rates suggesting that countries engage in

UMP when they are experiencing adverse macroeconomic shocks

concurrent with those that eviscerate international trade

httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Granular Comparative Advantage

by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)

Abstract

Large firms play a pivotal role in international trade shaping

the export patterns of countries We propose and quantify a

granular multi-sector model of trade which combines fundamental

comparative advantage across sectors with granular comparative

advantage embodied in outstanding individual firms We develop

an SMM-based estimation procedure which takes full account of

the general equilibrium of the model to jointly estimate these

fundamental and granular forces using French micro-data with

information on firm domestic and export sales across

manufacturing industries We find that granularity accounts for

about 20 of the variation in realized export intensity across

sectors and is more pronounced in the most export-intensive

sectors In turn idiosyncratic firm dynamics accounts for a

large share of the evolution of a countrys comparative advantage

over time Governments face strong incentives to target trade

policy at large individual foreign exporters and to use lenient

antitrust regulation at home to substitute for

beggar-thy-neighbor trade policy

httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The State of New Keynesian Economics A Partial Assessment

by Jordi Gali - 24845 (EFG ME)

Abstract

I provide an overview of recent developments in monetary

economics with an emphasis on extensions of the New Keynesian

framework that assume a zero lower bound on the short term

nominal rate as well as models with household heterogeneity

httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Artificial Intelligence Economics and Industrial Organization

by Hal Varian - 24839 (IO PR)

Abstract

Machine learning (ML) and artificial intelligence (AI) have been

around for many years However in the last 5 years remarkable

progress has been made using multilayered neural networks in

diverse areas such as image recognition speech recognition and

machine translation AI is a general purpose technology that is

likely to impact many industries In this chapter I consider how

machine learning availability might affect the industrial

organization of both firms that provide AI services and

industries that adopt AI technology My intent is not to

provide an extensive overview of this rapidly-evolving area but

instead to provide a short summary of some of the forces at work

and to describe some possible areas for future research

httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066

20 Pages Posted 24 Jul 2018

Maurice Obstfeld International Monetary Fund (IMF)

Date Written July 2018

Abstract

As international capital markets expanded in breadth and depth after the middle 1990s

global current account imbalances also expanded markedly Some have linked the origin of

the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes

answers to four questions about the recent history of global imbalances Why did global

imbalances expand after the mid-1990s What circumstances and concomitant factors

provide clues about the origins of the GFC If one accepts that a mono-causal story about the

GFC based on global imbalances is inaccurate how should one view the potential threats from

excessive global imbalances today And finally what policy implications follow

Keywords current account global financial crisis (GFC) global imbalances IMF External

Sector Report

Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share

by David Autor Anna Salomons - 24871 (EFG LS)

Abstract

Many technological innovations replace workers with machines but

this capital-labor substitution need not reduce aggregate labor

demand because it simultaneously induces four countervailing

responses own-industry output effects cross-industry

input-output effects between-industry shifts and final demand

effects We quantify these channels using four decades of

harmonized cross-country and industry data where we measure

automation as industry-level movements in total factor

productivity (TFP) that are common across countries We find

that automation displaces employment and reduces labors share of

value-added in the industries in which it originates (a direct

effect) In the case of employment these own-industry losses

are reversed by indirect gains in customer industries and induced

increases in aggregate demand By contrast own-industry labor

share losses are not recouped elsewhere Our framework can

account for a substantial fraction of the reallocation of

employment across industries and the aggregate fall in the labor

share over the last three decades It does not however explain

why the labor share fell more rapidly during the 2000s

httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Dynamic Effects of Co-Ethnic Networks on

Immigrants Economic Success CESifo Working Paper Series No 7084

43 Pages Posted 21 Jul 2018

Michele Battisti University of Palermo LUISS Guido Carli University

Giovanni Peri University of California Davis - Department of Economics

Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Date Written June 06 2018

Abstract

This paper investigates how the size of co-ethnic networks at the time of arrival affect the

economic success of immigrants in Germany Applying panel analysis with a large set of fixed

effects and controls we isolate the association between initial network size and long-run

immigrant outcomes We also look at those who were assigned to an initial location

independently of their choice allows a causal interpretation of our estimates We find that

immigrants initially located in places with larger co-ethnic networks are more likely to be

employed at first but have a lower probability of investing in human capital

Keywords networks immigration human capital employment

JEL Classification J240 J610 R230

Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070

36 Pages Posted 31 Jul 2018

Karol Borowiecki University of Southern Denmark

Kathryn Graddy Brandeis University - Department of Economics

Date Written July 2018

Abstract

In order to investigate the role of immigrant artists on the development of artistic clusters in

US cities we use the US Census and American Community Survey collected every 10 years

since 1850 We identify artists and art teachers authors musicians and music teachers actors

and actresses architects and journalists their geographical location and their status as a

native or an immigrant We look at the relative growth rate of the immigrant population in

these occupations over a ten year period and how it affects the relative growth rate of native-

born individuals in these artistic occupations We find that cities that experienced immigrant

artist inflows also see a greater inflow of native artists

Keywords artistic occupations artists Immigration

JEL Classification J4 J6 N3 N9 Z1

Global Value Chains and Inequality with Endogenous Labor Supply

by Eunhee Lee Kei-Mu Yi - 24884 (ITI)

Abstract

We assess the role of global value chains in transmitting global

integration shocks to aggregate trade as well as distributional

outcomes We develop a multi-country general equilibrium trade

model that features multi-stage production with different stages

having different productivities and using factors (occupations)

with different intensities The model also features a Roy

mechanism in which heterogeneous workers endogenously choose

their sector and occupation Country- and worker-level

comparative advantages interact A reduction in trade costs

leads to countries specializing in their comparative advantage

sectors and production stages This specialization changes labor

demand and also leads to more workers shifting to their

comparative advantage sectors and occupations We calibrate our

model to the US China and the rest of the world in 2000 and

we simulate a decline in Chinas trade costs with the US

designed to mimic Chinas entry into the WTO Our simulation

results imply an increase in the skill premium in both the US

and China and the GVC ie specialization across stages is

critical to this outcome

httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective

by Robert J Gordon - 24891 (EFG)

Abstract

In the late 1960s the stable negatively sloped Phillips Curve

(PC) was overturned by the Friedman-Phelps natural rate model

Their PC was vertical in the long run at the natural unemployment

rate and their short-run curve shifted up whenever unemployment

was pushed below the natural rate This paper criticizes the

underlying assumption of the Friedman-Phelps approach that the

labor market continuously clears and that changes in unemployment

down or up occur only in response to fooling of workers firms

or both A preferable and resolutely Keynesian approach

explains quantity rationing by inertia in price and wage setting

The positive correlation of inflation and unemployment in the

1970s and again in the 1990s is explained by joining the

negatively sloped Phillips Curve with a positively sloped dynamic

demand curve For any given growth of nominal GDP higher

inflation caused by adverse supply shocks implies slower real GDP

growth and higher unemployment This triangle model based on

inflation inertia demand and supply worked well to explain why

inflation and unemployment were both positively and negatively

correlated between the 1960s and 1990s but in the past decade

the slope of the short-run Phillips Curve has flattened as

inflation exhibited a muted response to high unemployment in

2009-13 and low unemployment in 2016-2018 It remains to be

seen whether a continuation of low unemployment will cause a

modest and fixed extra amount of inflation thus reviving the

stable Phillips curve of the early 1960s or whether inflation

will continuously accelerate as Friedman and Phelps would have

predicted

httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Tax Policy Measures in Advanced and Emerging

Economies A Novel Database IMF Working Paper No 18110

61 Pages Posted 1 Aug 2018

David Amaglobeli International Monetary Fund (IMF)

Valerio Crispolti International Monetary Fund (IMF)

Era Dabla-Norris International Monetary Fund (IMF)

Pooja Karnane International Monetary Fund (IMF)

Florian Misch International Monetary Fund (IMF)

Date Written May 2018

Abstract

This paper describes a new comprehensive database of tax policy measures in 23 advanced

and emerging market economies over the last four decades We extract this information from

more than 900 OECD Economic Surveys and 37000 tax-related news from the International

Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset

lies in its granularity changes in the rates and bases of personal and corporate income taxes

value added and sale taxes social security contributions excise and property taxes are

systematically documented In addition the database provides information on the

announcement and implementation dates whether the measures represent major changes

are part of a broader tax package and phased in over several years The paper also presents a

range of stylized facts suggesting that information from this database is useful to deepen the

analysis of tax policy changes for research and policy purposes

Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value

added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets

Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax

Policy Implementation Lags Methodology for Collecting Estimating and Organizing

Macroeconomic Data General

JEL Classification C82 E61 H20 P16

Inequality Aversion Populism and the Backlash

Against Globalization CEPR Discussion Paper No DP13107

69 Pages Posted 21 Aug 2018

Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

Pietro Veronesi

University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 3 versions of this paper

Date Written August 2018

Abstract

Motivated by the recent rise of populism in western democracies we develop a model in

which a populist backlash emerges endogenously in a growing economy In the model voters

dislike inequality especially the high consumption of the ``elites Economic growth

exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality

rich-country voters optimally elect a populist promising to end globalization Redistribution is

of limited value in containing the backlash against globalization Countries with more

inequality higher financial development and current account deficits are more vulnerable to

populism both in the model and in the data Evidence on who voted for Brexit and Trump in

2016 also largely supports the model

Keywords Brexit Globalization inequality populism risk aversion Trump

JEL Classification D72 F65 G11 G12 G18 P16

Underemployment in the US and Europe

by David NF Bell David G Blanchflower - 24927 (IFM LS ME)

Abstract

Large numbers of part-time workers around the world both those

who choose to be part-time and those who are there involuntarily

and would prefer a full-time job report they want more hours

Full-timers who say they want to change their hours mostly say

they want to reduce them When recession hit in most countries

the number of hours of those who said they wanted more hours

rose sharply and there was a fall in the number of hours that

full-timers wanted their hours reduced by Even though the

unemployment rate has returned to its pre-recession levels in

many advanced countries underemployment in most has not

We produce estimates for a new and better underemployment rate

for twenty-five European countries In most underemployment

remains elevated We provide evidence for the UK and the US as

well as some international evidence that underemployment rather

than unemployment lowers pay in the years after the Great

Recession We also find evidence for the US that falls in the

home ownership rate have helped to keep wage pressure in check

Underemployment replaces unemployment as the main influence on

wages in the years since the Great Recession

httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Does Machine Translation Affect International Trade Evidence from a Large Digital Platform

by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)

Abstract

Artificial intelligence (AI) is surpassing human performance in a

growing number of domains However there is limited evidence of

its economic effects Using data from a digital platform we

study a key application of AI machine translation We find

that the introduction of a machine translation system has

significantly increased international trade on this platform

increasing exports by 175 Furthermore heterogeneous

treatment effects are all consistent with a substantial reduction

in translation-related search costs Our results provide causal

evidence that language barriers significantly hinder trade and

that AI has already begun to improve economic efficiency in at

least one domain

httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The US Personal Saving Rate IMF Working Paper No 18128

35 Pages Posted 1 Aug 2018

Sam Ouliaris International Monetary Fund (IMF)

Celine Rochon University of Oxford IMF

Date Written June 2018

Abstract

This paper develops a time series model for aggregate consumption to predict the US

personal saving rate It then uses the model to test whether there has been a structural break

in consumption behavior because of the 2008 financial crisis Before the crisis the personal

saving rate was trending downwards However in 2008 there was a significant rise in the

saving rate that continued until the end of 2012 suggesting a permanent change in household

behavior To assess this issue formally the unknown parameters of the model are estimated

using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to

predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate

after 2008 was due to sizable but transitory incomewealth shocks or to changes in the

underlying elasticities between saving and its determinants (hence structural) The statistical

evidence suggests there was no structural break in the household saving behavior implying

that the rise in the saving rate during 2008-2012 was caused by the negative shocks to

income employment and wealth This result explains why the saving rate resumed its decline

in 2013 as real disposable income employment and net worth recovered Assuming that the

real growth in these determinants remains strong the estimated model predicts continued

negative pressures on the current account deficit and further external imbalances attributable

to the US household sector

Keywords United States Western Hemisphere consumption behavior personal saving rate

vector error-correction model structural break Consumer Economics Empirical Analysis

Personal Finance Forecasting and Simulation

JEL Classification D12 D14 E21 E27

Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123

49 Pages Posted 24 Aug 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 2 versions of this paper

Date Written June 28 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog

JEL Classification F140 F150 F330

How Do Migration and Remittances Affect Inequality

A Case Study of Mexico IMF Working Paper No 18136

22 Pages Posted 1 Aug 2018

Zsoka Koczan International Monetary Fund (IMF)

Franz Loyola International Monetary Fund (IMF)

Date Written June 2018

Abstract

The poverty-reducing effects of remittances have been well-documented however their

effects on inequality are less clear This paper examines the impact of remittances on

inequality in Mexico using household-level information on the receiving side It hopes to

speak to their insurance role by examining how remittances are affected by domestic and

external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that

remittances lower inequality and that they become more pro-poor over time as migration

opportunities become more widespread This also strengthens their insurance effects

mitigating some of the negative impact of shocks on the poorest

Keywords Migration Remittances Financial crises Income inequality Income distribution

Poverty reduction inequality Firm Behavior International Lending and Debt Problems

JEL Classification D21 F32 F34 J61 D31 F22 F24

Exchange Rate Forecasting on a Napkin

ECB Working Paper No 2151

Contact MICHELE CAZORZI

European Central Bank (ECB)

Email michelecazorziecbint

Auth-Page httpsssrncomauthor=343031

Co-Author MICHAŁ RUBASZEK

National Bank of Poland Warsaw

School of Economics (SGH)

Email michalrubaszeknbppl

Auth-Page httpsssrncomauthor=850188

Full Text httpsssrncomabstract=3183690

ABSTRACT This paper shows that there are two regularities in

foreign exchange markets in advanced countries with flexible

regimes First real exchange rates are mean-reverting as

implied by the Purchasing Power Parity model Second the

adjustment takes place via nominal exchange rates These features

of the data can be exploited even on the back of a napkin to

generate nominal exchange rate forecasts that outperform the

random walk The secret is to avoid estimating the pace of mean

reversion and assume that relative prices are unchanged Direct

forecasting or panel data techniques are better than the random

walk but fail to beat this simple calibrated model

______________________________

Home Sweet Home The Effect of Sugar Protectionism

on Emigration in Italy 1876-1913 CEIS Working Paper No 437

49 Pages Posted 29 Jun 2018

Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics

Alberto Dalmazzo University of Siena - Department of Economics

Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and

Ifo Institute for Economic Research)

Date Written June 8 2018

Abstract

Protectionist policies are often considered or even implemented as a reaction to increasing

globalization This is not new in history This paper uses the introduction of import duties on

sugar in the late nineteenth century Italy to measure the impact of protectionism on migration

out flows at the time of the fi

rst globalization Both for climate reasons and the nature of the soil the cultivation and

processing of sugar beets was geographically concentrated in a small area leading de facto to

a regional protectionist policy Our theoretical model illustrates how a tariff that favours local

producers may affect residents incentives to migrate abroad The predictions of the model

are tested with the synthetic control method which uses the variation in sugar cultivation

across areas to estimate the effect of interest Our results show that protectionism effectively

reduced the relative incentive to migrate away from sugar-producing areas

Keywords protectionism regional economics migrations 19th century Italy

JEL Classification N93 J4 C23

Integrating Services in the Economic Fitness

Approach World Bank Policy Research Working Paper No 8485

35 Pages Posted 28 Aug 2018

Andrea Zaccaria Sapienza University of Rome

Saurabh Mishra International Monetary Fund (IMF)

Masud Z Cader World Bank - International Finance Corporation (IFC)

Luciano Pietronero Sapienza University of Rome

Date Written June 21 2018

Abstract

Economic Complexity is a set of network-based and algorithmic methods for the study of

economic development and competitiveness In this framework Economic Fitness is an

innovative approach that improves the mathematical and conceptual scheme For

convenience these methods were originally conceived on trade in goods This paper extends

the Economic Fitness methodology to include a trade in services element to yield a universal

matrix of world trade and thus provide a more complete picture of a countrys development

and global competitiveness The paper applies two algorithms to the universal trade in goods

and services matrix to contrast country competitiveness and change in complexity and

diversification when services are added to the traditional goods-only matrix The results show

that (i) the competitiveness of many countries was previously over- or underestimated that

is many countries gain or lose positions in the ranking of economic fitness when services

trade is considered alongside goods and (ii) complex services tend to cluster with complex

manufacturing suggesting a common capabilities structure These findings show how

developing complex services aids diversification strategies for developing countries

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry

Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp

Paper Industry Trade and Services Macroeconomic Management ICT Applications

Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491

39 Pages Posted 28 Aug 2018

Edith Laget World Bank

Alberto Osnago World Bank

Nadia Rocha World Trade Organization

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written June 25 2018

Abstract

Preferential trade agreements have become deeper over time often encompassing policy

areas that go beyond traditional trade policy such as investment competition and intellectual

property rights protection In the literature a prominent argument why countries sign deep

agreements is to promote and facilitate the operation of global value chains This paper

exploits a new data set on the content of trade agreements and data on trade in value added

and in parts and components to quantify the impact of the depth of trade agreements on

bilateral cross-border production linkages The results show that adding a policy area to a

trade agreement increases the domestic value added of intermediates (forward global value

chain linkages) and the foreign value added of intermediates (backward global value chain

linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of

deep trade agreements is higher for higher value-added industries suggesting that deep

agreements help countries to integrate in industries with higher levels of value added For a

larger sample of countries and years the results confirm that an additional provision in a

trade agreement increases bilateral trade in parts and components by 03 percent The

content of trade agreements also matters for global value chain integration but the impact

varies by income group Provisions outside the current mandate of the World Trade

Organization (investment and competition policy) drive the effect of trade agreements on

North-South trade in parts and components Provisions under the current World Trade

Organization mandate (tariff reduction and customs facilitation) drive the effect of trade

agreements on South-South trade in parts and components

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Competition Policy Competitiveness and

Competition Policy Trade Finance and Investment

The Effect of Immigration on Natives School

Achievement Does Length of Stay in the Host

Country Matter World Bank Policy Research Working Paper No 8492

62 Pages Posted 28 Aug 2018

Laurent Bossavie The World Bank

Date Written June 25 2018

Abstract

Using a rich data set of primary school students this paper estimates the effects of immigrant

concentration in the classroom on the academic achievement of natives In contrast with

previous contributions it exploits rare information on age-at-migration to estimate separate

spillover effects by duration of stay of immigrant classmates To identify treatment effects it

uses cohort-by-cohort deviations in immigrant concentration within schools combined with

attractive features of the Dutch school system Overall the paper finds no effect of the

concentration of immigrant students on natives test scores However although immigrant

students who have been in the country for some time have virtually no effect on natives the

analysis finds a small negative effect of recent immigrants in the classroom on natives test

scores The effect is significant only for language test scores but insignificant for mathematics

test scores When significant effect sizes are quite small compared to other educational

interventions and classroom peer effects estimated in other contexts

Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities

Educational Sciences International Migration Migration and Development Human Migrations

amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities

Trade and Immigration 1870-2010

by David S Jacks John P Tang - 25010 (DAE)

Abstract

In this chapter we describe long-run trends in global

merchandise trade and immigration from 1870 to 2010 We revisit

the reasons why these two forces moved largely in parallel in the

decades leading up to World War I collapsed during the interwar

period and then rebounded (but with much more pronounced growth

in trade than in immigration) More substantively we also

document a large redistribution in the regional sources of goods

and people with a shift from the former industrialized core

countries--especially Europe--to those in the former

periphery--especially Asia--as well as a very striking change in

the composition of merchandise trade towards manufactured goods

precisely dating from 1950 Finally using a triple differences

framework in combination with a dramatic change in US immigration

policy we find evidence that immigration and trade potentially

acted as substitutes at least for the United States in the

interwar period

httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Attitudes Towards Euro Area Reforms Evidence from

a Randomized Survey Experiment CESifo Working Paper Series No 7141

35 Pages Posted 28 Aug 2018

Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics

Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students

Date Written July 09 2018

Abstract

We present the first evidence on public attitudes towards two prominent euro area reform

proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)

and assess potential impediments to their implementation by means of a randomized survey

experiment in Germany We find that there is a low willingness among German voters to

accept fiscal risk-sharing through common unemployment insurance while a sovereign

insolvency procedure aimed at strengthening market discipline is supported by a majority of

the electorate Our randomized treatments confronting survey participants with potential

adverse effects of the reforms lead to significant downward shifts in approval rates Altruism

cosmopolitanism political preferences and income are important predictors of support for

the reform proposals We also show that there is a striking contrast between the low level of

support for transfers to other euro area member states and a broad acceptance of inner

German transfers

Keywords public attitudes euro area reforms European unemployment insurance

sovereign insolvency procedure

JEL Classification H550 H240 J260 D140

The Economic Effects of Refugee Return and Policy

Implications World Bank Policy Research Working Paper No 8497

65 Pages Posted 28 Aug 2018

Uri Dadush World Bank

Date Written June 27 2018

Abstract

The recent surge in the number of forcibly displaced who cross international borders in

search of protection has prompted interest in evaluating policies that achieve the possible

end points of the phenomenon As envisaged by United Nations High Commissioner for

Refugees (UNHCR) these are the integration in the country of destination relocation in a

third country and return to the country of origin The focus of this paper is on the third

aspect namely the appropriate conduct of return policy viewed from the perspective of the

host country More specifically the main question is whether it is in the economic self-interest

of host countries to return forcibly displaced persons In addressing the question four

ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their

return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of

refugees and of their return and (iv) how return policy should be formulated and executed

The available evidence and analyses allow this papers main conclusion namely that the costs

of hosting asylum seekers and refugees are front-loaded while the benefits accruing from

their integration into the labor market and the host economy typically take years to

materialize It follows that from the economic perspective their return after a short stay may

represent a costlier option than continuing to invest in their successful integration Countries

with a flexible labor market strong investment climate and a welcoming attitude to

immigrants tend to see the economic benefits of refugee inflows materialize faster

The Effect of Remittances on the Current Account in

Developing and Emerging Economies World Bank Policy Research Working Paper No 8498

26 Pages Posted 28 Aug 2018

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written June 27 2018

Abstract

This paper presents an analysis of the effect of remittances on the current account in

developing and emerging economies incorporating an assessment of the extent to which

exchange rate regimes impact the relationship The main findings suggest there is a positive

effect of remittances on the current account contemporaneously but that the lagged effect is

negative which could be indicative of the existence of some underlying mechanisms

characteristic of the Dutch disease phenomenon In addition the results show that a more

flexible exchange regime dampens the contemporaneous positive effect that remittances have

on the current account The paper therefore asserts that policy makers face trade-offs

pertaining to the use of exchange rate policy in managing the effects of remittances on the

current account which should be given due consideration when such policy choices are made

Learning About Fiscal Multipliers During the

European Sovereign Debt Crisis Evidence from a

Quasi-Natural Experiment ECB Working Paper No 2154

30 Pages Posted 18 Jun 2018

Gόrnicka Lucyna IMF

Christophe Kamps European Central Bank (ECB)

Gerrit B Koester European Central Bank (ECB)

Nadine Leiner-Killinger European Central Bank (ECB)

Date Written May 30 2018

Abstract

Identifying fiscal multipliers is usually constrained by the absence of a counterfactual

scenario Our new data set allows overcoming this problem by making use of the fact that

recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline

no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the

macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU

countries to which 48 EDP recommendations were applied between 2009 and 2015 we

derive country-specific fiscal multipliers as actually applied by forecasters during the crisis

Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned

during the crisis According to our findings fiscal multipliers as applied by the European

Commission increased over time ndash from about 14 in the early years of the crisis to about 23

in the later years However different from Blanchard and Leigh (2013 2014) we do not find

evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1

during the crisis

Keywords fiscal consolidation fiscal multipliers business cycle

JEL Classification E32 E62 H20 H5

Trade in Developing East Asia How it Has Changed

and Why it Matters World Bank Policy Research Working Paper No 8533

58 Pages Posted 28 Aug 2018

Ileana Cristina Constantinescu World Bank

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written July 13 2018

Abstract

East Asia for long the epitome of successful engagement in trade faces serious challenges

technological change that may threaten the very model of labor intensive industrialization

and a backlash against globalization that may reduce access to important markets A detailed

analysis of the evolution of East Asias trade and trade policy in goods and services leads to

the conclusion that how East Asia copes with these global challenges will depend on how it

addresses three more proximate national and regional challenges The first is the emergence

of one East Asian country China as a global trade giantaccounting for nearly one-seventh of

global exports and one-tenth of global imports -- which is fundamentally altering the trading

patterns and opportunities of its neighbors The second is the asymmetric implementation of

national reform -- remarkable openness to goods trade and investment coexists with relative

restrictiveness of services policies -- which is affecting the evolution of comparative

advantage and productivity in each country The third is the divergence between the

relatively shallow and fragmented agreements that regulate the regions trade and

investment and the growing importance of regional and global value chains as crucial drivers

of productivity growth

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies

Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp

Leather Industry Export Competitiveness Industrial and Consumer Services and Products

Transport and Trade Logistics

Who are Americas Star Firms World Bank Policy Research Working Paper No 8534

70 Pages Posted 28 Aug 2018

Meghana Ayyagari George Washington University - School of Business

Asli Demirguc-Kunt World Bank

Vojislav Maksimovic University of Maryland - Robert H Smith School of Business

There are 2 versions of this paper

Date Written July 13 2018

Abstract

There is wide spread concern about a growing gap between top-performing publicly listed

firms and the rest of the economy and the implications of this for rising inequality in the US

Using conventional return calculations there is indeed a widening gap between star firms

(defined as those in top 10 percent of return on invested capital in any year) and the rest of

the economy over time especially in industries that rely on a skilled labor force However

once measurement error in intangible capital is accounted for this gap shrinks dramatically

and has not been widening over time While pricing power as measured by markups predicts

star firm status a large fraction of star firms have low markups and there is no evidence that

star firms are cutting output or investment more than other firms for the same markup The

effect of star status is persistent Five years later star firms have higher growth profits and

Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with

much higher returns and the potential to exercise market power in the future

Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles

Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common

Carriers Industry Construction Industry General Manufacturing Labor Markets Employment

and Unemployment

Bought Sold and Bought Again The Impact of

Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535

45 Pages Posted 28 Aug 2018

Francois Michel Marie Raphael De Soyres World Bank

Erik Frohm World Bank

Vanessa Gunnella European Central Bank (ECB)

Elena Pavlova European Central Bank (ECB)

Date Written July 13 2018

Abstract

Global value chain participation affects the exchange rate pass-through to export prices and

export volumes The paper develops a partial equilibrium model of international trade with

cross-border production and shows that higher participation in global value chains reduces

the elasticities Specifically a higher share of foreign value added in exports reduces the

exchange rate pass-through to export prices and export volumes A greater share of exports

that return as imports also reduces the responsiveness of export volumes to changes in

bilateral exchange rates Finally exports of inputs that are further re-exported increase the

responsiveness to the trading partners effective exchange rate Using a novel sector-level

panel dataset with 40 countries the analysis tests and finds strong empirical support for the

theoretical predictions The paper further shows that some sectors in some countries can

even experience a decline in gross exports when their currency depreciates

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Trade and Services Macroeconomic Management

Did Austerity Cause Brexit CESifo Working Paper Series No 7159

101 Pages Posted 25 Sep 2018

Thiemo Fetzer University of Warwick

Date Written July 25 2018

Abstract

Did austerity cause Brexit This paper shows that the rise of popular support for the UK

Independence Party (UKIP) as the single most important correlate of the subsequent Leave

vote in the 2016 European Union (EU) referendum along with broader measures of political

dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure

to austerity since 2010 In addition to exploiting data from the population of all electoral

contests in the UK since 2000 I leverage detailed individual level panel data allowing me to

exploit within-individual variation in exposure to specific welfare reforms as well as broader

measures of political preferences The results suggest that the EU referendum could have

resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms

Further auxiliary results suggest that the welfare reforms activated existing underlying

economic grievances that have broader origins than what the current literature on Brexit

suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across

the skill divide through transfer payments This pattern markedly stops from 2010 onwards

as austerity started to bite

Keywords political economy austerity globalization voting EU

JEL Classification H200 H300 H500 P160 D720

Resolving Sovereign Debt Crises The Role of Political

Risk CESifo Working Paper Series No 7161

42 Pages Posted 26 Sep 2018

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Date Written August 02 2018

Abstract

Sovereign defaults are bad news for investors and debtor countries in particular if a default

becomes messy and protracted Why are some debt crises resolved quickly in a matter of

months while others take many years to settle This paper studies the duration of sovereign

debt crises based on a new dataset and case study archive on debt renegotiations between

governments and foreign banks and bondholders Using Cox proportional hazard models I

find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation

delays after controlling for macroeconomic conditions Government crises resignations and

street protests are particularly disruptive for a quick settlement process Overall the evidence

suggests that debtor countries often lack the political ability to resolve a debt crisis

Governments in turmoil are unlikely to exit a default quickly

Keywords sovereign default crisis resolution political economy

JEL Classification F340 F510 H630

Market Potential and Global Growth over the Long

Twentieth Century CESifo Working Paper Series No 7164

53 Pages Posted 27 Sep 2018

David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 3 versions of this paper

Date Written August 02 2018

Abstract

We examine the evolution of market potential and its role in driving economic growth over

the long twentieth century Theoretically we exploit a structural gravity model to derive a

closed-form solution for a widely-used measure of market potential We are thus able to

express market potential as a function of directly observable and easily estimated variables

Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output

for 51 countries We find that market potential exhibits an upward trend across all regions of

the world from the early 1930s and that this trend significantly deviates from the evolution of

world GDP Finally using exogenous variation in trade-related distances to world markets we

demonstrate a significant causal role of market potential in driving global income growth over

this period

Keywords economic geography market potential structural gravity trade costs

JEL Classification F100 N700

Growth Inequality and Poverty A Robust

Relationship World Bank Policy Research Working Paper No 8578

42 Pages Posted 17 Sep 2018

Gustavo A Merrero University of La Laguna

Luis Serveacuten World Bank - Development Research Group (DECRG)

Date Written September 6 2018

Abstract

An extensive literature on poverty traps suggests that high levels of poverty deter growth

However a seemingly basic implication of the underlying theoretical models namely that

countries suffering from higher levels of poverty should grow less rapidly has remained

untested A parallel literature has suggested a variety of mechanisms through which

inequality may affect growth in opposing directions Because inequality and poverty are

different aspects of the income distribution inequality can also affect growth through poverty

an indirect channel that has not been explicitly analyzed This paper contributes to fill both

gaps Using a large cross-country panel data set it estimates a reduced-form growth equation

adding both inequality and poverty to an otherwise standard set of growth determinants

Given inequality the correlation of growth with poverty is consistently negative In contrast

given poverty the correlation of growth with inequality can be positive or negative

depending on the empirical specification and econometric approach used Yet the indirect

effect of inequality on growth through its correlation with poverty is robustly negative Closer

inspection shows that these results are driven by the sample observations featuring high (but

not extremely high) poverty rates These empirical findings are consistent with the

predictions from an analytical framework with learning-by-doing and knowledge spillovers

in which consumers cannot save and invest if their initial endowment is below a minimum

consumption level

Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty

Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty

Impact Evaluation Educational Sciences

Comparison of Welfare Gains in the Armington

Krugman and Melitz Models Insights from a

Structural Gravity Approach World Bank Policy Research Working Paper No 8570

63 Pages Posted 17 Sep 2018

Edward Jay Balistreri Iowa State University

David G Tarr International Trade Analysis

Date Written August 28 2018

Abstract

How large are the estimated gains from trade from a reduction in trade costs in the

heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)

models Surprisingly little is known beyond the one-sector model This paper analyzes this

question using a global trade model that contains ten regions and various numbers of sectors

(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant

across the model comparisons based on a structural gravity estimate Various model features

and scenarios are introduced that are important to real economies almost none of which has

been examined across the three market structures with a constant trade response In

response to global reductions in iceberg trade costs in all the multi-sector models the

ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model

captures between 75 and 95 percent on the additional gains above the Armington model that

are estimated by the Melitz model However for individual regions there are numerous cases

of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual

regions however the welfare ranking of the Armington Krugman and Melitz market

structures is model data parameter and scenario dependent The results highlight the need

for data and structural considerations in policy analysisltkrugman

Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade

and Multilateral Issues

The Economic Effects of Brexit - Evidence from the

Stock Market CEPR Discussion Paper No DP13147

35 Pages Posted 17 Sep 2018

Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London

School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)

Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Thomas Sampson London School of Economics amp Political Science (LSE)

Ahmed Usman University of Nottingham

Date Written August 2018

Abstract

We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess

investors expectations about the effects of leaving the European Union on the UK economy

Our results suggest that initial stock price movements were driven by fears of a cyclical

downturn and by the sterling depreciation following the referendum We also find tentative

evidence that market reactions to two subsequent speeches by Theresa May (her

Conservative Party conference and Lancaster House speeches) were more closely correlated

with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that

investors may have updated their expectations in light of the possibility of a hard Brexit We

do not find a correlation between the share of EU migrants in different industries and stock

market returns

Keywords Brexit depreciation event study Recession Stock market tariffs

JEL Classification F15 F23 G14

Understanding Euro Area Inflation Dynamics Why so

Low for so Long

IMF Working Paper No 18188

26 Pages Posted 1 Oct 2018

Yasser Abdih International Monetary Fund (IMF)

Li Lin International Monetary Fund (IMF)

Anne-Charlotte Paret Banque de France

Date Written August 2018

Abstract

Despite closing output gaps and tightening labor markets inflation has remained low inthe

euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-

sometimes attributed to low global inflation-has been primarily causedby a remarkable

persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to

be specific to the euro area (in comparison with the United States)Monetary policy needs to

stay accommodative to help guide inflation back to target

Keywords Inflation Inflation expectations Inflation persistence Monetary policy

Econometric models Euro Area Phillips curve inflation persistence and expectations

General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)

JEL Classification E10 E31 E32 E37 E52 C22 C50

Financial Development Exchange Rate Regimes and

Growth Dynamics World Bank Policy Research Working Paper No 8562

34 Pages Posted 28 Aug 2018

Woubet Kassa The World Bank

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written August 20 2018

Abstract

This paper utilizes data for African countries to analyze the extent to which financial

development affects the dynamics of the relationship between exchange rate flexibility and

economic growth The findings indicate that financial development exerts a positive influence

on the relationship between exchange rate flexibility and GDP growth as well as total factor

productivity growth The paper also documents a positive impact of trade openness on the

relationship between exchange rate flexibility and growth Moreover the results show a

strong and positive association between exchange rate flexibility and financial development

The findings therefore suggest that discussions and decisions on exchange rate policy should

be undertaken with consideration for structural policies that address the development of the

financial sector In addition the paper asserts that policy makers should adopt a stance that

facilitates some flexibility in exchange rates to foster development of the financial

infrastructure in these economies

Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp

Research Economic Growth Currencies and Exchange Rates Educational Sciences

Macroeconomic Management

Unequal Gains Prolonged Pain A Model of

Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160

53 Pages Posted 17 Sep 2018

Emily J Blanchard Dartmouth College - Tuck School of Business

Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)

Date Written September 2018

Abstract

We develop a model of democratic political responses to macroeconomic shocks in the short

and long run We show that when economic adjustment is slower than potential political

change exogenous changes in the global marketplace can trigger populist surges in favor of

distortionary economic policies Applied to trade policy our model demonstrates that an

exogenous terms-of-trade improvement or skill-biased technological change will lead to a

spike in protectionism that blunts the younger generations incentive to acquire education In

the long run the initial surge in protectionism will gradually diminish if and only if education

enables less-skilled workers to catch up with the overall economy The more unequal the

initial distribution of human capital the greater and longer-lasting the protectionist backlash

will be unequal gains prolonged pain Evidence on key data markers suggested by the model

exhibits patterns consistent with recent populist support for Brexit and Trump

Keywords Dynamic Political Economy education Endogenous Tari Human Capital

Overlapping Generations Overshooting populism protectionism

JEL Classification D7 E6 F5

Threat or Help The Effects of Unskilled Immigrant

Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185

4 Pages Posted 17 Sep 2018

Sharmila Devadas Central Bank of Malaysia

Date Written March 1 2017

Abstract

While unskilled immigrant workers have relatively low formal human capital theory suggests

that they can still contribute to productivity improvements by helping to increase efficiency

and upgrading the skills of the native labor force Empirical studies indicate that positive

productivity effects do occur This body of evidence does not provide a compelling argument

for the closing of national borders to unskilled foreigners on economic grounds

Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements

Construction Industry Common Carriers Industry Food amp Beverage Industry General

Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business

Cycles and Stabilization Policies International Migration Indigenous Communities Migration

and Development

Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899

4 Pages Posted 17 Sep 2018

Dorina Peteva Georgieva World Bank

Norman Loayza World Bank - Research Department

Fabian Mendez Ramos Development Research Group The World Bank

Date Written February 1 2018

Abstract

Growth in global trade has been slow since 2012 While global trade downturns are not

unprecedented the observed change in the relationship of trade to GDP poses the question

whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon

brought about by structural changes This new dynamic coupled with the rise of protectionist

policies and rhetoric in many countries positions trade at the forefront of policy discussions

This brief reviews recent patterns in global trade examines the factors affecting trade--

distinguishing between transitory and structural components of the slowdown--and discusses

policies shaping the path of future trade

Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation

International Trade and Trade Rules International Economics and Trade Transport and

Trade Logistics Trade and Regional Integration Private Sector Development Industrial and

Consumer Services and Products Competitiveness and Competition Policy Marketing Labor

Markets Private Sector Development Law Private Sector Economics Industry Law and

Development Social Policy Legal Reform Social Development Treaties Economics and

Institutions Public Sector Management and Reform Macroeconomics and Economic Growth

Public Sector Development Regulatory Regimes International Law Non Governmental

Organiz

The Productivity J-Curve How Intangibles Complement General Purpose Technologies

by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)

Abstract

General purpose technologies (GPTs) such as AI enable and require

significant complementary investments including business process

redesign co-invention of new products and business models and

investments in human capital These complementary investments

are often intangible and poorly measured in the national

accounts even if they create valuable assets for the firm We

develop a model that shows how this leads to an underestimation

of output and productivity in the early years of a new GPT and

how later when the benefits of intangible investments are

harvested productivity will be overestimated Our model

generates a Productivity J-Curve that can explain the

productivity slowdowns often accompanying the advent of GPTs as

well as the follow-on increase in productivity later We use our

model to assess how AI-related intangible capital is currently

affecting measured total factor productivity (TFP) and output

We also conduct a historical analysis of the roles of intangibles

tied to RampD software and computer hardware finding substantial

and ongoing effects of software in particular and hardware to a

lesser extent

httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw

g10

New Technologies Global Value Chains and Developing Economies

by Dani Rodrik - 25164 (DEV EFG ITI)

Abstract

Many of the exports of developing countries are channeled through

global value chains (GVCs) which also act as conduits for new

technologies However new capabilities and productive

employment remain limited so far to a tiny sliver of globally

integrated firms GVCs and new technologies exhibit features

that limit the upside and may even undermine developing

countries economic performance In particular new technologies

present a double whammy to low-income countries First they are

generally biased towards skills and other capabilities This

bias reduces the comparative advantage of developing countries in

traditionally labor-intensive manufacturing (and other)

activities and decreases their gains from trade Second GVCs

make it harder for low-income countries to use their labor cost

advantage to offset their technological disadvantage by reducing

their ability to substitute unskilled labor for other production

inputs These are two independent shocks that compound each

other The evidence to date on the employment and trade fronts

is that the disadvantages may have more than offset the

advantages

httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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Bank Runs and Moral Hazard A Review of Deposit

Insurance World Bank Policy Research Working Paper No 8589

31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018

Deniz Anginer World Bank Research

Asli Demirguc-Kunt World Bank

Date Written September 19 2018

Abstract

Deposit insurance is a widely adopted policy to promote financial stability in the banking

sector Deposit insurance helps ensure depositors confidence in the financial system and

prevents contagious bank runs but it also comes with an unintended consequence of

encouraging banks to take on excessive risk This paper reviews the economic costs and

benefits of deposit insurance and highlights the importance of institutions and specific design

features for how well deposit insurance schemes work in practice

Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System

Reform Economic Growth

The Future of Work Race With-Not Against-The

Machine World Bank Research amp Policy Briefs Paper No 129680

4 Pages Posted 17 Sep 2018

Lay Lian Chuah World Bank - Development Research Group (DECRG)

Norman Loayza World Bank - Research Department

Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment

Research (IAB) University of Regensburg - Department of Economics and Econometrics

Date Written August 1 2018

Abstract

Will the revolution in digital and information technologies make us obsolete Will jobs be lost

and never replaced Will wages drop to intolerable levels History and economic theory and

evidence suggest that in the long term such fears are misplaced However in the short and

medium term dislocation can be severe for certain types of work places and populations In

the transition period policies are needed to facilitate labor market flexibility and mobility

introduce and strengthen safety nets and social protection and improve education and

training

Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security

An Economists Guide to Climate Change Science

by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)

Abstract

Climate change management is a global challenge that requires

social science as much as it requires natural science We

provide a brief introduction to the physical science of climate

change written to provide essential background for economists

and other social scientists We also highlight some key areas in

which economists--including those studying macroeconomics

political economy and development--are in a unique position to

help climate science advance

httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw

g10

The Intensive Margin in Trade

by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-

Clare - 25195 (ITI)

Abstract

The Melitz model highlights the importance of the extensive

margin (the number of firms exporting) for trade flows Using

the World Banks Exporter Dynamics Database (EDD) featuring

firm-level exports from 50 countries we find that around 50 of

variation in exports is along the extensive margin --- a

quantitative victory for the Melitz framework The remaining 50

on the intensive margin (exports per exporting firm) contradicts

a special case of Melitz with Pareto-distributed firm

productivity which has become a tractable benchmark This

benchmark model predicts that conditional on the fixed costs of

exporting all variation in exports across trading partners

should occur on the extensive margin We find that moving from a

Pareto to a lognormal distribution allows the Melitz model to

match the role of the intensive margin in the EDD We use

likelihood methods and the EDD to estimate a generalized Melitz

model with a joint lognormal distribution for firm-level

productivity fixed costs and demand shifters and use exact hat

algebra to quantify the effects of a decline in trade costs on

trade flows and welfare in the estimated model The welfare

effects turn out to be quite close to those in the standard

Melitz-Pareto model when we choose the Pareto shape parameter to

fit the average trade elasticity implied by our estimated

Melitz-lognormal model although there are significant

differences regarding the effects on trade flows

httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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Are Banks Engines of Export Financial Structures

and Export Dynamics World Bank Policy Research Working Paper No 8621

41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018

Raoul Minetti Michigan State University - Department of Economics

Alen Mulabdic World Bank

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Susan Chun Zhu Michigan State University - Department of Economics

Date Written October 25 2018

Abstract

This paper studies the impact of financial structures on the dynamics of the export sector

using rich data from over 60 countries The results reveal that bank-oriented financial

systems boost the size of the export sector more than market-oriented financial systems

However especially in middle- and low-income countries this effect mostly stems from banks

slowing down exporters exit rather than promoting firms entry into export The reduced exit

from the export sector appears to reflect domestic banks tendency to evergreen loans to

exporters (soft budget constraint) more than banks buffering role in difficult times Foreign

banks mitigate this effect and enhance the dynamism of the export sector

Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631

31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018

Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University

Hibret Belete Maemir World Bank

Hassen Abda Wako UNU-MERIT

Date Written October 30 2018

Abstract

A growing body of work has shown that the quality of national institutions that enforce

written contracts plays an important role in shaping a countrys comparative advantage

Using highly disaggregated bilateral and unique harmonized firm-level trade data across a

large number of countries this paper contributes to this literature by providing a

comprehensive analysis of the mechanisms through which institutional frictions affect the

pattern of aggregate trade flow distinguishing the effects on the intensive and extensive

margins The analysis finds that contractual friction distorts countries trade pattern beyond

its effect on domestic production structure by deterring the probability of exporting (the

extensive margin) and export sales after entry (the intensive margin) particularly in

industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup

problems) The analysis also finds that contractual frictions matter more for the intensive

margin than the extensive margin of exporting In addition better contracting institutions

increase the probability of survival of new export products in more contract-intensive

industries These results have important policy implications for developing countries that

seek to boost export growth but many of which suffer from poor contracting institutions

Nominal Exchange Rate Dynamics and Monetary

Policy Uncovered Interest Rate Parity and Purchasing

Power Parity Revisited CEPR Discussion Paper No DP13235

33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018

Yossi Saadon Bank of Israel - Research Department

Nathan Sussman Hebrew University of Jerusalem

Date Written October 2018

Abstract

The increasing globalization of trade in goods and services and the deepening of financial

markets have reduced frictions that may impede the operation of the PPP and UIP

relationships in the short run In this paper we estimate the short term relative PPP and UIP

relationships Using data from Israel which has a deep market for inflation expectations for

12 months we show that relative PPP and UIP cannot be rejected Deviations from

equilibrium last less than a year Data from Israels capital account of the balance of payments

shows that the deviations are not destabilizing Our findings suggest that greater globalization

and financial deepening contribute to the effectiveness of monetary policy

Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy

purchasing power parity uncovered interest rate parity

Macroeconomic Effects of Chinas Financial Policies

by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)

Abstract

The Chinese economy has undergone three major phases the

1978-1997 period marked as the SOE-led economy the 1998-2015

phase as the investment-driven economy and the new normal

economy since 2016 All three economies have been shaped by the

governments financial policies defined as a set of credit

policy monetary policy and regulatory policy We analyze the

macroeconomic effects of these financial policies throughout the

three phases and provide the stylized facts to substantiate our

analysis The stylized facts differ qualitatively across

different phases or economies We argue that the impacts of

Chinas financial policies work through transmission channels

different from those in developed economies and that a regime

switch from one economy to another was driven mainly by regime

changes in financial policies

httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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Factor Incomes in Global Value Chains The Role of Intangibles

by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)

Abstract

Recent studies document a decline in the share of labour and a

simultaneous increase in the share of residual (factorless)

income in national GDP We argue the need for study of factor

incomes in cross-border production to complement country studies

We define a GVC production function that tracks the value added

in each stage of production in any country-industry We define a

new residual as the difference between the value of the final

good and the payments to all tangibles (capital and labour) in

any stage We focus on GVCs of manufactured goods and find the

residual to be large We interpret it as income for intangibles

that are (mostly) not covered in current national accounts

statistics We document decreasing labour and increasing capital

income shares over the period 2000-14 This is mainly due to

increasing income for intangible assets in particular in GVCs of

durable goods We provide evidence that suggests that the 2000s

should be seen as an exceptional period in the global economy

during which multinational firms benefitted from reduced labour

costs through offshoring while capitalising on existing

firm-specific intangibles such as brand names at little

marginal cost

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Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade

in Value Added using Enterprise and Establishment Level Data

by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner

Jeffrey A Young - 25249 (ITI)

Abstract

This paper presents experimental tables created by the US

Bureau of Economic Analysis comparing industry-specific shares of

the components of total output of globally engaged firms located

in the United States that are part of a multinational enterprise

with those of firms that are part of an enterprise entirely

located in the United States Recent research has shown both the

importance of accounting for trade in value added when estimating

bilateral trade flows and that multinational enterprises located

in the United States account for the lions share of US trade

in goods and services However trade in value added is

typically accounted for using input-output tables that are

aggregated across all types of firms The experimental tables

are consistent with other research showing that value added as a

share of output is lower for foreign-owned firms compared with

domestic-owned firms and that exports and imports as a share of

output is larger for foreign-owned firms We also find

heterogeneity in the composition of output among different types

of domestic-owned firms Future work will analyze this

heterogeneity in more detail using establishment-level data on

production and trade

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The Falling Elasticity of Global Trade to Economic

Activity Testing the Demand Channel CESifo Working Paper No 7228

42 Pages Posted 31 Oct 2018

Marc Auboin World Trade Organization (WTO)

floriana borino World Trade Organization (WTO)

Date Written 2018

Abstract

Since the recovery from the great financial crisis in 2010 global real trade flows grew much

slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to

GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this

global trade slowdown and related falling trade-to-income elasticity was structural or

cyclical Some papers emphasized the slowing pace of international vertical specialization

Other works emphasized the prominent role of aggregate demand notably when weighted by

its trade component Our paper goes in this latter direction We estimated the standard

import equation for 38 advanced and developing countries over the period 1995-2015 using

an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-

output tables at country level and compared results with regressions using GDP The

integration of IAD allows us to predict 76 to 86 of the changes in global imports a better

performance than if using GDP The use of IAD also enabled us to measure the relative

importance of each component of demand according to their trade intensity The model is

able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone

explaining 80 of it The slowdown in global value chains explains more than half of the

remaining share of the global trade slowdown not explained by demand factors

Protectionism does not come up as statistically significant

Keywords investment global outlook trade policy trade forecasting business cycles

JEL Classification E220 F010 F130 F170 F440

Will Brexit Age Well Cohorts Seasoning and the Age-

Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288

38 Pages Posted 5 Nov 2018

Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic

Policy Research (CEPR)

Rebecca Mari Bocconi University

Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics

There are 3 versions of this paper

Date Written October 2018

Abstract

In the UKs 2016 referendum on EU membership young voters were more likely than their

elders to vote Remain Applying new methods to a half century of data we show that this

pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as

they age recent cohorts are also more pro-European than their predecessors Much of the

pro-Europeanism of these recent cohorts is accounted for by their greater years of education

Going forward the ageing of the electorate will thus be offset at least in part by the

replacement of older cohorts with younger better-educated and more pro-European ones

But we also document large nationwide swings in sentiment that have little to do with either

seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive

determinants of future changes in European sentiment Rather nationwide changes in

sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be

key

JEL Classification F0

Buying Votes and International Organizations The

Dirty Work-Hypothesis CEPR Discussion Paper No DP13290

62 Pages Posted 5 Nov 2018

Axel Dreher Heidelberg University

Valentin Lang University of Zurich

B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics

James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government

Date Written October 2018

Abstract

We show how major shareholders can exploit their power over international organizations to

hide their foreign-policy interventions from domestic audiences We argue that major powers

exert influence bilaterally when domestic audiences view the intervention favorably When

domestic audiences are more skeptical of a target country favors are granted via

international organizations We test this theory empirically by examining how the United

States uses bilateral aid and IMF loans to buy other countries votes in the United Nations

Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-

2015 period our results show that states allied with the US receive more bilateral aid when

voting in line with the United States in the UNSC while concurring votes of states less allied

with the US are rewarded with loans from the IMF Temporary UNSC members that vote

against the United States do not receive such perks

Keywords Aid IMF United Nations Security Council voting World Bank

JEL Classification F35 O11 O19

Page 3: Papers CIG 2018 - uniroma1.it

Hanni Schoelermann

International Monetary Fund (IMF)

Date Written January 2018

Abstract

We examine economic convergence among euro area countries on multiple dimensions While there was

nominal convergence of inflation and interest rates real convergence of per capita income levels has not

occurred among the original euro area members since the advent of the common currency Income

convergence stagnated in the early years of the common currency and has reversed in the wake of the

global economic crisis New euro area members in contrast have seen real income convergence Business

cycles became more synchronized but the amplitude of those cycles diverged Financial cycles showed a

similar pattern sychronizing more over time but with divergent amplitudes Income convergence requires

reforms boosting productivity growth in lagging countries while cyclical and financial convergence can be

enhanced by measures to improve national and euro area fiscal policies together with steps to deepen the

single market

Keywords Business cycles Economic integration Euro Area Financial cycles Convergence

synchronization Economic and Monetary Union Optimum Currency Area Financial Aspects of Economic

Integration

JEL Classification E32 F15 F36 O47

Structural Reforms Growth and Inequality An Overview of Theory Measurement and Evidence

CESifo Working Paper Series No 6812

52 Pages Posted 21 Feb 2018

Nauro F Campos

Brunel University London - Economics and Finance Centre for Economic Policy Research (CEPR) University

of Michigan at Ann Arbor - The William Davidson Institute IZA Institute of Labor Economics

Paul De Grauwe

London School of Economics amp Political Science (LSE) CESifo (Center for Economic Studies and Ifo Institute

for Economic Research) Centre for Economic Policy Research (CEPR)

Yuemei Ji

University College London - School of Slavonic and East European Studies

Multiple version iconThere are 2 versions of this paper

Date Written January 15 2018

Abstract

This paper provides a critical overview of the state of the art in the economics literature on structural

reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence

We start with a simple theoretical framework for the relationship between structural reforms economic

growth and income inequality We argue that whether structural reforms have a positive or negative

impact depends on various factors The type of reform timing sequence and political constraints play

crucial roles in determining the effectiveness of reforms on economic growth and income inequality We

conclude by proposing a 7-point agenda for future research

Keywords structural reforms growth inequality

JEL Classification D600

Immigration assimilation and the future of public education

RyuichiTanaka LidiaFarre FrancescOrtega a

University of Tokyo Japan b

University of Barcelona Spain c

Queens College CUNY USA d

IAE-CSIC Spain

European Journal of Political Economy

Volume 52 March 2018 Pages 141-165

Abstract

This paper analyzes the effects of immigration on the size and quality of public education using a

quantitative political economy model that allows for a heterogeneous immigrant population Our analysis

distinguishes between short and long-run effects and accounts for the consequences of naturalization and

assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that

immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in

public education spending and almost a 1 percentage-point increase in the share of native households

using private schools Depending on the eventual degree of assimilation these trends will be greatly

intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that

assimilation in terms of family size and the value assigned to childrens education are the most relevant

dimensions quantitatively We also show that immigration policies that favor one group over another can

significantly alter the overall effects of immigration on the schooling system

Global Financial Cycles and the Exchange Rate

Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696

18 Pages Posted 14 Feb 2018

Maurice Obstfeld International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department

Date Written February 2018

Abstract

This paper examines the relevance of exchange rate regimes in the transmission of global

financial shocks to domestic financial and macroeconomic conditions Our findings suggest

that even in todays highly financially integrated world the nominal exchange rate regime

does matter-at least for emerging market economies The transmission of global financial

shocks to domestic variables is magnified under fixed exchange rate regimes relative to more

flexible regimes For advanced economies however the jury is still out as the recent paucity

of truly fixed regimes among these economies poses a challenge for estimating the effect of

exchange rate flexibility

Keywords emerging market economies global financial cycle trilemma

JEL Classification F31 F36 F41

Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815

47 Pages Posted 21 Feb 2018

Yvonne Giesing

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)

Date Written January 15 2018

Abstract

This paper establishes a causal link between the emigration of skilled workers and firm

performance in source countries Using firm-level panel data from ten Eastern European

countries we show that the emigration of skilled workers lowers firm total factor

productivity We exploit time country and industry differences in the opening of EU labor

markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from

new EU member states We argue that a potential channel behind this effect relates to the

reduction in firm-specific human capital due to a higher worker turnover

Keywords migration firm productivity human capital EU enlargement

JEL Classification O150 D240 F220 J240

Reserve Currency Blocs A Changing International

Monetary System IMF Working Paper No 1820

43 Pages Posted 20 Feb 2018

Camilo E Tovar International Monetary Fund

Tania Mohd Nor International Monetary Fund (IMF)

Date Written January 2018

Abstract

What is the extent of currency diversification in the international monetary system How

hasit evolved over time In this paper we quantify the degree of currency diversification

usingregression methods of currency co-movements to determine the extent to which

nationalcurrencies across the world belong to a reserve currency bloc We then use these

estimates tocalculate the economic size of each currency bloc A key contribution of our paper

is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the

internationalmonetary system has transitioned from a bi-polar system - consisting of the US

dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated

tocontinue to dominate having the largest share in global GDP (40 percent) followed by

therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence

forthe RMB bloc appears to be most evident among the BRICS currencies The British

poundand the Japanese yen blocs appear to play minor roles

Keywords Economic integration Foreign exchange International monetary system

Currency Bloc Internatinal Monetary System International Monetary Arrangements and

Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics

JEL Classification F15 F31 F33 F36 F41 O24

17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services

by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)

Abstract

About 8 cents out of every dollar spent in the United States is

spent on imports What if because of a wall or some other

extreme policy intervention imports were to remain on the other

side of the US border How much would US consumers be willing to

pay to prevent this hypothetical policy change from taking place

The answer to this question represents the welfare cost from

autarky or equivalently the welfare gains from trade In this

article we discuss how to evaluate these gains using the demand

for foreign factor services The estimates of gains from trade

for the US economy that we review range from 2 to 8 percent of

GDP

httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw

A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763

11 Pages Posted 6 Mar 2018

Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute

of Labor Economics

Prachi Mishra Government of India - Reserve Bank of India

Chris Papageorgiou International Monetary Fund (IMF) - Research Department

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)

University of Michigan at Ann Arbor - The William Davidson Institute

Date Written February 2018

Abstract

In this imaginary dialogue a populist and an economist discuss the role of economic shocks to

explain populism A simple correlation between economic shocks and populism is weak

However economic shocks can explain well the phenomenon of populism in countries with

low pre-existent level of trust This is confirmed both at the macro cross-country level and

also by micro evidence obtained from surveys Finally this finding is consistent with the

ideational approach in political science which emphasizes how the populist narrative

opposes the corrupt elite to the virtuous people

Keywords Europe Political parties populism

JEL Classification A10 A12

International Capital Flow Pressures IMF Working Paper No 1830

59 Pages Posted 14 Mar 2018

Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)

Signe Krogstrup IMF

There are 3 versions of this paper

Date Written February 2018

Abstract

This paper presents a new measure of capital flow pressures in the form of a recast

ExchangeMarket Pressure index The measure captures pressures that materialize in actual

internationalcapital flows as well as pressures that result in exchange rate adjustments The

formulation istheory-based relying on balance of payments equilibrium conditions and

international assetportfolio considerations Based on the modified exchange market pressure

index the paperalso proposes the Global Risk Response Index which reflects the country-

specific sensitivityof capital flow pressures to measures of global risk aversion For a large

sample of countriesover time we demonstrate time variation in the effects of global risk on

exchange marketpressures the evolving importance of the global factor across types of

countries and thechanging risk-on or risk-off status of currencies

Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange

Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven

Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General

JEL Classification F23 G11 G20 F32

Sovereign Defaults in Court CEPR Discussion Paper No DP12777

76 Pages Posted 13 Mar 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

Date Written March 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords debt restructuring enforcement government financing sovereign default

JEL Classification F34 G15 H63 K22

Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859

48 Pages Posted 20 Mar 2018

Florian Dorn

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-

University Munich Center for Economic Studies (CES)

Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written February 05 2018

Abstract

This paper re-examines the link between globalization and income inequality We use data for

140 countries over the period 1970-2014 and employ an IV approach to deal with the

endogeneity of globalization measures We find that the link between globalization and

income inequality differs across different groups of countries There is a robust positive

relationship between globalization and inequality in the transition countries including China

and most countries of Middle and Eastern Europe In the sample of the most advanced

economies neither OLS nor 2SLS results show any significant positive relationship between

globalization and inequality We conclude that institutions providing income insurance and

education which characterize most advanced economies but are less developed in transition

economies may have moderated effects of globalization on income inequality

Keywords globalization income inequality redistribution instrumental variable estimation

panel econometrics development levels transition economies China

JEL Classification D310 D630 F020 F600 C260 H110 H200

The US Gains from Trade Valuation Using the

Demand for Foreign Factor Services CEPR Discussion Paper No DP12788

34 Pages Posted 20 Mar 2018

Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of

Technology (MIT) - Department of Economics

Andres Rodriguez-Clare Inter-American Development Bank (IDB)

There are 2 versions of this paper

Date Written March 2018

Abstract

About 8 cents out of every dollar spent in the United States is spent on imports What if

because of a wall or some other extreme policy intervention imports were to remain on the

other side of the US border How much would US consumers be willing to pay to prevent this

hypothetical policy change from taking place The answer to this question represents the

welfare cost from autarky or equivalently the welfare gains from trade In this article we

discuss how to evaluate these gains using the demand for foreign factor services The

estimates of gains from trade for the US economy that we review range from 2 to 8 percent of

GDP

A Multidimensional Approach to Trade Policy

Indicators IMF Working Paper No 1832

38 Pages Posted 12 Mar 2018

Diego Cerdeiro International Monetary Fund (IMF)

Rachel Nam International Monetary Fund (IMF)

Date Written February 2018

Abstract

We present and discuss a set of indicators to help assess countries trade policies The

indicators relate to three policy areas - trade in goods trade in services and FDI Given

concerns about the direction of global trade policy we also consider a set of more granular

measures that reflect the evolution of countries policies since the 2008 financial crisis We

propose a simple approach to present the multidimensional aspects of trade policy that by

shedding light on relative openness across areas can facilitate policy discussions In the cross-

section of countries we find a diversity in the type of measures adopted both between and

(since the 2008 financial crisis) within policy areas lending support to the approach based on

multiple indicators The indicators time series suggest that advanced and especially

emerging economies are moving toward more open regimes over time although recently

progress has with some exceptions slowed across the board Lastly our findings also call for

stronger efforts to objectively quantify the different aspects of countries trade regimes More

data both across countries and in terms of policy areas that significantly affect trade are

needed for better-informed policy discussions

Keywords Foreign direct investment Trade policy indicators trade in goods services trade

trade barriers General Country and Industry Studies of Trade

JEL Classification F10 F14

Corporate Indebtedness and Low Productivity

Growth of Italian Firms IMF Working Paper No 1833

47 Pages Posted 12 Mar 2018

Gareth Anderson Bank of England

Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department

Date Written February 2018

Abstract

Productivity growth in Italy has been persistently anemic and has lagged that of the euro area

over the period 1999-2015 while the indebtedness of its corporate sector has increased

Using the ORBIS firm-level database this paper studies the long-term impact of persistent

corporate-debt accumulation on the productivity growth of Italian firms and investigates

whether total factor productivity growthvaries with the level of corporate indebtedness We

employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi

(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and

cross-sectional dependence arising from unobserved common factors (for example oil price

shocks labor and product market frictions and stance of global financial cycle) Filtering out

the effects of unobserved common factors and controlling for firm specific characteristics we

find significant negative effects of persistent corporate debt build-up on total factor

productivity growth and weak evidence of a threshold level of corporate debt beyond which

productivity growth drops off significantly Our results have strong policy implications for

example the design of the tax system should discourage persistent corporate debt

accumulation and effective and timely frameworks to reduce corporate debt overhangs are

essential

Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel

threshold models cross-sectional dependence Models with Panel Data Firm Behavior

Empirical Analysis General

JEL Classification C23 D22 D24 G30

Regulatory Cycles Revisiting the Political Economy of

Financial Crises IMF Working Paper No 188

90 Pages Posted 21 Mar 2018

Jihad C Dagher International Monetary Fund (IMF) - Research Department

There are 2 versions of this paper

Date Written January 2018

Abstract

Financial crises are traditionally analyzed as purely economic phenomena The political

economy of financial booms and busts remains both under-emphasized and limited to isolated

episodes This paper examines the political economy of financial policy during ten of the most

infamous financial booms and busts since the 18th century and presents consistent evidence

of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during

these episodes were often amplified by political regulatory stimuli credit subsidies and an

increasing light-touch approach to financial supervision The regulatory backlash that ensues

from financial crises can only be understood in the context of the deep political ramifications

of these crises Post-crisis regulations do not always survive the following boom The

interplay between politics and financial policy over these cycles deserves further attention

History suggests that politics can be the undoing of macro-prudential regulations

Keywords Political economy Political economy Financial crises Financial Regulation Boom-

Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and

Voting Behavior Positive Analysis of Policy-Making and Implementation General

Government Policy and Regulation General

JEL Classification D72 D78 G10 G18 N00 P16

Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872

26 Pages Posted 21 Mar 2018

Sanjit Dhami University of Leicester - Department of Economics

Ali al-Nowaihi University of Leicester - Department of Economics

Date Written February 12 2018

Abstract

We examine the various senses in which economist use the term ldquorationalityrdquo and then outline

some of the commonly drawn implications and auxiliary assumptions Finally we confront the

implications with the empirical evidence drawing on the insights from the exciting new field

of behavioral economics

Keywords rationality self-regarding preferences efficient markets heuristics optimization

JEL Classification B400

Nudging and Environmental Corporate

Responsibility A Natural Experiment CEIS Working Paper No 426

22 Pages Posted 3 Apr 2018

Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics

Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department

of Economics and Statistics

Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies

(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)

Date Written April 3 2018

Abstract

We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on

environmentally responsible products withwithout the increase of the responsible product

price We find that the simple use of a small shelf-poster explaining the importance of buying

a green product (withwithout a concurring price increase) generates significant changes in

market shares for some of the product classes for both food and non-food products Part of

the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-

increase treatment

Keywords nudging environmental sustainability randomised field experiment

JEL Classification C93 D12 M14 Q56

11 The Role of Financial Policy

by Roger Farmer - 24498 (EFG ME)

Abstract

I review the contribution and influence of Milton Friedmans 1968

presidential address to the American Economic Association I

argue that Friedmans influence on the practice of central

banking was profound and that his argument in favour of monetary

rules was responsible for thirty years of low and stable

inflation in the period from 1979 through 2009 I present a

critique of Friedmans position that market-economies are

self-stabilizing and I describe an alternative reconciliation of

Keynesian economics with Walrasian general equilibrium theory

from that which is widely accepted today by most neo-classical

economists

httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw

5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012

by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)

Abstract

We study immigrant entrepreneurship and firm ownership in 2007

and 2012 using the Survey of Business Owners (SBO) The survival

and growth of immigrant-owned businesses over time relative to

native-founded companies is evaluated by linking the 2007 SBO to

the Longitudinal Business Database (LBD) We quantify the

dependency of the United States as a whole as well as individual

states on the contributions of immigrant entrepreneurs in terms

of firm formation and job creation We describe differences in

the types of businesses started by immigrants and the quality of

jobs created by their firms First-generation immigrants create

about 25 of new firms in the United States but this share

exceeds 40 in some states In addition Asian and Hispanic

second-generation immigrants start about 6 of new firms

Immigrant-owned firms on average create fewer jobs than

native-owned firms but much of this is explained by the industry

and geographic location of the firms Immigrant-owned firms pay

comparable wages conditional on firm traits to native-owned

firms but are less likely to offer benefits

httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885

49 Pages Posted 9 Apr 2018

Axel Dreher University of Heidelberg

Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics

Sarah Langlotz University of Heidelberg

There are 2 versions of this paper

Date Written February 15 2018

Abstract

This article analyzes whether foreign aid affects the net flows of refugees from recipient

countries Combining refugee data on 141 origin countries over the 1976-2013 period with

bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos

aid receipts on both total refugee flows to the world and flows to donor countries The

interaction of donor-government fractionalization and a recipient countryrsquos probability of

receiving aid provides a powerful and excludable instrumental variable when we control for

country- and time-fixed effects that capture the levels of the interacted variables Although

our results suggest that aid induces recipient governments to encourage the return of their

citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor

countries in the short term However we observe long-run effects after four three-year

periods which appear to be driven by lagged positive effects of aid on growth

Keywords foreign aid Official Development Assistance migration refugees displaced

people humanitarian crises repatriation policies

JEL Classification F220 F350 F590 H840 O150 O190

The Political Economy of Ideas On Ideas Versus

Interests in Policymaking CEPR Discussion Paper No DP12820

44 Pages Posted 5 Apr 2018

Sharun Mukand University of Warwick - Department of Economics

Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)

National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written March 2018

Abstract

We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and

institutional change We make an explicit distinction between ideas and vested interests and

show how they feed into each other In doing so the paper integrates the Keynes-Hayek

perspective on the importance of ideas with the currently more fashionable Stigler-Becker

(in-terests only) approach to political economy We distinguish between two kinds of

ideational politics acircldquo the battle among different worldviews on the efficacy of policy

(worldview politics) versus the politics of victimhood pride and identity (identity politics)

Political entrepreneurs discover identity and policy memes (narratives cues framing) that

shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our

framework identifies a complementarity between worldview politics and identity politics and

illustrates how they may reinforce each other In particular an increase in identity

polarization may be associated with a shift in views about how the world works Furthermore

an increase in income inequality is likely to result in a greater incidence of ideational politics

Finally we show how ideas may not just constrain but also bite the interests that helped

propagate them in the first instance

Should Unemployment Insurance Be Centralized in a

State Union CESifo Working Paper Series No 6898

27 Pages Posted 19 Apr 2018

Robert Fenge University of Rostock - Department of Economics

Max Friese University of Rostock

Date Written February 21 2018

Abstract

This paper compares the decentral organization of unemployment insurance in member

states of a state union with the central organization at the upper unionrsquo level In a model of

two countries the labor force and the firm owners can migrate between the states Labor

markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a

decentral scenario the states organize independently unemployment insurance and decide

about the rate on wages contributed to the insurance budget Due to open borders they have

to take account of migration effects However with perfect mobility between the states each

government chooses a socially optimal contribution rate such that workers are fully insured

against unemployment In the central scenario the governments overestimate the costs of

insurance when bargaining about the contribution rate and observing the common insurance

budget of both countries This leads to a less than socially optimal contribution rate

Keywords unemployment insurance policy state union centralization migration

externalities

JEL Classification F660 H770 J650

Paris Climate Agreement and the Global Economy

Winners and Losers World Bank Policy Research Working Paper No 8392

Posted 3 Apr 2018

Muthukumara Mani World Bank

Zekarias Hussein Purdue University

G Badri Narayanan Purdue University - Center for Global Trade Analysis

Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)

Date Written April 2 2018

Abstract

The 2015 Paris Climate Agreement was the first instance of countries adhering to take a

collective action against global warming More than 190 countries came forward and

submitted their contributions in the form of Intended Nationally Determined Contributions

reflective of their ability and capacity to reduce greenhouse gas emissions as each country set

its own targets and actions For some countries it meant a significant decline in their

emissions by 2030 while others like China the United States and India decided on a more

gradual phasing out extending beyond 2030 This paper estimates the economic impacts of

implementation of the Paris Climate Agreement in terms of its implications for welfare gross

domestic product investments and trade for major countries and regions It uses a

computable general equilibrium framework to model global regional and country impacts

The analysis suggests that the economic impacts will be mostly felt in the European Union if

the Paris Agreement is fully implemented The European Union is likely to suffer a welfare

loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand

and Mexico will also be affected with an expected welfare loss of about 15 percent Some of

the major emitters such as China and India will experience minimal impacts to their welfare

and the United States will experience a welfare loss of only about 07 by 2030 The sectoral

analysis of production and trade suggests a significant loss to fossil fuelbased sectors while

clean energy sectors can experience significant gains

Keywords International Trade and Trade Rules Energy and Mining Energy and

Environment Energy Demand Global Environment Energy Policies amp Economics Science of

Climate Change Climate Change and Environment Climate Change and Health

Immigrants Residential Choices and Their

Consequences CEPR Discussion Paper No DP12842

59 Pages Posted 12 Apr 2018

Christoph Albert Universitat Pompeu Fabra Students

Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)

There are 2 versions of this paper

Date Written April 2018

Abstract

This paper investigates the causes and effects of the spatial distribution of immigrants across

US cities We document that a) immigrants concentrate in large high-wage expensive cities

b) the earnings gap between immigrants and natives is higher in larger more expensive cities

and c) immigrants consume less locally than natives In order to explain these findings we

develop a quantitative spatial equilibrium model in which immigrants consume a fraction of

their income in their countries of origin Thus immigrants care not only about local prices but

also about price levels in their home countries This gives them a comparative advantage

relative to natives for living in high-wage high-price high-productivity cities where they also

accept lower wages than natives These incentives are stronger for immigrants coming from

lower-price index countries of origin We rely on immigrant heterogeneity to estimate the

model With the estimated model we show that current levels of immigration have reduced

economic activity in smaller less productive cities by around 5 percent while they have

expanded it in large productive cities by around 6 percent This has increased total aggregate

output per worker by around 03 percent We also discuss the welfare implications of these

results

Keywords Immigration location choices spatial equilibrium

JEL Classification F22 J31 J61 R11

The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844

48 Pages Posted 12 Apr 2018

Thierry Mayer Sciences Po

Vincent Vicard Banque de France

Soledad Zignago Banque de France

There are 2 versions of this paper

Date Written April 2018

Abstract

In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each

country member has reaped from the European Union Thirty years after the terminology of

Non-Europe was used to give estimates of the gains from further integration we use modern

versions of the gravity model to estimate the trade creation implied by the EU and apply

those to counterfactual exercises where for instance the EU returns to a normal shallow-

type regional agreement or reverts to WTO rules Those scenarios are envisioned with or

without the exit of the United Kingdom from the EU (Brexit) happening which points to

interesting cross-country differences and potential cascade effects in doing and undoing of

trade agreements

Keywords European Union Gravity trade integration

JEL Classification F1

The Political Impact of Immigration Evidence from

the United States CEPR Discussion Paper No DP12848

57 Pages Posted 12 Apr 2018

Anna Maria Mayda

Georgetown University - Department of Economics IZA Institute of Labor Economics

Giovanni Peri University of California Davis - Department of Economics

Walter Steingress Government of Canada - Bank of Canada

Date Written April 2018

Abstract

In this paper we study the impact of immigration to the United States on the vote for the

Republican Party by analyzing county-level data on election outcomes between 1990 and

2010 Our main contribution is to separate the effect of high-skilled and low-skilled

immigrants by exploiting the different geography and timing of the inflows of these two

groups of immigrants We find that an increase in the first type of immigrants decreases the

share of the Republican vote while an inflow of the second type increases it These effects are

mainly due to the local impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find that the pro-Republican

impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards the Republican Party in places

where low-skilled immigrants are more likely to be perceived as competition in the labor

market and for public resources

Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party

JEL Classification F22 J61

15 Escaping Import Competition and Downstream Tariffs

by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)

Abstract

We propose and provide evidence for a new source of gains from

trade Firms invest in product differentiation to escape import

competition In the data and in the model these investments are

associated with increases in measured productivity introduction

of new goods and shifts to skill-intensive sectors Investment

in differentiation downstream leads upstream firms to also

invest in differentiation For China these downstream tariff

reductions lead to big increases in measured productivity for

upstream suppliers The effect on measured productivity is

larger for upstream than for downstream firms and we explain

this difference theoretically through heterogeneous changes in

markups

httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw

20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy

by Chong Xiang Stephen Yeaple - 24524 (ITI)

Abstract

A countrys welfare depends on its ability to accumulate

cognitive and noncognitive human capital However we do not

fully understand what makes some countries successful at

producing human capital and even struggle with measurement eg

international test scores are informative about the cognitive

dimension but neglect the non-cognitive dimension In this

paper we develop a multi-country open-economy

general-equilibrium framework in which countries ability to turn

resources into human capital along the cognitive and

non-cognitive dimensions is revealed by the endogenous

educational and occupational choices of its citizens and their

subsequent performance on international exams Our model allows

us to estimate countries underlying productivities of cognitive

and non-cognitive human capital We find that high test scores

do not necessarily imply high cognitive productivities (eg

Switzerland Hong Kong) and that many countries with low test

scores have high non-cognitive productivities (eg the US and

UK)

We then aggregate over these two dimensions to construct a single

educational quality index and illustrate its intuition using an

iso-education-quality curve We use our model to decompose

variation in output per capita across countries into a component

involving the educational quality index and another involving

output TFP This exact decomposition shows that the differences

in cognitive and noncognitive productivities across countries

have large implications for differences in output per worker

These results help quantify the potential payoffs of education

policies and clarify their objective eg excessive attention

to test scores may decrease aggregate output

International trade plays an important role in our model because

the gains from trade help to compensate a country for uneven

productivity across human capital types In counterfactual

exercises we show that if barriers to trade are completely

eliminated we would obtain a very different

iso-education-quality curve This implies large improvements of

overall education quality and large gains from trade for the

countries with strong comparative advantages in producing

cognitive (eg S Korea would gain 301 to 441 of its

output) or non-cognitive human capital (eg the Netherlands

would gain 188 to 556)

httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Il Contributo Della Demografia Alla Crescita

Economica Duecento Anni Di ldquoStoriardquo Italiana (The

Contribution of Demography to Italys Economic

Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431

37 Pages Posted 20 Apr 2018

Federico Barbiellini Amidei Bank of Italy

Matteo Gomellini Bank of Italy

Paolo Piselli Bank of Italy

Date Written March 28 2018

Abstract

Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita

economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro

Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra

come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave

lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con

ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente

negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale

contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre

sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash

lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del

lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili

legati allrsquoevoluzione nella struttura per etagrave

English Abstract This paper examines the contribution of demography to economic growth

in Italy by comparing the countryrsquos past present and future We use an accounting framework

to decompose GDP and per capita GDP growth and we show how changes in the age structure

of the population produced a positive demographic dividend in the past By contrast in the

last twenty-five years and arguably in the future demography has made and will continue to

make a direct negative contribution to economic growth Expected migration flows will

noticeably limit the extent of this negative contribution but they will not be able to reverse its

sign We analyze three possible developments potentially driven by demography itself or

fostered by policy actions ndash longer working lives an increase in female labour market

participation and higher education levels ndash which could counteract the pure negative

accounting effects produced by the evolution of the age structure

Note Downloadable document is in Italian

Keywords economic history demography demographic dividend forecasts

JEL Classification J11 N30

The Effects of Cash Transfers on Adult Labor Market

Outcomes World Bank Policy Research Working Paper No 8404

29 Pages Posted 16 Apr 2018

Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)

David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics

Berk Ozler World Bank - Development Economics Research Group (DECRG)

Date Written April 12 2018

Abstract

The basic economic model of labor supply has a very clear prediction of what should be

expected when an adult receives an unexpected cash windfall they should work less and earn

less This intuition underlies concerns that many types of cash transfers ranging from

government benefits to migrant remittances will undermine work ethics and make recipients

lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off

that can make this intuition misleading in low- and middle-income countries including

missing markets price effects from conditions attached to transfers and dynamic and general

equilibrium effects The paper uses this as a lens through which to examine the evidence on

the adult labor market impacts of a wide range of cash transfer programs government

transfers charitable giving and humanitarian transfers remittances cash assistance for job

search cash transfers for business start-up and bundled interventions Overall cash transfers

that are made without an explicit employment focus (such as conditional and unconditional

cash transfers and remittances) tend to result in little to no change in adult labor The main

exceptions are transfers to the elderly and some refugees who reduce work In contrast

transfers made for job search assistance or business start-up tend to increase adult labor

supply and earnings with the likely main channels being the alleviation of liquidity and risk

constraints

Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to

Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health

Care Services Industry

Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877

24 Pages Posted 23 Apr 2018

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

Date Written April 2018

Abstract

External trade affects the internal spatial structure of an economy promoting growth in some

cities or regions and decline in others Internal adjustment to these changes has often proved

to be extremely slow and painful This paper combines elements of urban and international

economics to draw out the implications of trade shocks for city performance Localisation

economies in production of internationally tradable goods mean that cities divide into two

types those producing tradables and those specialising in sectors producing just for the

national market (non-tradables) Negative trade shocks (and possibly also some positive

ones) reduce the number of cities engaged in tradable production increasing the number

producing just non-tradables This has a negative effect across all non-tradable cities which

lose population and land value Remaining tradable cities boom gaining population and land

value Depending on the initial position city size dispersion may increase this raising the

share of urban land-rents in national income and reducing the share of labour

Keywords de-industrialisation globalisation Polarisation urban

JEL Classification F12 R11 R12

Place-Based Policies for Development World Bank Policy Research Working Paper No 8410

75 Pages Posted 24 Apr 2018

Gilles Duranton University of Pennsylvania - Real Estate Department

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written April 17 2018

Abstract

Many development policies such as placement of infrastructure or local economic

development schemes are place-based Such policies are generally intended to stimulate

private sector investment and economic growth in the treated place and as such they are

difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of

such policies and assessing their social value It then reviews the literature on place-based

policies in the contexts of transport improvements economic corridors special economic

zones lagging regions and urban policies

Keywords Transport Services Labor Markets Urban Governance and Management Urban

Housing and Land Settlements Municipal Management and Reform Urban Housing

Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity

Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage

Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General

Manufacturing Construction Industry Pulp amp Paper Industry

Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4

79 Pages Posted 8 Dec 2017

Alexander A Popov European Central Bank (ECB)

Date Written December 6 2017

Abstract

This paper reviews and appraises the body of empirical research on the association between

financial markets and economic growth that has accumulated over the past quarter-century

The bulk of the historical evidence suggests that financial development affects economic

growth in a positive monotonic way yet recent research endeavors have provided useful and

important qualifications of this conventional wisdom Moreover the proliferation of micro-

level datasets has enabled researchers to study more precise links between theory and

measurement The paper highlights the mechanisms through which financial markets benefit

society as well as the channels through which finance can slow down long-term growth

Keywords financial markets growth

JEL Classification O4 G1

Why Has Economic Growth Slowed When Innovation Appears to be Accelerating

by Robert J Gordon - 24554 (DAE EFG PR)

Abstract

Measured between quarters with identical unemployment rates U

S economic growth slowed by more than half from 32 percent per

year during 1970-2006 to only 14 percent during 2006-16 and

only half of this GDP growth slowdown is accounted for diminished

productivity growth The paper starts from the proposition that

GDP growth matters not just productivity growth because slower

GDP growth provides fewer resources to address the nations

problems including faltering education aging infrastructure

and the looming shortfall in funding for Social Security and

Medicare and it also implies lower net investment and a reduced

rate at which new capital can embody the latest technology

The paper documents the contribution to slower GDP growth of the

separate components of demography -- fertility mortality life

expectancy and immigration Particular emphasis is placed on

the interaction between rising inequality and the slower secular

rise of life expectancy in the US compared to other developed

countries both in the form of a large gap in life expectancy

between rich and poor and the stagnation of life expectancy for

the lowest income quintile Further contributions to slowing

growth are made by a decline in the population share of both

legal and illegal immigration and a turnaround from rising to

declining labor force participation Rising inequality creates a

gap between the growth of average real per-capita income relative

to that of median real income and alternative measures of the

evolution of this gap are compared and assessed

Causes of declining productivity growth begin with the slowdown

in the rate of increase of educational attainment resulting from

the interplay of demand and supply factors including the

flattening of the college wage premium and the rising relative

price of college education Why did productivity growth decline

after 2006 despite an increase in the rate at which new US

patents were issued in 2006-16 compared to earlier decades Part

of the slowdown is attributed to the maturity of the IT

revolution which also helps to explain the trajectory of the

college wage premium Aspects of the productivity growth

slowdown include the declining productivity of research workers

diminishing returns to drug innovation and the evolutionary

rather than revolutionary impact of robots and artificial

intelligence which are replacing workers slowly and only in a

minority of industrial sectors throughout the economy Also

considered are alternative explanations of slower productivity

growth including low investment and mismeasurement

httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Childbearing Postponement its Option Value and the

Biological Clock CEPR Discussion Paper No DP12884

48 Pages Posted 23 Apr 2018

David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic

University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Aude Pommeret Universiteacute de Savoie

Date Written April 2018

Abstract

Having children is like investing in a risky project Postponing birth is like delaying an

irreversible investment It has an option value which depends on its costs and benefits and in

particular on the additional risks motherhood brings We develop a parsimonious theory of

childbearing postponement along these lines We derive its implications for asset

accumulation income optimal age at first birth and childlessness The structural parameters

are estimated by matching the predictions of the model to data from the National Longitudinal

Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase

with childbearing and this increase is stronger for more educated people This effect alone

can explain why the age at first birth and the childlessness rate both increase with education

We use the model to simulate two hypothetical policies Providing free medically assisted

reproduction technology does not affect the age at first birth much but lowers the

childlessness rate Insuring mothers against income risk is powerful in lowering the age at

first birth

Keywords Assisted reproduction technology Career uncertainty Late parenthood Real

option

JEL Classification D91 J13

Economic Upgrading Through Global Value Chain

Participation Which Policies Increase the Value

Added Gains World Bank Policy Research Working Paper No 8007

45 Pages Posted 1 May 2018

Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)

Daria Taglioni European Central Bank (ECB) - Directorate General Economics

Deborah E Winkler World Bank

Date Written March 16 2017

Abstract

The emergence of global value chains has opened up new ways to achieve development and

industrialization However new evidence shows that not all countries have gained from

participating in global value chains and that country-specific characteristics matter for

economic upgrading in global value chains This paper uses two panel data sets of developing

and industrialized countries at the sectoral level to relate global value chain participation as a

buyer and seller to domestic value added These are combined with a wide range of policy

measures at the country level that can play a role in economic upgrading through global value

chains by targeting global value chain integration or the quality and conditions of input and

output factors First the study finds that global value chain integration increases domestic

value added especially on the selling side which holds across all income levels Second the

results highlight the importance of policy for economic upgrading through global value chain

integration Although the study cannot claim causal evidence all the assessed policy areas are

consistently shown to mediate the effects of global value chains and magnify the gains for

domestic value added Third a detailed analysis shows that several policy areas mediate the

gains from global value chains more through integration as a seller Finally the study

observes that many of the results are driven by high- and upper-middle-income countries

Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp

Beverage Industry Construction Industry Business Cycles and Stabilization Policies General

Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper

Industry Plastics amp Rubber Industry Global Environment

Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami

by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)

Abstract

How does immigration affect labor market opportunities in a

receiving country This paper contributes to the voluminous

literature by reporting findings from a new (but very old) data

set Beginning in 1951 the Conference Board constructed a

monthly job vacancy index by counting the number of help-wanted

ads published in local newspapers in 51 metropolitan areas We

use the Help-Wanted Index (HWI) to document how immigration

changes the number of job vacancies in the affected labor

markets Our analysis begins by revisiting the Mariel episode

The data reveal a marked decrease in Miamis HWI relative to many

alternative control groups in the first 4 or 5 years after

Mariel followed by recovery afterwards We find a similar

initial decline in the number of job vacancies after two other

supply shocks that hit Miami over the past few decades the

initial wave of Cuban refugees in the early 1960s as well as the

1995 refugees who were initially detoured to Guantanamo Bay We

also look beyond Miami and estimate the generic spatial

correlations that dominate the literature correlating changes in

the HWI with immigration across metropolitan areas These

correlations consistently indicate that more immigration is

associated with fewer job vacancies The trends in the HWI seem

to most strongly reflect changing labor market conditions for

low-skill workers (in terms of both wages and employment) and a

companion textual analysis of help-wanted ads in Miami before and

after the Mariel supply shock suggests a slight decline in the

relative number of low-skill job vacancies

httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895

21 Pages Posted 1 May 2018

Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and

Statistics (CREST) Centre for Economic Policy Research (CEPR)

Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National

Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics

(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 2018

Abstract

Somatic distance or differences in physical appearance proves to be extremely important in

the gravity model of bilateral trade in conformity with results in other areas of economics and

outside of it in the social sciences This is also true quite independently of survey evidence

about bilateral trust These findings are obtained in a sample of the 15 members of the

European Economic Association in 1996 Robustness tests also show that somatic distance

has a more reliable influence on bilateral trade than the other cultural variables The article

finally discusses the interpretation and the breadth of application of these results

Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust

The Paradox of Global Thrift CEPR Discussion Paper No DP12894

59 Pages Posted 1 May 2018

Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate

School of Economics (Barcelona GSE)

Federica Romei LUISS Guido Carli University

Date Written April 2018

Abstract

This paper describes a paradox of global thrift Consider a world in which interest rates are

low and monetary policy cannot stabilize the economy because it is frequently constrained by

the zero lower bound Now imagine that governments complement monetary policy with

prudential financial and fiscal policies because they perceive that limiting private and public

borrowing during booms will help stabilize the economy by reducing the risk of financial

crises and by creating space for fiscal interventions during busts We show that these policies

while effective from the perspective of individual countries might backfire if applied on a

global scale In a financially integrated world in fact prudential policies generate a rise in the

global supply of savings or equivalently a drop in global aggregate demand In turn weaker

global aggregate demand depresses output in countries whose monetary policy is constrained

by the zero lower bound Due to this effect the world might paradoxically experience a fall in

output and welfare following the implementation of well-intended prudential policies

Keywords aggregate demand externalities Capital Flows current account policies fiscal

policies international cooperation Liquidity traps macroprudential policies zero lower

bound

JEL Classification E32 E44 E52 F41 F42

Multihorizon Currency Returns and Purchasing

Power Parity CEPR Discussion Paper No DP12893

59 Pages Posted 1 May 2018

Mikhail Chernov UCLA Anderson

Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics

There are 2 versions of this paper

Date Written April 2018

Abstract

Exposures of expected future depreciation rates to the current interest rate differential

violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon

Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the

two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the

depreciation rate inflation differential domestic and foreign yield curves Short-term

departures from PPP generate the first pattern The risk premiums for these departures

generate the second pattern

Keywords affine term structure model cointegration multiple horizons purchasing power

parity uncovered interest parity

Networks and Trade CEPR Discussion Paper No DP12891

33 Pages Posted 1 May 2018

Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for

Economic Policy Research (CEPR)

Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written April 2018

Abstract

Trade occurs between firms both across borders and within countries and the vast majority

of trade transactions includes at least one large firm with many trading partners This paper

reviews the literature on firm-to-firm connections in trade A growing body of evidence

coming from domestic and international transaction data has established empirical

regularities which have inspired the development of new theories emphasizing firm

heterogeneity among both buyers and suppliers in production networks Theoretical work

has considered both static and dynamic matching environments in a framework of many-to-

many matching The literature on trade and production networks is at an early stage and

there are a large number of unanswered empirical and theoretical questions

Keywords International Trade offshoring production networks productivity

JEL Classification F10 F12 F14 L11 L21

One More Time What are Institutions and How Do

They Change World Bank Policy Research Working Paper No 8422

39 Pages Posted 1 May 2018 Last revised 3 May 2018

Roumeen Islam World Bank

Date Written April 30 2018

Abstract

This paper defines institutions presents their basic characteristics and discusses forces for

institutional change It draws on a wealth of research and study by scholars in different fields

and follows from the flagship 2002 World Development Report on this topic including

relevant new research since then that illuminates key issues The definition of institutions

includes rules and organizations (specifically rules guiding peoples actions) The paper

emphasizes the diversity of institutions that can effectively perform similar functions the

arguments for and against standardization of institutions across specific transactions or

groups and the implications of these choices It highlights the relationship between informal

and formal institutions It discusses forces for institutional change influencing all economies

ranging from external shocks (whether they be economic or weather-related shocks or driven

by wars) to internal dynamics such as those following population growth or compositional

changes and those following technological innovations Many of these forces have a two-way

relationship with institutions they are affected by them and in turn influence whether and

when they change A special section is devoted to institutional transplants and their

effectiveness The paper concludes with a discussion of whether and under what conditions

institutional change can be externally directed and the lessons for aid donors

Keywords International Trade and Trade Rules Social Policy Common Property Resource

Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System

Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and

Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational

Sciences Competitiveness and Competition Policy

Globalization Government Popularity and the Great

Skill Divide

CEPR Discussion Paper No DP12897

56 Pages Posted 1 May 2018

Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics

Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and

Development (EBRD)

Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science

There are 2 versions of this paper

Date Written April 2018

Abstract

How does international trade affect the popularity of governments and leaders We provide

the first large-scale systematic evidence that the divide between skilled and unskilled

workers worldwide is producing corresponding differences in the response of political

preferences to trade shocks Using a unique data set including 118 countries and nearly

450000 individuals we find that growth in high skill intensive exports (of goods and

services) increases approval of the leader and incumbent government among skilled

individuals Growth in high skill intensive imports has the opposite effect There is no effect

on political approval among the unskilled To identify exogenous variation in international

trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our

findings suggest that the political effects of international trade differ with skill intensity and

that skilled individuals respond differently from their unskilled counterparts to trade shocks

Keywords International trade political approval political polarization skill intensity of

trade

Migratory Pressures in the Long Run International

Migration Projections to 2050 Banco de Espana Article 3817

9 Pages Posted 3 Jan 2018

Rodolfo G Campos Banco de Espantildea

Date Written December 5 2017

Abstract

This article presents bilateral international migration projections to 2050 based on a new

methodology that takes into account the population growth both in countries of origin and

countries of destination To do this the methodology used by Hanson and McIntosh (2016) to

project the future migratory flows to a sample of OECD countries is generalised to all

countries worldwide The United Nations population growth forecasts are used as a basis for

projecting future migratory flows The main findings of the exercise indicate that the number

of migrants is projected to increase from 28 of the world population in 2010 to around

35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa

Against this background and despite the slowdown in demographic growth in Latin America

the United States is expected to continue to receive high net immigration flows and to remain

the country with the highest stock of immigrants globally while continental Europe will post

larger net immigration flows

Immigration and Electoral Support for the Far-Left

and the Far-Right CESifo Working Paper Series No 6918

53 Pages Posted 7 May 2018

Anthony Edo Paris School of Economics (PSE)

Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)

Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and

Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of

Labor Economics

Date Written March 05 2018

Abstract

Immigration has become one of the most divisive political issues in the United States the

United Kingdom France and several other Western countries We estimate the impact of

immigration on voting for far-left and far-right candidates in France using panel data on

presidential elections from 1988 to 2017 To derive causal estimates we instrument more

recent immigration flows by past settlement patterns in 1968 We find that immigration

increases support for far-right candidates and has no robust effect on far-left voting The

increased support for far-right candidates is driven by low educated immigrants from non-

Western countries

Keywords voting immigration political economy

JEL Classification D720 F220 J150 P160

Institutions Trade and Development A Quantitative

Analysis CESifo Working Paper Series No 6920

64 Pages Posted 7 May 2018

Cosimo Beverelli World Trade Organization (WTO)

Alexander Keck World Trade Organization (WTO)

Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo

Institute for Economic Research GEP at the University of Nottingham

Yoto Yotov Drexel University - Department of Economics amp International Business

Date Written March 05 2018

Abstract

We propose and apply methods to quantify the impact of national institutions on international

trade and development We are able to identify the direct impact of country-specific

institutions on international trade within the structural gravity framework Our approach

naturally addresses the prominent issue of endogenous institutions The empirical analysis

offers robust evidence that stronger institutions promote trade A counterfactual analysis

reveals that the changes in institutional quality in the poor countries in our sample between

1996 and 2006 have had via their impact on imports from rich countries significant and

heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily

applicable to identifying the impact of a wide range of country-specific variables on

international trade

Keywords institutional quality international trade development structural gravity

JEL Classification F130 F140 F160

5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-

evaluating the Role of Monetary Policy in Economic Fluctuations

by Christiane Baumeister James D Hamilton - 24597 (EFG ME)

Abstract

Reporting point estimates and error bands for structural vector

autoregressions that are only set identified is a very common

practice However unless the researcher is persuaded on the

basis of prior information that some parameter values are more

plausible than others this common practice has no formal

justification When the role and reliability of prior

information is defended Bayesian posterior probabilities can be

used to form an inference that incorporates doubts about the

identifying assumptions We illustrate how prior information can

be used about both structural coefficients and the impacts of

shocks and propose a new distribution which we call the

asymmetric t distribution for incorporating prior beliefs about

the signs of equilibrium impacts in a nondogmatic way We apply

these methods to a three-variable macroeconomic model and

conclude that monetary policy shocks were not the major driver of

output inflation or interest rates during the Great Moderation

httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw

11 The Political Impact of Immigration Evidence from the United States

by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)

Abstract

In this paper we study the impact of immigration to the United

States on the vote for the Republican Party by analyzing

county-level data on election outcomes between 1990 and 2010

Our main contribution is to separate the effect of high-skilled

and low-skilled immigrants by exploiting the different geography

and timing of the inflows of these two groups of immigrants We

find that an increase in the first type of immigrants decreases

the share of the Republican vote while an inflow of the second

type increases it These effects are mainly due to the local

impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find

that the pro-Republican impact of low-skilled immigrants is

stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards

the Republican Party in places where low-skilled immigrants are

more likely to be perceived as competition in the labor market

and for public resources

httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw

23 The Impact of Exports on Innovation Theory and Evidence

by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)

Abstract

This paper investigates the effect of export shocks on

innovation On the one hand a positive shock increases market

size and therefore innovation incentives for all firms On the

other hand it increases competition as more firms enter the

export market This in turn reduces profits and therefore

innovation incentives particularly for firms with low

productivity Overall the positive impact of the export shock on

innovation is magnified for high productivity firms whereas it

may negatively affect innovation in low productivity firms We

test this prediction with patent customs and production data

covering all French manufacturing firms To address potential

endogeneity issues we construct firm-level export proxies which

respond to aggregate conditions in a firms export destinations

but are exogenous to firm-level decisions We show that

patenting robustly increases more with export demand for

initially more productive firms This effect is reversed for the

least productive firms as the negative competition effect

dominates

httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Sovereign Defaults in Court CESifo Working Paper Series No 6931

75 Pages Posted 8 May 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

There are 3 versions of this paper

Date Written March 08 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords sovereign default enforcement government financing debt restructuring

JEL Classification F340 G150 H630 K220

ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172

54 Pages Posted 14 May 2018

Martina Cecioni Bank of Italy

Date Written May 3 2018

Abstract

The paper provides empirical evidence on the effects of ECB conventional and unconventional

monetary policy on the euro exchange rate focusing on the period from January 2013 to

September 2017 Innovations to conventional and unconventional monetary policies are

identified through changes in respectively short- and long-term interest rates immediately

after Governing Council meetings Both types of measures contributed to the depreciation of

the euro from mid-2014 surprises associated with conventional measures had a stronger and

more persistent effect than those associated with unconventional ones Time-varying

estimates of the effects of conventional surprises since 1999 show that the responsiveness of

exchange rates to monetary news increased markedly from 2013 State-dependence analysis

finds that the exchange rate became more sensitive to monetary policy when the ECB adopted

a policy of negative interest rates and when conventional and unconventional monetary

surprises moved in the same direction

Keywords unconventional monetary policy exchange rates European Central Bank

JEL Classification E52 E58 F31

The ECBs Fiscal Policy

by Hans-Werner Sinn - 24613 (ME)

Abstract

While the ECB helped mitigate the euro crisis in the aftermath of

Lehman it has stretched its monetary mandate and moved into

fiscal territory This text describes and summarizes the crucial

role played by the ECB in the intervention spiral resulting from

its bid to manage the crisis It also outlines ongoing

competitiveness problems in southern Europe discusses the

so-called austerity policy of the Troika comments on QE and

presents two alternative paths for the future development of

Europe

httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Real Convergence in the Euro Area A Long-Term

Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6

102 Pages Posted 5 Dec 2017

Juan Luis Diaz del Hoyo European Central Bank (ECB)

Ettore Dorrucci European Central Bank (ECB)

Frigyes Ferdinand Heinz European Central Bank (ECB)

Sona Muzikarova European Central Bank (ECB)

Date Written December 1 2017

Abstract

In the euro area there is mixed evidence that the GDP per capita of lower-income economies

has been catching up with that of higher-income economies since the start of monetary union

The significant real convergence performance of some of the most recent members contrasts

with that of the economies of southern Europe which have not met expectations However

attributing all the blame for this outcome to the introduction of the single currency simply

misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this

paper shows that certain member countries began to face a ldquonon-convergence traprdquo long

before the euro years We also provide stylised facts on (i) the central role of total factor

productivity in driving real convergence in the euro area over time alongside other factors

and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and

institutional quality the other two key components of sustainable economic convergence We

conclude that it is critical that the euro area countries facing convergence challenges enhance

the resilience of their economic structures by improving the relevant institutions and

governance

Keywords sustainable economic convergence real convergence nominal convergence GDP

per capita Maastricht convergence criteria institutional quality labour productivity total

factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU

JEL Classification E01 F15 J11 O11 O43 O47 O52 O57

Monetary Policy Transmission in the Eastern

Caribbean Currency Union IMF Working Paper No 1870

31 Pages Posted 22 May 2018

Alla Myrvoda International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written March 2018

Abstract

This paper empirically investigates international and domestic monetary policy transmission

mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-

through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into

domestic interest rates through the interest rate channel While economic theory suggests

that the international pass-through should be high in small open economies with fixed

exchange rates and open capital accounts our findings based on regression analysis point to

a low long-run pass-through coefficient of the US interest rate The domestic transmission

channel however is found to operate through changes in the MSR The results hold for

different interest rates (deposit and lending) and are supported by survey-based findings

Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint

Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy

transmission interest rate pass-through ECCU monetary policy transmission interest rate

pass-through ECCU General Monetary Policy (Targets Instruments and Effects)

JEL Classification E43 E50 E52 F31 F33 F36 O54

On the Impact of Structural Reforms on Output and

Employment Evidence from a Cross-Country Firm-

Level Analysis IMF Working Paper No 1873

36 Pages Posted 22 May 2018

Luiza Antoun de Almeida International Monetary Fund (IMF)

Vybhavi Balasundharam University of Michigan at Ann Arbor

Date Written April 2018

Abstract

This paper analyzes the effects of selected structural reforms on output and employment in

the short and medium term It uses a comprehensive cross-country firm-level dataset

covering both advanced and emerging market economies over the period 2003-2014 In line

with previous studies it finds that structural reforms have in general a positive impact on

output and employment in the medium term Furthermore the paper also assesses whether

the impact of structural reforms varies with firm-specific characteristics such as size

leverage profitability and sector We find evidence that firm characteristics do influence the

effectiveness of structural reforms These findings have relevant policy implications as they

help policymakers tailor the design of structural reforms to maximize their payoffs taking

into account their heterogeneous impact on firms

Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed

countries Emerging markets structural reforms firm-level data Orbis dataset potential

growth

JEL Classification L51 D04 D22

Production Integration in the European Union CESifo Working Paper Series No 6944

34 Pages Posted 17 May 2018

Hakan Nordstrom Swedish Board of Trade

Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic

Studies and Ifo Institute)

Date Written March 21 2018

Abstract

Measured by trade in intermediate inputs economic integration has increased between 2000

and 2014 between members of the European Union and even more with non-members

Integration is negatively related to economic size and positively to the number of years as a

member Germany is the largest hub in the production network and the centre of gravity has

moved eastward Older member states are increasingly exporting service inputs and new

member states primary and manufacturing inputs Wages are increasing faster in countries

with low initial wages indicating wage convergence as a result of production integration

Keywords global value chains economic integration input-output models wage

convergence

JEL Classification E100 F100 F600 J310

Democratic Tipping Points CESifo Working Paper Series No 6945

36 Pages Posted 17 May 2018

Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy

Research (CEPR) Institute for the Study of Labor (IZA)

There are 2 versions of this paper

Date Written March 21 2018

Abstract

I examine whether transitory events can tip the scales against authoritarian regimes and lead

to persistent democratization I think of situations where this is a possibility as democratic

tipping points The transitory events I focus on are rainfall shocks in the most agricultural

countries in the world I show that while these shocks only affect agricultural output

contemporaneously they have persistent effects on political institutions Authoritarian

regimes experiencing negative rainfall shocks are more likely to be democratic three five and

ten years later

Keywords transitory shocks persistent democratization

Globalization and the New Normal IMF Working Paper No 1875

41 Pages Posted 22 May 2018

Bertrand Candelon University of Maastricht - Department of Economics

Alina Carare International Monetary Fund (IMF)

Jean-Baptiste Hasse

Aix-Marseille University

Date Written April 2018

Abstract

This study expands the empirical specification of Cerra and Saxena (2008) and allows short-

termoutput growth regimes to be determined by globalization Relying on a non-linear

dynamic panelrepresentation it reconciles the earlier results in the literature regarding the

two oppositenarratives of the effects of globalization on output growth Countries experience

higher growth onaverage the more open and integrated they are into the world However

once they reach a certainglobalization threshold (endogenously estimated) countries may

also experience a new normalpersistently lower short-term output growth following a

financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization

process for low- and middle-income countriesTo solely reap the globalization benefits on

growth sound policies should be in place to mitigatethe negative effects stemming from

increased vulnerabilities brought by globalization

Keywords Globalization Financial crisis Banking crisis Output growth New Normal

Globalization Financial crises Banking crises Output growth

JEL Classification F30 F43 F62 F65

Public Policy in an AI Economy

by Austan Goolsbee - 24653 (PE PR)

Abstract

This paper considers the role of policy in an AI-intensive

economy (interpreting AI broadly) It emphasizes the speed of

adoption of the technology for the impact on the job market and

the implications for inequality across people and across places

It also discusses the challenges of enacting a Universal Basic

Income as a response to widespread AI adoption discuss pricing

privacy and competition policy the question of whether AI could

improve policy making itself

httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Aggregate and Distributional Effects of Financial

Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883

62 Pages Posted 22 May 2018

Davide Furceri International Monetary Fund (IMF)

Prakash Loungani International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Date Written April 2018

Abstract

We take a fresh look at the aggregate and distributional effects of policies to

liberalizeinternational capital flows-financial globalization Both country- and industry-level

resultssuggest that such policies have led on average to limited output gains while

contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-

off Behindthis average lies considerable heterogeneity in effects depending on country

characteristicsLiberalization increases output in countries with high financial depth and

those that avoidfinancial crises while distributional effects are more pronounced in countries

with lowfinancial depth and inclusion and where liberalization is followed by a crisis

Difference-indifferenceestimates using sectoral data suggest that liberalization episodes

reduce the shareof labor income particularly for industries with higher external financial

dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic

shocks and thosewith a higher elasticity of substitution between capital and labor The

sectoral resultsunderpin a causal interpretation of the findings using macro data

Keywords Globalization Inequality Capital Account Openness Crises Institutions

JEL Classification F13 G32 O11

The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921

44 Pages Posted 15 May 2018

Francisco Roch International Monetary Fund (IMF)

Harald Uhlig University of Chicago - Department of Economics

There are 2 versions of this paper

Date Written May 2018

Abstract

Motivated by the recent European debt crisis this paper investigates the scope for a bailout

guarantee in a sovereign debt crisis Defaults may arise from negative income shocks

government impatience or a sunspot-coordinated buyers strike We introduce a bailout

agency and characterize the strategy with the minimal actuarially fair intervention which

guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual

financing The intervention makes it cheaper for governments to borrow inducing them

borrow more leaving default probabilities possibly rather unchanged The maximal backstop

will be pulled precisely when fundamentals worsen

Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-

term debt OMT Self-fulfilling Crises

JEL Classification F34 F41

Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia

by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki

Syamsulhakim - 24670 (CH DEV PE)

Abstract

Conditional cash transfer (CCT) programs have spread worldwide

and are designed to promote comprehensive human capital

investments in children starting from encouraging pre-natal and

maternal care and early childhood health interventions and

continuing through incentivizing school attendance Yet

evaluating these claims over more than a few years is hard as

most CCT experiments extend the program to the control group

after a short experimental period This paper experimentally

estimates the impacts of Indonesias cash transfer program (PKH)

six years after the program launched using data from about

14000 households in 360 sub-districts across Indonesia taking

advantage of the fact that treatment and control locations

remained largely intact throughout the period We find that PKH

continues to have large static incentive effects on many of the

targeted indicators increasing usage of trained health

professionals for childbirth dramatically and halving the share

of children age 7-15 who are not enrolled in school Wage labor

for 13-15 year olds was reduced by at least one-third We also

begin to observe impacts on outcomes that may require cumulative

investments for example six years later we observe large

reductions in stunting and some evidence of increased high school

completion rates The results suggest that CCT investments can

have substantial effects on the accumulation of human capital

and that these effects can persist even when programs are

operating at large-scale without researcher intervention

httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Services Development and Comparative Advantage in

Manufacturing World Bank Policy Research Working Paper No 8450

47 Pages Posted 23 May 2018

Xuepeng Liu Kennesaw State University - Department of Economics and Finance

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Zhi Wang George Mason University - Schar School of Policy and Government

Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre

for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of

Economics amp Management

Date Written May 22 2018

Abstract

Most manufacturing activities use inputs from the financial and business services sectors But

these services sectors also compete for resources with manufacturing activities provoking

concerns about de-industrialization -- financial services in industrial countries like the United

States and the United Kingdom and business services in developing countries like India and

the Philippines This paper examines the implications of services development for the export

performance of manufacturing sectors It develops a methodology to quantify the indirect role

of services in international trade in goods and constructs new measures of revealed

comparative advantage based on domestic value added in gross exports The paper shows

that the development of financial and business services enhances the revealed comparative

advantage of manufacturing sectors that use these services intensively but not that of other

manufacturing sectors It also finds that a country can partially overcome the handicap of an

underdeveloped domestic services sector by relying more on imported services inputs Thus

lower services trade barriers in developing countries can help to promote their

manufacturing exports

Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General

Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry

Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and

Trade Rules Trade and Services Financial Economics Finance and Development Economic

Growth Economic Theory amp Research Industrial Economics

Thou Shalt Not Breach The Impact on Sovereign

Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887

37 Pages Posted 22 May 2018

Federico Kalan International Monetary Fund (IMF)

Adina Popescu International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written April 2018

Abstract

There is evidence that fiscal rules in particular well-designed rules are associated with lower

sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not

been examined in the literature This paper estimates the effect of the Excessive Deficit

Procedure (EDP) on sovereign spreads of European Union member states Based on a sample

including the 28 European Union countries over the period 1999 to 2016 sovereign spreads

of countries placed under an EDP are found to be on average higher compared to countries

that are not under an EDP The interpretation of this result is not straight-forward as different

channels may be at play in particular those related with the credibility and the design of the

EU fiscal framework The specification accounts for typical macroeconomic fiscal and

financial determinants of sovereign spreads the System Generalized Method of Moments

estimator is used to control for endogeneity and results are robust to a range of checks on

variables and estimators

Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models

with Panel Data

JEL Classification E62 H60 C23

ldquoUnconventionalrdquo Monetary Policy as Conventional

Monetary Policy A Perspective from the US In the

1920s

FEDS Working Paper No 2018-019

45 Pages Posted 6 Jun 2018

Mark A Carlson Board of Governors of the Federal Reserve System

Burcu Duygan-Bump Federal Reserve Board

Date Written 2018-03-09

Abstract

To implement monetary policy in the 1920s the Federal Reserve utilized administered

interest rates and conducted open market operations in both government securities and

private money market securities sometimes in fairly considerable amounts We show how the

Fed was able to effectively use these tools to influence conditions in money markets even

those in which it was not an active participant Moreover our results suggest that the

transmission of monetary policy to money markets occurred not just through changing the

supply of reserves but importantly through financial market arbitrage and the rebalancing of

investor portfolios The tools used in the 1920s by the Federal Reserve resemble the

extraordinary monetary policy tools used by central banks recently and provide further

evidence on their effectiveness even in ordinary times

Keywords Monetary policy Unconventional monetary policy Central banking Administered

rates Money markets Quantitative easing

JEL Classification E52 E58 N22

New Perspectives on the Decline of US

Manufacturing Employment FEDS Working Paper No 2018-023

37 Pages Posted 7 Jun 2018

Teresa Fort Dartmouth College - Tuck School of Business

Justin R Pierce Federal Reserve Board

Peter Schott Yale School of Management National Bureau of Economic Research (NBER)

Date Written 2018-04-13

Abstract

We use relatively unexplored dimensions of US microdata to examine how US manufacturing

employment has evolved across industries firms establishments and regions from 1977 to

2012 We show that these data provide support for both trade- and technology-based

explanations of the overall decline of employment over this period while also highlighting the

difficulties of estimating an overall contribution for each mechanism Toward that end we

discuss how further analysis of these trends might yield sharper insights

Keywords Employment Manufacturing Output Technology Trade

AI and the Economy

by Jason Furman Robert Seamans - 24689 (PR)

Abstract

We review the evidence that artificial intelligence (AI) is

having a large effect on the economy Across a variety of

statistics--including robotics shipments AI startups and patent

counts--there is evidence of a large increase in AI-related

activity We also review recent research in this area which

suggests that AI and robotics have the potential to increase

productivity growth but may have mixed effects on labor

particularly in the short run In particular some occupations

and industries may do well while others experience labor market

upheaval We then consider current and potential policies around

AI that may help to boost productivity growth while also

mitigating any labor market downsides including evaluating the

pros and cons of an AI specific regulator expanded antitrust

enforcement and alternative strategies for dealing with the

labor-market impacts of AI including universal basic income and

guaranteed employment

httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Economic Policy for Artificial Intelligence

by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)

Abstract

Recent progress in artificial intelligence (AI) - a general

purpose technology affecting many industries - has been focused

on advances in machine learning which we recast as a

quality-adjusted drop in the price of prediction How will this

sharp drop in price impact society Policy will influence the

impact on two key dimensions diffusion and consequences

First in addition to subsidies and IP policy that will influence

the diffusion of AI in ways similar to their effect on other

technologies three policy categories - privacy trade and

liability - may be uniquely salient in their influence on the

diffusion patterns of AI Second labor and antitrust policies

will influence the consequences of AI in terms of employment

inequality and competition

httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Missing Profits of Nations

by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)

Abstract

By combining new macroeconomic statistics on the activities of

multinational companies with the national accounts of tax havens

and the worlds other countries we estimate that close to 40 of

multinational profits are shifted to low-tax countries each year

Profit shifting is highest among US multinationals the tax

revenue losses are highest for the European Union and developing

countries We show theoretically and empirically that in the

current international tax system tax authorities of high-tax

countries do not have incentives to combat profit shifting to tax

havens They instead focus their enforcement effort on

relocating profits booked in other high-tax countries--in effect

stealing revenue from each other This policy failure can

explain the persistence of profit shifting to low-tax countries

despite the high costs involved for high-tax countries We

provide a new cross-country database of GDP corporate profits

trade balances and factor shares corrected for profit shifting

showing that the global rise of the corporate capital share is

significantly under-estimated

httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums

by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)

Abstract

This paper studies the synchronization of financial cycles across

17 advanced economies over the past 150 years The comovement in

credit house prices and equity prices has reached historical

highs in the past three decades The sharp increase in the

comovement of global equity markets is particularly notable We

demonstrate that fluctuations in risk premiums and not risk-free

rates and dividends account for a large part of the observed

equity price synchronization after 1990 We also show that US

monetary policy has come to play an important role as a source of

fluctuations in risk appetite across global equity markets

These fluctuations are transmitted across both fixed and floating

exchange rate regimes but the effects are more muted in floating

rate regimes

httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Geography of Linguistic Diversity and the Provision of Public Goods

by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)

Abstract

This paper analyzes the importance of local interaction between

individuals of different linguistic groups for the provision of

public goods at the national level The micro-founded conceptual

framework we develop predicts that a countrys public goods (i)

decrease in its overall linguistic fractionalization and (ii)

either increase or decrease in its local learning multiplier a

measure of how local interaction affects antagonism towards other

groups in the society at large After constructing a 5 km by 5

km dataset on language use for 223 countries we empirically

explore these theoretical predictions While overall

fractionalization worsens public goods outcomes we find a

positive causal effect of local learning Conditional on a

countrys overall diversity public goods outcomes are maximized

when there are a few large-sized groups and the diversity of each

location mirrors that of the country as a whole Our large-scale

study spanning the entire globe confirms experimental

micro-evidence in favor of contact theory

httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Misfits in the Car Industry Offshore Assembly

Decisions at the Variety Level CEPR Discussion Paper No DP12940

39 Pages Posted 21 May 2018

Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics

Thierry Mayer Sciences Po

Date Written May 2018

Abstract

This paper estimates the role of countryvariety comparative advantage in the decision to

offshore assembly of more than 2000 models of 197 car brands headquartered in 23

countries While offshoring in the car industry has risen from 2000 to 2016 the top five

offshoring brands account for half the car assembly relocated to low-wage countries We show

that the decision to offshore a particular car model depends on two types of cost

(dis)advantage of the home country relative to foreign locations The first type the assembly

costs common to all models is estimated via a structural triadic gravity equation The second

effect model-level comparative advantage is an interaction between proxies for the models

skill and capital intensity and headquarter countrys abundance in these factors

Keywords cars Gravity offshoring

JEL Classification F1

Global Crises and Populism The Role of Eurozone

Institutions CEPR Discussion Paper No DP12944

46 Pages Posted 21 May 2018

Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)

Helios Herrera University of Warwick

Massimo Morelli Bocconi University

Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for

Economic Performance (CEP)

Date Written May 2018

Abstract

Populist parties are likely to gain consensus when mainstream parties and status quo

institutions fail to manage the shocks faced by their economies Institutional constraints

which limit the possible actions in the face of shocks result in poorer performance and

frustration among voters who turn to populist movements We rely on this logic to explain the

different support of populist parties among European countries in response to the

globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a

greater success of populist parties in response to these shocks in Euro zone countries and our

empirical analysis confirms this prediction This is consistent with voters frustration for the

greater inability of the Euro zone governments to react to di cult-to-manage globalization

shocks and financial crises Our evidence has implications for the speed of construction of

political unions A slow staged process of political unification can expose the EU to a risk of

political backlash if hard to manage shocks hit the economies during the integration process

Keywords Financial Dependence Frustration Globalization populism Relocation

JEL Classification D72 D78 F14 F16

Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954

50 Pages Posted 31 May 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Date Written May 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity

Translog

JEL Classification F14 F15 F33

Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960

76 Pages Posted 5 Jun 2018

Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR

Daragh Clancy European Stability Mechanism

Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs

Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic

Policy Research (CEPR)

There are 2 versions of this paper

Date Written May 2018

Abstract

This paper explores a natural connection between fiscal multipliers and foreign holdings of

public debt Although fiscal expansions can raise domestic economic activity through various

channels they can also have crowding-out effects if the resources used to acquire public debt

reduce domestic consumption and investment Thus these crowding-out effects are likely to

be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-

war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the

present To do so we assemble a novel database of public debt holdings by domestic and

foreign creditors for a large set of advanced economies We combine this data with standard

measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is

increasing in the share of public debt held by foreigners In particular the fiscal multiplier is

smaller than one when the foreign share is low such as in the US in the 1950s and 1960s

and Japan today and larger than one when the foreign share is high such as in the US and

Ireland today

Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt

JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63

Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961

26 Pages Posted 30 May 2018

Leonid V Azarnert Ariel University Center

Date Written April 09 2018

Abstract

This paper studies the effect of refugee resettlement on human capital accumulation The

analysis is performed in a growth model with endogenous fertility I show how refugee

resettlement from a more advanced and wealthier economy to a less advanced and less

wealthy economy combined with income transfers is Pareto-improving for indigenous

populations in both countries I also derive conditions for the proposed resettlement policy to

stimulate human capital accumulation and hence economic growth in both economies

Keywords refugee resettlement fertility human capital growth

JEL Classification D300 F220 J100 O100

The Impact of Trade Liberalization on Firm Productivity and Innovation

by Pian Shu Claudia Steinwender - 24715 (ITI PR)

Abstract

This chapter reviews the empirical economics literature on the

impact of trade liberalization on firms innovation-related

outcomes We define and examine four types of shocks to trade

flows import competition export opportunities access to

imported intermediates and foreign input competition Our

review reveals interesting heterogeneities at the country and

firm levels In emerging countries trade liberalization appears

to spur productivity and innovation In developed countries

export opportunities and access to imported intermediates tend to

encourage innovation but the evidence on import competition is

mixed especially for firms in the United States At the firm

level the positive effects of trade on innovation are more

pronounced at the initially more productive firms while the

negative effects are more pronounced at the initially less

productive firms

httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The IT Revolution and the Globalization of RampD

by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)

Abstract

Since the 1990s RampD has become less geographically concentrated

and has seen especially fast growth in emerging markets One of

the distinguishing features of the RampD globalization phenomenon

is its concentration within the softwareIT domain the increase

in foreign RampD has been largely concentrated within software and

IT-intensive multinationals and new RampD destinations are also

more software and IT-intensive multinationals than traditional

RampD destinations In this paper we document three important

phenomena (1) the globalization of RampD (2) the growing

importance of software and IT to firm innovation and (3) the

rise of new RampD hubs We argue that the shortage in

softwareIT-related human capital resulting from the large IT-

and software-biased shift in innovation drove US MNCs abroad and

particularly drove them abroad to new hubs with large

quantities of STEM workers who possessed IT and software skills

Our findings support the view that the globalization of US

multinational RampD has reinforced the technological leadership of

US-based firms in the information technology domain and that

multinationals ability to access a global talent base could

support a high rate of innovation even in the presence of the

rising (human) resource cost of frontier RampD

httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969

60 Pages Posted 5 Jun 2018

Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco

Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)

Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of

Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)

Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

There are 2 versions of this paper

Date Written June 2018

Abstract

This paper studies the synchronization of financial cycles across 17 advanced economies over

the past 150 years The comovement in credit house prices and equity prices has reached

historical highs in the past three decades The sharp increase in the comovement of global

equity markets is particularly notable We demonstrate that fluctuations in risk premiums

and not risk-free rates and dividends account for a large part of the observed equity price

synchronization after 1990 We also show that US monetary policy has come to play an

important role as a source of fluctuations in risk appetite across global equity markets These

fluctuations are transmitted across both fixed and floating exchange rate regimes but the

effects are more muted in floating rate regimes

Keywords asset prices equity return premium financial centers financial cycles policy

spillovers

JEL Classification E50 F33 F42 F44 G12 N10 N20

Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974

32 Pages Posted 11 Jun 2018

Hideki Nakamura Osaka City University

Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)

LUISS Guido Carli DPTEA

Date Written June 2018

Abstract

This paper presents a model of technical change that combines two lines of research together

It is a task based model in which automation turns labor tasks to mechanized ones and there

is also a continuous addition of new labor tasks as in the expanding variety literature We

impose three simple restrictions on the model The first is that all new tasks are adopted The

second is that all new automation innovations are adopted and the third is that the share of

labor does not converge to zero in the long run We show that these restrictions imply that

unemployment due to automation is expected to converge to zero over time

Keywords automation growth Labor Income Share technical change unemployment

JEL Classification J64 O14 O30 O40

Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976

56 Pages Posted 11 Jun 2018

Sergio de Ferra Stockholm University

Federica Romei LUISS Guido Carli University

Date Written June 2018

Abstract

In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound

have limited the ability of policy-makers in the European monetary union to achieve their

stabilization objective This paper investigates the interaction between sovereign default risk

and the conduct of monetary policy when borrowers can act strategically and they share with

their lenders a single currency in a monetary union We address this question in an

endogenous sovereign default model of heterogeneous countries in a monetary union where

the monetary authority may be constrained by the zero lower bound We uncover three main

results First in normal times debtors have a stronger incentive to default to induce more

expansionary monetary policy Second the zero lower bound or constraints on monetary

policy may act as a disciplining device to enforce repayment of sovereign debt Third

sovereign default risk induces countries with a preference for tight monetary policy to accept

a laxer policy stance These results help to shed light on the recent European experience of

high default risk expansionary monetary policy and low nominal interest rates

Keywords Heterogeneous Countries monetary union sovereign default zero lower bound

JEL Classification F34 F42 F45 H63

Evolution of Modern Business Cycle Models Accounting for the Great Recession

by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)

Abstract

Modern business cycle theory focuses on the study of dynamic

stochastic general equilibrium models that generate aggregate

fluctuations similar to those experienced by actual economies

We discuss how this theory has evolved from its roots in the

early real business cycle models of the late 1970s through the

turmoil of the Great Recession four decades later We document

the strikingly different pattern of comovements of macro

aggregates during the Great Recession compared to other postwar

recessions especially the 1982 recession We then show how two

versions of the latest generation of real business cycle models

can account respectively for the aggregate and the

cross-regional fluctuations observed in the Great Recession in

the United States

httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw

What Happened Financial Factors in the Great Recession

by Mark Gertler Simon Gilchrist - 24746 (EFG ME)

Abstract

Since the onset of the Great Recession an explosion of both

theoretical and empirical research has investigated how the

financial crisis emerged and how it was transmitted to the real

sector The goal of this paper is to describe what we have

learned from this new research and how it can be used to

understand what happened during the Great Recession In the

process we also present some new evidence on the role of the

household balance sheet channel versus the disruption of banking

We examine a panel of quarterly state level data on house

prices mortgage debt and employment along with a measure of

banking distress Then exploiting both panel data and time

series methods we analyze the contribution of the house price

decline versus the banking distress indicator to the overall

decline in employment during the Great Recession We confirm a

common finding in the literature that the household balance sheet

channel is important for regional variation in employment

However we also find that the disruption in banking was central

to the overall employment contraction

httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Changing Structure of Immigration to the OECD

What Welfare Effects on Member Countries CESifo Working Paper Series No 6992

40 Pages Posted 27 Jun 2018

Michał Burzyński Universite du Luxembourg

Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management

UK IZA Institute of Labor Economics

Hillel Rapoport Paris School of Economics (PSE)

Date Written April 24 2018

Abstract

We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and

2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we

develop a general equilibrium model that accounts for the main channels of transmission of

immigration shocks ndash the employment and wage effects the fiscal effect and the market size

effect ndash and for the interactions between them We parameterize our model for 20 selected

OECD member states We find that the three waves induce positive effects on the real income

of natives however the size of these gains varies considerably across countries and across

skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to

the previous ones This is due to the changing origin mix of immigrants which translates into

lower levels of human capital and smaller fiscal gains However differences across cohorts

explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic

benefits from immigration

Keywords immigration welfare crisis inequality general equilibrium

JEL Classification C680 F220 J240

Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470

19 Pages Posted 11 Jun 2018

Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia

Daniel Lederman World Bank - Latin America and Caribbean Region

Laura Zoratto World Bank

Date Written June 7 2018

Abstract

Recent literature has shown evidence of positive contributions of export promotion agencies

around the world in raising exports through the intensive and extensive margins of trade The

number of export promotion agencies has increased substantially over the past two decades

and most of them focus on assisting exporters in understanding and finding markets for their

products This paper describes the characteristics of export promotion agencies around the

world using a novel database from the World Bank in collaboration with the International

Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the

literature on the impacts of export promotion agencies

Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin

Trade Policy Trade and Multilateral Issues Trade and Services

Optimal Inflation and the Identification of the Phillips

Curve CEPR Discussion Paper No DP12981

29 Pages Posted 11 Jun 2018

Michael McLeay Bank of England - Monetary Assessment and Strategy Division

Silvana Tenreyro London School of Economics (LSE)

Date Written June 2018

Abstract

This paper explains why inflation follows a seemingly exogenous statistical process unrelated

to the output gap In other words it explains why it is difficult to empirically identify a Phillips

curve We show why this result need not imply that the Phillips curve does not hold -- on the

contrary our conceptual framework is built under the assumption that the Phillips curve

always holds The reason is simple if monetary policy is set with the goal of minimising

welfare losses (measured as the sum of deviations of inflation from its target and output from

its potential) subject to a Phillips curve a central bank will seek to increase inflation when

output is below potential This targeting rule will impart a negative correlation between

inflation and the output gap blurring the identification of the (positively sloped) Phillips

curve

Keywords identification Inflation targeting Phillips curve

GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980

43 Pages Posted 11 Jun 2018

Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII

Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 19 2018

Abstract

Geography economic size or common history help predicting signed regional trade

agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic

determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms

addressed in this paper We estimate the time-varying probability for a country pair to sign a

trade agreement and build upon structural gravity in general equilibrium to determine how

the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results

confirm that the endogenous geography of RTAs is shaped by the development of GVCs

Keywords preferential trade agreements global value chains structural gravity

JEL Classification F130 F140 F150

Diversity and Growth CEPR Discussion Paper No DP13011

37 Pages Posted 26 Jun 2018

Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and

Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group

(DECRG)

There are 2 versions of this paper

Date Written June 2018

Abstract

The diversity of social interaction within economic communities affects productivity and

growth and is itself shaped by economic conditions These reciprocal effects raise the

possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty

on a new path of social integration and economic growth through external intervention or an

internal political initiative This paper describes a simple analytical model that captures these

reciprocal effects and sheds light on the role of government capacity community leadership

federation and external credit or aid in achieving economic growth through social integration

The Economics of Language CEPR Discussion Paper No DP13002

85 Pages Posted 26 Jun 2018

Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School

Date Written June 2018

Abstract

The paper brings together methodological theoretical and empirical analysis into the single

framework of linguistic diversity It reflects both historical and contemporary research by

economists and other social scientists on the impact of language on economic outcomes and

public policies We examine whether and how language influences human thinking (including

emotions) and behavior analyze the effects of linguistic distances on trade migrations

financial markets language learning and its returns The quantitative foundations of linguistic

diversity which rely on group identification linguistic distances as well as fractionalization

polarization and disenfranchisement indices are discussed in terms of their empirical

challenges and uses We conclude with an analysis of linguistic policies and shifts of languages

and examine their welfare effects and the trade-offs between the development of labor

markets and the social costs that they generate in various countries

Financial and Fiscal Interaction in the Euro Area

Crisis This Time Was Different CEPR Discussion Paper No DP13016

39 Pages Posted 3 Jul 2018

Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in

Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank

(ECB)

Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE

Date Written June 2018

Abstract

This paper highlights the anomalous characteristics of the Euro Area `twin crises by

contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the

business cycle fluctuations of the previous decades We report three stylised facts First the

contraction in output was marked by an anomalous downfall in investment while

consumption savings and unemployment followed their historical relation with GDP Second

households and financial corporations debts and house prices deviated from their pre-crisis

trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and

so was the fiscal consolidation that followed Our analysis points to the financial nature of the

crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in

large part explained by extraordinary measures in support of the financial sector which show

up in the stock-flow adjustments and reveal a key interaction between the fiscal and the

financial sectors

Keywords Euro Area Government Debt Recessions

JEL Classification C11 C32 C54 E52 E62 F45

The Shocks Matter Improving Our Estimates of

Exchange Rate Pass-Through CEPR Discussion Paper No DP13037

43 Pages Posted 9 Jul 2018

Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic

Research (NBER)

Ida Hjortsoe

Bank of England

Tsvetelina Nenova Bank of England

There are 4 versions of this paper

Date Written July 2018

Abstract

A major challenge for monetary policy is predicting how exchange rate movements will

impact inflation We propose a new focus directly incorporating the underlying shocks that

cause exchange rate fluctuations when evaluating how these fluctuations pass through to

import and consumer prices A standard open-economy model shows that the relationship

between exchange rates and prices depends on the shocks which cause the exchange rate to

move We build on this to develop a structural Vector Autoregression (SVAR) framework for a

small open economy and apply it to the UK We show that prices respond differently to

exchange rate movements based on what caused the movements For example exchange rate

pass-through is low in response to domestic demand shocks and relatively high in response to

domestic monetary policy shocks This framework can improve our ability to estimate how

pass-through can change over short periods of time For example it can explain why sterlings

post-crisis depreciation caused a sharper increase in prices than expected while the effect of

sterlings 2013-15 appreciation was more muted We also apply this framework to forecast

the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote

to leave the European Union

Keywords consumer prices exchange rate pass-through import prices inflation vector

autoregressions

JEL Classification E31 F3 F41

Why Has Economic Growth Slowed When Innovation

Appears to Be Accelerating CEPR Discussion Paper No DP13039

29 Pages Posted 9 Jul 2018

Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)

Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written July 2018

Abstract

U S economic growth slowed by more than half from 32 percent per year during 1970-2006

to only 14 percent during 2006-16 and this decline was divided equally between slower

growth in hours of work and slower growth in output per hour In explaining slower growth

in hours particular emphasis is placed on the slower secular rise of life expectancy in the US

compared to other developed countries Further contributions to slowing growth are made by

a decline in the population share of both legal and illegal immigration and a turnaround from

rising to declining labor force participation Causes of declining productivity growth begin

with the slowdown in the rate of increase of educational attainment Why did productivity

growth decline after 2006 despite an increase in the rate at which new US patents were

issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the

maturity of the IT revolution which also helps to explain the trajectory of the college wage

premium Aspects of the productivity growth slowdown include the declining productivity of

research workers diminishing returns to drug innovation and the evolutionary rather than

revolutionary impact of robots and artificial intelligence

Keywords Economic Growth Immigration Innovation labor force participation Mortality

productivity

JEL Classification D24 E24

On DSGE Models

by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)

Abstract

The outcome of any important macroeconomic policy change is the

net effect of forces operating on different parts of the economy

A central challenge facing policy makers is how to assess the

relative strength of those forces Dynamic Stochastic General

Equilibrium (DSGE) models are the leading framework that

macroeconomists have for dealing with this challenge in an open

and transparent manner This paper reviews the state of DSGE

models before the financial crisis and how DSGE modelers

responded to the crisis and its aftermath In addition we

discuss the role of DSGE models in the policy process

httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports

by Andrew K Rose - 24817 (IFM ITI)

Abstract

I investigate whether countries that use unconventional monetary

policy (UMP) experience export booms I use a popular gravity

model of trade which requires neither the exogeneity of UMP nor

instrumental variables for UMP In practice countries that

engage in UMP experience a drop in exports vis-a-vis countries

that are not engaged in such policies holding other things

constant Quantitative easing is associated with exports that

are about 10 lower to countries not engaged in UMP this amount

is significantly different from zero and similar to the effect of

negative nominal interest rates Thus there is no evidence that

countries have gained export markets through unconventional

monetary policy currency wars that have been launched have also

been lost UMP is also associated with a comparable drop in

imports and exchange rates suggesting that countries engage in

UMP when they are experiencing adverse macroeconomic shocks

concurrent with those that eviscerate international trade

httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Granular Comparative Advantage

by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)

Abstract

Large firms play a pivotal role in international trade shaping

the export patterns of countries We propose and quantify a

granular multi-sector model of trade which combines fundamental

comparative advantage across sectors with granular comparative

advantage embodied in outstanding individual firms We develop

an SMM-based estimation procedure which takes full account of

the general equilibrium of the model to jointly estimate these

fundamental and granular forces using French micro-data with

information on firm domestic and export sales across

manufacturing industries We find that granularity accounts for

about 20 of the variation in realized export intensity across

sectors and is more pronounced in the most export-intensive

sectors In turn idiosyncratic firm dynamics accounts for a

large share of the evolution of a countrys comparative advantage

over time Governments face strong incentives to target trade

policy at large individual foreign exporters and to use lenient

antitrust regulation at home to substitute for

beggar-thy-neighbor trade policy

httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The State of New Keynesian Economics A Partial Assessment

by Jordi Gali - 24845 (EFG ME)

Abstract

I provide an overview of recent developments in monetary

economics with an emphasis on extensions of the New Keynesian

framework that assume a zero lower bound on the short term

nominal rate as well as models with household heterogeneity

httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Artificial Intelligence Economics and Industrial Organization

by Hal Varian - 24839 (IO PR)

Abstract

Machine learning (ML) and artificial intelligence (AI) have been

around for many years However in the last 5 years remarkable

progress has been made using multilayered neural networks in

diverse areas such as image recognition speech recognition and

machine translation AI is a general purpose technology that is

likely to impact many industries In this chapter I consider how

machine learning availability might affect the industrial

organization of both firms that provide AI services and

industries that adopt AI technology My intent is not to

provide an extensive overview of this rapidly-evolving area but

instead to provide a short summary of some of the forces at work

and to describe some possible areas for future research

httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066

20 Pages Posted 24 Jul 2018

Maurice Obstfeld International Monetary Fund (IMF)

Date Written July 2018

Abstract

As international capital markets expanded in breadth and depth after the middle 1990s

global current account imbalances also expanded markedly Some have linked the origin of

the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes

answers to four questions about the recent history of global imbalances Why did global

imbalances expand after the mid-1990s What circumstances and concomitant factors

provide clues about the origins of the GFC If one accepts that a mono-causal story about the

GFC based on global imbalances is inaccurate how should one view the potential threats from

excessive global imbalances today And finally what policy implications follow

Keywords current account global financial crisis (GFC) global imbalances IMF External

Sector Report

Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share

by David Autor Anna Salomons - 24871 (EFG LS)

Abstract

Many technological innovations replace workers with machines but

this capital-labor substitution need not reduce aggregate labor

demand because it simultaneously induces four countervailing

responses own-industry output effects cross-industry

input-output effects between-industry shifts and final demand

effects We quantify these channels using four decades of

harmonized cross-country and industry data where we measure

automation as industry-level movements in total factor

productivity (TFP) that are common across countries We find

that automation displaces employment and reduces labors share of

value-added in the industries in which it originates (a direct

effect) In the case of employment these own-industry losses

are reversed by indirect gains in customer industries and induced

increases in aggregate demand By contrast own-industry labor

share losses are not recouped elsewhere Our framework can

account for a substantial fraction of the reallocation of

employment across industries and the aggregate fall in the labor

share over the last three decades It does not however explain

why the labor share fell more rapidly during the 2000s

httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Dynamic Effects of Co-Ethnic Networks on

Immigrants Economic Success CESifo Working Paper Series No 7084

43 Pages Posted 21 Jul 2018

Michele Battisti University of Palermo LUISS Guido Carli University

Giovanni Peri University of California Davis - Department of Economics

Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Date Written June 06 2018

Abstract

This paper investigates how the size of co-ethnic networks at the time of arrival affect the

economic success of immigrants in Germany Applying panel analysis with a large set of fixed

effects and controls we isolate the association between initial network size and long-run

immigrant outcomes We also look at those who were assigned to an initial location

independently of their choice allows a causal interpretation of our estimates We find that

immigrants initially located in places with larger co-ethnic networks are more likely to be

employed at first but have a lower probability of investing in human capital

Keywords networks immigration human capital employment

JEL Classification J240 J610 R230

Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070

36 Pages Posted 31 Jul 2018

Karol Borowiecki University of Southern Denmark

Kathryn Graddy Brandeis University - Department of Economics

Date Written July 2018

Abstract

In order to investigate the role of immigrant artists on the development of artistic clusters in

US cities we use the US Census and American Community Survey collected every 10 years

since 1850 We identify artists and art teachers authors musicians and music teachers actors

and actresses architects and journalists their geographical location and their status as a

native or an immigrant We look at the relative growth rate of the immigrant population in

these occupations over a ten year period and how it affects the relative growth rate of native-

born individuals in these artistic occupations We find that cities that experienced immigrant

artist inflows also see a greater inflow of native artists

Keywords artistic occupations artists Immigration

JEL Classification J4 J6 N3 N9 Z1

Global Value Chains and Inequality with Endogenous Labor Supply

by Eunhee Lee Kei-Mu Yi - 24884 (ITI)

Abstract

We assess the role of global value chains in transmitting global

integration shocks to aggregate trade as well as distributional

outcomes We develop a multi-country general equilibrium trade

model that features multi-stage production with different stages

having different productivities and using factors (occupations)

with different intensities The model also features a Roy

mechanism in which heterogeneous workers endogenously choose

their sector and occupation Country- and worker-level

comparative advantages interact A reduction in trade costs

leads to countries specializing in their comparative advantage

sectors and production stages This specialization changes labor

demand and also leads to more workers shifting to their

comparative advantage sectors and occupations We calibrate our

model to the US China and the rest of the world in 2000 and

we simulate a decline in Chinas trade costs with the US

designed to mimic Chinas entry into the WTO Our simulation

results imply an increase in the skill premium in both the US

and China and the GVC ie specialization across stages is

critical to this outcome

httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective

by Robert J Gordon - 24891 (EFG)

Abstract

In the late 1960s the stable negatively sloped Phillips Curve

(PC) was overturned by the Friedman-Phelps natural rate model

Their PC was vertical in the long run at the natural unemployment

rate and their short-run curve shifted up whenever unemployment

was pushed below the natural rate This paper criticizes the

underlying assumption of the Friedman-Phelps approach that the

labor market continuously clears and that changes in unemployment

down or up occur only in response to fooling of workers firms

or both A preferable and resolutely Keynesian approach

explains quantity rationing by inertia in price and wage setting

The positive correlation of inflation and unemployment in the

1970s and again in the 1990s is explained by joining the

negatively sloped Phillips Curve with a positively sloped dynamic

demand curve For any given growth of nominal GDP higher

inflation caused by adverse supply shocks implies slower real GDP

growth and higher unemployment This triangle model based on

inflation inertia demand and supply worked well to explain why

inflation and unemployment were both positively and negatively

correlated between the 1960s and 1990s but in the past decade

the slope of the short-run Phillips Curve has flattened as

inflation exhibited a muted response to high unemployment in

2009-13 and low unemployment in 2016-2018 It remains to be

seen whether a continuation of low unemployment will cause a

modest and fixed extra amount of inflation thus reviving the

stable Phillips curve of the early 1960s or whether inflation

will continuously accelerate as Friedman and Phelps would have

predicted

httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Tax Policy Measures in Advanced and Emerging

Economies A Novel Database IMF Working Paper No 18110

61 Pages Posted 1 Aug 2018

David Amaglobeli International Monetary Fund (IMF)

Valerio Crispolti International Monetary Fund (IMF)

Era Dabla-Norris International Monetary Fund (IMF)

Pooja Karnane International Monetary Fund (IMF)

Florian Misch International Monetary Fund (IMF)

Date Written May 2018

Abstract

This paper describes a new comprehensive database of tax policy measures in 23 advanced

and emerging market economies over the last four decades We extract this information from

more than 900 OECD Economic Surveys and 37000 tax-related news from the International

Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset

lies in its granularity changes in the rates and bases of personal and corporate income taxes

value added and sale taxes social security contributions excise and property taxes are

systematically documented In addition the database provides information on the

announcement and implementation dates whether the measures represent major changes

are part of a broader tax package and phased in over several years The paper also presents a

range of stylized facts suggesting that information from this database is useful to deepen the

analysis of tax policy changes for research and policy purposes

Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value

added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets

Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax

Policy Implementation Lags Methodology for Collecting Estimating and Organizing

Macroeconomic Data General

JEL Classification C82 E61 H20 P16

Inequality Aversion Populism and the Backlash

Against Globalization CEPR Discussion Paper No DP13107

69 Pages Posted 21 Aug 2018

Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

Pietro Veronesi

University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 3 versions of this paper

Date Written August 2018

Abstract

Motivated by the recent rise of populism in western democracies we develop a model in

which a populist backlash emerges endogenously in a growing economy In the model voters

dislike inequality especially the high consumption of the ``elites Economic growth

exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality

rich-country voters optimally elect a populist promising to end globalization Redistribution is

of limited value in containing the backlash against globalization Countries with more

inequality higher financial development and current account deficits are more vulnerable to

populism both in the model and in the data Evidence on who voted for Brexit and Trump in

2016 also largely supports the model

Keywords Brexit Globalization inequality populism risk aversion Trump

JEL Classification D72 F65 G11 G12 G18 P16

Underemployment in the US and Europe

by David NF Bell David G Blanchflower - 24927 (IFM LS ME)

Abstract

Large numbers of part-time workers around the world both those

who choose to be part-time and those who are there involuntarily

and would prefer a full-time job report they want more hours

Full-timers who say they want to change their hours mostly say

they want to reduce them When recession hit in most countries

the number of hours of those who said they wanted more hours

rose sharply and there was a fall in the number of hours that

full-timers wanted their hours reduced by Even though the

unemployment rate has returned to its pre-recession levels in

many advanced countries underemployment in most has not

We produce estimates for a new and better underemployment rate

for twenty-five European countries In most underemployment

remains elevated We provide evidence for the UK and the US as

well as some international evidence that underemployment rather

than unemployment lowers pay in the years after the Great

Recession We also find evidence for the US that falls in the

home ownership rate have helped to keep wage pressure in check

Underemployment replaces unemployment as the main influence on

wages in the years since the Great Recession

httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Does Machine Translation Affect International Trade Evidence from a Large Digital Platform

by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)

Abstract

Artificial intelligence (AI) is surpassing human performance in a

growing number of domains However there is limited evidence of

its economic effects Using data from a digital platform we

study a key application of AI machine translation We find

that the introduction of a machine translation system has

significantly increased international trade on this platform

increasing exports by 175 Furthermore heterogeneous

treatment effects are all consistent with a substantial reduction

in translation-related search costs Our results provide causal

evidence that language barriers significantly hinder trade and

that AI has already begun to improve economic efficiency in at

least one domain

httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The US Personal Saving Rate IMF Working Paper No 18128

35 Pages Posted 1 Aug 2018

Sam Ouliaris International Monetary Fund (IMF)

Celine Rochon University of Oxford IMF

Date Written June 2018

Abstract

This paper develops a time series model for aggregate consumption to predict the US

personal saving rate It then uses the model to test whether there has been a structural break

in consumption behavior because of the 2008 financial crisis Before the crisis the personal

saving rate was trending downwards However in 2008 there was a significant rise in the

saving rate that continued until the end of 2012 suggesting a permanent change in household

behavior To assess this issue formally the unknown parameters of the model are estimated

using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to

predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate

after 2008 was due to sizable but transitory incomewealth shocks or to changes in the

underlying elasticities between saving and its determinants (hence structural) The statistical

evidence suggests there was no structural break in the household saving behavior implying

that the rise in the saving rate during 2008-2012 was caused by the negative shocks to

income employment and wealth This result explains why the saving rate resumed its decline

in 2013 as real disposable income employment and net worth recovered Assuming that the

real growth in these determinants remains strong the estimated model predicts continued

negative pressures on the current account deficit and further external imbalances attributable

to the US household sector

Keywords United States Western Hemisphere consumption behavior personal saving rate

vector error-correction model structural break Consumer Economics Empirical Analysis

Personal Finance Forecasting and Simulation

JEL Classification D12 D14 E21 E27

Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123

49 Pages Posted 24 Aug 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 2 versions of this paper

Date Written June 28 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog

JEL Classification F140 F150 F330

How Do Migration and Remittances Affect Inequality

A Case Study of Mexico IMF Working Paper No 18136

22 Pages Posted 1 Aug 2018

Zsoka Koczan International Monetary Fund (IMF)

Franz Loyola International Monetary Fund (IMF)

Date Written June 2018

Abstract

The poverty-reducing effects of remittances have been well-documented however their

effects on inequality are less clear This paper examines the impact of remittances on

inequality in Mexico using household-level information on the receiving side It hopes to

speak to their insurance role by examining how remittances are affected by domestic and

external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that

remittances lower inequality and that they become more pro-poor over time as migration

opportunities become more widespread This also strengthens their insurance effects

mitigating some of the negative impact of shocks on the poorest

Keywords Migration Remittances Financial crises Income inequality Income distribution

Poverty reduction inequality Firm Behavior International Lending and Debt Problems

JEL Classification D21 F32 F34 J61 D31 F22 F24

Exchange Rate Forecasting on a Napkin

ECB Working Paper No 2151

Contact MICHELE CAZORZI

European Central Bank (ECB)

Email michelecazorziecbint

Auth-Page httpsssrncomauthor=343031

Co-Author MICHAŁ RUBASZEK

National Bank of Poland Warsaw

School of Economics (SGH)

Email michalrubaszeknbppl

Auth-Page httpsssrncomauthor=850188

Full Text httpsssrncomabstract=3183690

ABSTRACT This paper shows that there are two regularities in

foreign exchange markets in advanced countries with flexible

regimes First real exchange rates are mean-reverting as

implied by the Purchasing Power Parity model Second the

adjustment takes place via nominal exchange rates These features

of the data can be exploited even on the back of a napkin to

generate nominal exchange rate forecasts that outperform the

random walk The secret is to avoid estimating the pace of mean

reversion and assume that relative prices are unchanged Direct

forecasting or panel data techniques are better than the random

walk but fail to beat this simple calibrated model

______________________________

Home Sweet Home The Effect of Sugar Protectionism

on Emigration in Italy 1876-1913 CEIS Working Paper No 437

49 Pages Posted 29 Jun 2018

Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics

Alberto Dalmazzo University of Siena - Department of Economics

Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and

Ifo Institute for Economic Research)

Date Written June 8 2018

Abstract

Protectionist policies are often considered or even implemented as a reaction to increasing

globalization This is not new in history This paper uses the introduction of import duties on

sugar in the late nineteenth century Italy to measure the impact of protectionism on migration

out flows at the time of the fi

rst globalization Both for climate reasons and the nature of the soil the cultivation and

processing of sugar beets was geographically concentrated in a small area leading de facto to

a regional protectionist policy Our theoretical model illustrates how a tariff that favours local

producers may affect residents incentives to migrate abroad The predictions of the model

are tested with the synthetic control method which uses the variation in sugar cultivation

across areas to estimate the effect of interest Our results show that protectionism effectively

reduced the relative incentive to migrate away from sugar-producing areas

Keywords protectionism regional economics migrations 19th century Italy

JEL Classification N93 J4 C23

Integrating Services in the Economic Fitness

Approach World Bank Policy Research Working Paper No 8485

35 Pages Posted 28 Aug 2018

Andrea Zaccaria Sapienza University of Rome

Saurabh Mishra International Monetary Fund (IMF)

Masud Z Cader World Bank - International Finance Corporation (IFC)

Luciano Pietronero Sapienza University of Rome

Date Written June 21 2018

Abstract

Economic Complexity is a set of network-based and algorithmic methods for the study of

economic development and competitiveness In this framework Economic Fitness is an

innovative approach that improves the mathematical and conceptual scheme For

convenience these methods were originally conceived on trade in goods This paper extends

the Economic Fitness methodology to include a trade in services element to yield a universal

matrix of world trade and thus provide a more complete picture of a countrys development

and global competitiveness The paper applies two algorithms to the universal trade in goods

and services matrix to contrast country competitiveness and change in complexity and

diversification when services are added to the traditional goods-only matrix The results show

that (i) the competitiveness of many countries was previously over- or underestimated that

is many countries gain or lose positions in the ranking of economic fitness when services

trade is considered alongside goods and (ii) complex services tend to cluster with complex

manufacturing suggesting a common capabilities structure These findings show how

developing complex services aids diversification strategies for developing countries

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry

Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp

Paper Industry Trade and Services Macroeconomic Management ICT Applications

Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491

39 Pages Posted 28 Aug 2018

Edith Laget World Bank

Alberto Osnago World Bank

Nadia Rocha World Trade Organization

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written June 25 2018

Abstract

Preferential trade agreements have become deeper over time often encompassing policy

areas that go beyond traditional trade policy such as investment competition and intellectual

property rights protection In the literature a prominent argument why countries sign deep

agreements is to promote and facilitate the operation of global value chains This paper

exploits a new data set on the content of trade agreements and data on trade in value added

and in parts and components to quantify the impact of the depth of trade agreements on

bilateral cross-border production linkages The results show that adding a policy area to a

trade agreement increases the domestic value added of intermediates (forward global value

chain linkages) and the foreign value added of intermediates (backward global value chain

linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of

deep trade agreements is higher for higher value-added industries suggesting that deep

agreements help countries to integrate in industries with higher levels of value added For a

larger sample of countries and years the results confirm that an additional provision in a

trade agreement increases bilateral trade in parts and components by 03 percent The

content of trade agreements also matters for global value chain integration but the impact

varies by income group Provisions outside the current mandate of the World Trade

Organization (investment and competition policy) drive the effect of trade agreements on

North-South trade in parts and components Provisions under the current World Trade

Organization mandate (tariff reduction and customs facilitation) drive the effect of trade

agreements on South-South trade in parts and components

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Competition Policy Competitiveness and

Competition Policy Trade Finance and Investment

The Effect of Immigration on Natives School

Achievement Does Length of Stay in the Host

Country Matter World Bank Policy Research Working Paper No 8492

62 Pages Posted 28 Aug 2018

Laurent Bossavie The World Bank

Date Written June 25 2018

Abstract

Using a rich data set of primary school students this paper estimates the effects of immigrant

concentration in the classroom on the academic achievement of natives In contrast with

previous contributions it exploits rare information on age-at-migration to estimate separate

spillover effects by duration of stay of immigrant classmates To identify treatment effects it

uses cohort-by-cohort deviations in immigrant concentration within schools combined with

attractive features of the Dutch school system Overall the paper finds no effect of the

concentration of immigrant students on natives test scores However although immigrant

students who have been in the country for some time have virtually no effect on natives the

analysis finds a small negative effect of recent immigrants in the classroom on natives test

scores The effect is significant only for language test scores but insignificant for mathematics

test scores When significant effect sizes are quite small compared to other educational

interventions and classroom peer effects estimated in other contexts

Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities

Educational Sciences International Migration Migration and Development Human Migrations

amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities

Trade and Immigration 1870-2010

by David S Jacks John P Tang - 25010 (DAE)

Abstract

In this chapter we describe long-run trends in global

merchandise trade and immigration from 1870 to 2010 We revisit

the reasons why these two forces moved largely in parallel in the

decades leading up to World War I collapsed during the interwar

period and then rebounded (but with much more pronounced growth

in trade than in immigration) More substantively we also

document a large redistribution in the regional sources of goods

and people with a shift from the former industrialized core

countries--especially Europe--to those in the former

periphery--especially Asia--as well as a very striking change in

the composition of merchandise trade towards manufactured goods

precisely dating from 1950 Finally using a triple differences

framework in combination with a dramatic change in US immigration

policy we find evidence that immigration and trade potentially

acted as substitutes at least for the United States in the

interwar period

httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Attitudes Towards Euro Area Reforms Evidence from

a Randomized Survey Experiment CESifo Working Paper Series No 7141

35 Pages Posted 28 Aug 2018

Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics

Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students

Date Written July 09 2018

Abstract

We present the first evidence on public attitudes towards two prominent euro area reform

proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)

and assess potential impediments to their implementation by means of a randomized survey

experiment in Germany We find that there is a low willingness among German voters to

accept fiscal risk-sharing through common unemployment insurance while a sovereign

insolvency procedure aimed at strengthening market discipline is supported by a majority of

the electorate Our randomized treatments confronting survey participants with potential

adverse effects of the reforms lead to significant downward shifts in approval rates Altruism

cosmopolitanism political preferences and income are important predictors of support for

the reform proposals We also show that there is a striking contrast between the low level of

support for transfers to other euro area member states and a broad acceptance of inner

German transfers

Keywords public attitudes euro area reforms European unemployment insurance

sovereign insolvency procedure

JEL Classification H550 H240 J260 D140

The Economic Effects of Refugee Return and Policy

Implications World Bank Policy Research Working Paper No 8497

65 Pages Posted 28 Aug 2018

Uri Dadush World Bank

Date Written June 27 2018

Abstract

The recent surge in the number of forcibly displaced who cross international borders in

search of protection has prompted interest in evaluating policies that achieve the possible

end points of the phenomenon As envisaged by United Nations High Commissioner for

Refugees (UNHCR) these are the integration in the country of destination relocation in a

third country and return to the country of origin The focus of this paper is on the third

aspect namely the appropriate conduct of return policy viewed from the perspective of the

host country More specifically the main question is whether it is in the economic self-interest

of host countries to return forcibly displaced persons In addressing the question four

ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their

return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of

refugees and of their return and (iv) how return policy should be formulated and executed

The available evidence and analyses allow this papers main conclusion namely that the costs

of hosting asylum seekers and refugees are front-loaded while the benefits accruing from

their integration into the labor market and the host economy typically take years to

materialize It follows that from the economic perspective their return after a short stay may

represent a costlier option than continuing to invest in their successful integration Countries

with a flexible labor market strong investment climate and a welcoming attitude to

immigrants tend to see the economic benefits of refugee inflows materialize faster

The Effect of Remittances on the Current Account in

Developing and Emerging Economies World Bank Policy Research Working Paper No 8498

26 Pages Posted 28 Aug 2018

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written June 27 2018

Abstract

This paper presents an analysis of the effect of remittances on the current account in

developing and emerging economies incorporating an assessment of the extent to which

exchange rate regimes impact the relationship The main findings suggest there is a positive

effect of remittances on the current account contemporaneously but that the lagged effect is

negative which could be indicative of the existence of some underlying mechanisms

characteristic of the Dutch disease phenomenon In addition the results show that a more

flexible exchange regime dampens the contemporaneous positive effect that remittances have

on the current account The paper therefore asserts that policy makers face trade-offs

pertaining to the use of exchange rate policy in managing the effects of remittances on the

current account which should be given due consideration when such policy choices are made

Learning About Fiscal Multipliers During the

European Sovereign Debt Crisis Evidence from a

Quasi-Natural Experiment ECB Working Paper No 2154

30 Pages Posted 18 Jun 2018

Gόrnicka Lucyna IMF

Christophe Kamps European Central Bank (ECB)

Gerrit B Koester European Central Bank (ECB)

Nadine Leiner-Killinger European Central Bank (ECB)

Date Written May 30 2018

Abstract

Identifying fiscal multipliers is usually constrained by the absence of a counterfactual

scenario Our new data set allows overcoming this problem by making use of the fact that

recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline

no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the

macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU

countries to which 48 EDP recommendations were applied between 2009 and 2015 we

derive country-specific fiscal multipliers as actually applied by forecasters during the crisis

Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned

during the crisis According to our findings fiscal multipliers as applied by the European

Commission increased over time ndash from about 14 in the early years of the crisis to about 23

in the later years However different from Blanchard and Leigh (2013 2014) we do not find

evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1

during the crisis

Keywords fiscal consolidation fiscal multipliers business cycle

JEL Classification E32 E62 H20 H5

Trade in Developing East Asia How it Has Changed

and Why it Matters World Bank Policy Research Working Paper No 8533

58 Pages Posted 28 Aug 2018

Ileana Cristina Constantinescu World Bank

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written July 13 2018

Abstract

East Asia for long the epitome of successful engagement in trade faces serious challenges

technological change that may threaten the very model of labor intensive industrialization

and a backlash against globalization that may reduce access to important markets A detailed

analysis of the evolution of East Asias trade and trade policy in goods and services leads to

the conclusion that how East Asia copes with these global challenges will depend on how it

addresses three more proximate national and regional challenges The first is the emergence

of one East Asian country China as a global trade giantaccounting for nearly one-seventh of

global exports and one-tenth of global imports -- which is fundamentally altering the trading

patterns and opportunities of its neighbors The second is the asymmetric implementation of

national reform -- remarkable openness to goods trade and investment coexists with relative

restrictiveness of services policies -- which is affecting the evolution of comparative

advantage and productivity in each country The third is the divergence between the

relatively shallow and fragmented agreements that regulate the regions trade and

investment and the growing importance of regional and global value chains as crucial drivers

of productivity growth

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies

Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp

Leather Industry Export Competitiveness Industrial and Consumer Services and Products

Transport and Trade Logistics

Who are Americas Star Firms World Bank Policy Research Working Paper No 8534

70 Pages Posted 28 Aug 2018

Meghana Ayyagari George Washington University - School of Business

Asli Demirguc-Kunt World Bank

Vojislav Maksimovic University of Maryland - Robert H Smith School of Business

There are 2 versions of this paper

Date Written July 13 2018

Abstract

There is wide spread concern about a growing gap between top-performing publicly listed

firms and the rest of the economy and the implications of this for rising inequality in the US

Using conventional return calculations there is indeed a widening gap between star firms

(defined as those in top 10 percent of return on invested capital in any year) and the rest of

the economy over time especially in industries that rely on a skilled labor force However

once measurement error in intangible capital is accounted for this gap shrinks dramatically

and has not been widening over time While pricing power as measured by markups predicts

star firm status a large fraction of star firms have low markups and there is no evidence that

star firms are cutting output or investment more than other firms for the same markup The

effect of star status is persistent Five years later star firms have higher growth profits and

Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with

much higher returns and the potential to exercise market power in the future

Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles

Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common

Carriers Industry Construction Industry General Manufacturing Labor Markets Employment

and Unemployment

Bought Sold and Bought Again The Impact of

Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535

45 Pages Posted 28 Aug 2018

Francois Michel Marie Raphael De Soyres World Bank

Erik Frohm World Bank

Vanessa Gunnella European Central Bank (ECB)

Elena Pavlova European Central Bank (ECB)

Date Written July 13 2018

Abstract

Global value chain participation affects the exchange rate pass-through to export prices and

export volumes The paper develops a partial equilibrium model of international trade with

cross-border production and shows that higher participation in global value chains reduces

the elasticities Specifically a higher share of foreign value added in exports reduces the

exchange rate pass-through to export prices and export volumes A greater share of exports

that return as imports also reduces the responsiveness of export volumes to changes in

bilateral exchange rates Finally exports of inputs that are further re-exported increase the

responsiveness to the trading partners effective exchange rate Using a novel sector-level

panel dataset with 40 countries the analysis tests and finds strong empirical support for the

theoretical predictions The paper further shows that some sectors in some countries can

even experience a decline in gross exports when their currency depreciates

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Trade and Services Macroeconomic Management

Did Austerity Cause Brexit CESifo Working Paper Series No 7159

101 Pages Posted 25 Sep 2018

Thiemo Fetzer University of Warwick

Date Written July 25 2018

Abstract

Did austerity cause Brexit This paper shows that the rise of popular support for the UK

Independence Party (UKIP) as the single most important correlate of the subsequent Leave

vote in the 2016 European Union (EU) referendum along with broader measures of political

dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure

to austerity since 2010 In addition to exploiting data from the population of all electoral

contests in the UK since 2000 I leverage detailed individual level panel data allowing me to

exploit within-individual variation in exposure to specific welfare reforms as well as broader

measures of political preferences The results suggest that the EU referendum could have

resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms

Further auxiliary results suggest that the welfare reforms activated existing underlying

economic grievances that have broader origins than what the current literature on Brexit

suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across

the skill divide through transfer payments This pattern markedly stops from 2010 onwards

as austerity started to bite

Keywords political economy austerity globalization voting EU

JEL Classification H200 H300 H500 P160 D720

Resolving Sovereign Debt Crises The Role of Political

Risk CESifo Working Paper Series No 7161

42 Pages Posted 26 Sep 2018

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Date Written August 02 2018

Abstract

Sovereign defaults are bad news for investors and debtor countries in particular if a default

becomes messy and protracted Why are some debt crises resolved quickly in a matter of

months while others take many years to settle This paper studies the duration of sovereign

debt crises based on a new dataset and case study archive on debt renegotiations between

governments and foreign banks and bondholders Using Cox proportional hazard models I

find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation

delays after controlling for macroeconomic conditions Government crises resignations and

street protests are particularly disruptive for a quick settlement process Overall the evidence

suggests that debtor countries often lack the political ability to resolve a debt crisis

Governments in turmoil are unlikely to exit a default quickly

Keywords sovereign default crisis resolution political economy

JEL Classification F340 F510 H630

Market Potential and Global Growth over the Long

Twentieth Century CESifo Working Paper Series No 7164

53 Pages Posted 27 Sep 2018

David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 3 versions of this paper

Date Written August 02 2018

Abstract

We examine the evolution of market potential and its role in driving economic growth over

the long twentieth century Theoretically we exploit a structural gravity model to derive a

closed-form solution for a widely-used measure of market potential We are thus able to

express market potential as a function of directly observable and easily estimated variables

Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output

for 51 countries We find that market potential exhibits an upward trend across all regions of

the world from the early 1930s and that this trend significantly deviates from the evolution of

world GDP Finally using exogenous variation in trade-related distances to world markets we

demonstrate a significant causal role of market potential in driving global income growth over

this period

Keywords economic geography market potential structural gravity trade costs

JEL Classification F100 N700

Growth Inequality and Poverty A Robust

Relationship World Bank Policy Research Working Paper No 8578

42 Pages Posted 17 Sep 2018

Gustavo A Merrero University of La Laguna

Luis Serveacuten World Bank - Development Research Group (DECRG)

Date Written September 6 2018

Abstract

An extensive literature on poverty traps suggests that high levels of poverty deter growth

However a seemingly basic implication of the underlying theoretical models namely that

countries suffering from higher levels of poverty should grow less rapidly has remained

untested A parallel literature has suggested a variety of mechanisms through which

inequality may affect growth in opposing directions Because inequality and poverty are

different aspects of the income distribution inequality can also affect growth through poverty

an indirect channel that has not been explicitly analyzed This paper contributes to fill both

gaps Using a large cross-country panel data set it estimates a reduced-form growth equation

adding both inequality and poverty to an otherwise standard set of growth determinants

Given inequality the correlation of growth with poverty is consistently negative In contrast

given poverty the correlation of growth with inequality can be positive or negative

depending on the empirical specification and econometric approach used Yet the indirect

effect of inequality on growth through its correlation with poverty is robustly negative Closer

inspection shows that these results are driven by the sample observations featuring high (but

not extremely high) poverty rates These empirical findings are consistent with the

predictions from an analytical framework with learning-by-doing and knowledge spillovers

in which consumers cannot save and invest if their initial endowment is below a minimum

consumption level

Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty

Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty

Impact Evaluation Educational Sciences

Comparison of Welfare Gains in the Armington

Krugman and Melitz Models Insights from a

Structural Gravity Approach World Bank Policy Research Working Paper No 8570

63 Pages Posted 17 Sep 2018

Edward Jay Balistreri Iowa State University

David G Tarr International Trade Analysis

Date Written August 28 2018

Abstract

How large are the estimated gains from trade from a reduction in trade costs in the

heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)

models Surprisingly little is known beyond the one-sector model This paper analyzes this

question using a global trade model that contains ten regions and various numbers of sectors

(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant

across the model comparisons based on a structural gravity estimate Various model features

and scenarios are introduced that are important to real economies almost none of which has

been examined across the three market structures with a constant trade response In

response to global reductions in iceberg trade costs in all the multi-sector models the

ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model

captures between 75 and 95 percent on the additional gains above the Armington model that

are estimated by the Melitz model However for individual regions there are numerous cases

of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual

regions however the welfare ranking of the Armington Krugman and Melitz market

structures is model data parameter and scenario dependent The results highlight the need

for data and structural considerations in policy analysisltkrugman

Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade

and Multilateral Issues

The Economic Effects of Brexit - Evidence from the

Stock Market CEPR Discussion Paper No DP13147

35 Pages Posted 17 Sep 2018

Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London

School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)

Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Thomas Sampson London School of Economics amp Political Science (LSE)

Ahmed Usman University of Nottingham

Date Written August 2018

Abstract

We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess

investors expectations about the effects of leaving the European Union on the UK economy

Our results suggest that initial stock price movements were driven by fears of a cyclical

downturn and by the sterling depreciation following the referendum We also find tentative

evidence that market reactions to two subsequent speeches by Theresa May (her

Conservative Party conference and Lancaster House speeches) were more closely correlated

with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that

investors may have updated their expectations in light of the possibility of a hard Brexit We

do not find a correlation between the share of EU migrants in different industries and stock

market returns

Keywords Brexit depreciation event study Recession Stock market tariffs

JEL Classification F15 F23 G14

Understanding Euro Area Inflation Dynamics Why so

Low for so Long

IMF Working Paper No 18188

26 Pages Posted 1 Oct 2018

Yasser Abdih International Monetary Fund (IMF)

Li Lin International Monetary Fund (IMF)

Anne-Charlotte Paret Banque de France

Date Written August 2018

Abstract

Despite closing output gaps and tightening labor markets inflation has remained low inthe

euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-

sometimes attributed to low global inflation-has been primarily causedby a remarkable

persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to

be specific to the euro area (in comparison with the United States)Monetary policy needs to

stay accommodative to help guide inflation back to target

Keywords Inflation Inflation expectations Inflation persistence Monetary policy

Econometric models Euro Area Phillips curve inflation persistence and expectations

General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)

JEL Classification E10 E31 E32 E37 E52 C22 C50

Financial Development Exchange Rate Regimes and

Growth Dynamics World Bank Policy Research Working Paper No 8562

34 Pages Posted 28 Aug 2018

Woubet Kassa The World Bank

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written August 20 2018

Abstract

This paper utilizes data for African countries to analyze the extent to which financial

development affects the dynamics of the relationship between exchange rate flexibility and

economic growth The findings indicate that financial development exerts a positive influence

on the relationship between exchange rate flexibility and GDP growth as well as total factor

productivity growth The paper also documents a positive impact of trade openness on the

relationship between exchange rate flexibility and growth Moreover the results show a

strong and positive association between exchange rate flexibility and financial development

The findings therefore suggest that discussions and decisions on exchange rate policy should

be undertaken with consideration for structural policies that address the development of the

financial sector In addition the paper asserts that policy makers should adopt a stance that

facilitates some flexibility in exchange rates to foster development of the financial

infrastructure in these economies

Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp

Research Economic Growth Currencies and Exchange Rates Educational Sciences

Macroeconomic Management

Unequal Gains Prolonged Pain A Model of

Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160

53 Pages Posted 17 Sep 2018

Emily J Blanchard Dartmouth College - Tuck School of Business

Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)

Date Written September 2018

Abstract

We develop a model of democratic political responses to macroeconomic shocks in the short

and long run We show that when economic adjustment is slower than potential political

change exogenous changes in the global marketplace can trigger populist surges in favor of

distortionary economic policies Applied to trade policy our model demonstrates that an

exogenous terms-of-trade improvement or skill-biased technological change will lead to a

spike in protectionism that blunts the younger generations incentive to acquire education In

the long run the initial surge in protectionism will gradually diminish if and only if education

enables less-skilled workers to catch up with the overall economy The more unequal the

initial distribution of human capital the greater and longer-lasting the protectionist backlash

will be unequal gains prolonged pain Evidence on key data markers suggested by the model

exhibits patterns consistent with recent populist support for Brexit and Trump

Keywords Dynamic Political Economy education Endogenous Tari Human Capital

Overlapping Generations Overshooting populism protectionism

JEL Classification D7 E6 F5

Threat or Help The Effects of Unskilled Immigrant

Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185

4 Pages Posted 17 Sep 2018

Sharmila Devadas Central Bank of Malaysia

Date Written March 1 2017

Abstract

While unskilled immigrant workers have relatively low formal human capital theory suggests

that they can still contribute to productivity improvements by helping to increase efficiency

and upgrading the skills of the native labor force Empirical studies indicate that positive

productivity effects do occur This body of evidence does not provide a compelling argument

for the closing of national borders to unskilled foreigners on economic grounds

Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements

Construction Industry Common Carriers Industry Food amp Beverage Industry General

Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business

Cycles and Stabilization Policies International Migration Indigenous Communities Migration

and Development

Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899

4 Pages Posted 17 Sep 2018

Dorina Peteva Georgieva World Bank

Norman Loayza World Bank - Research Department

Fabian Mendez Ramos Development Research Group The World Bank

Date Written February 1 2018

Abstract

Growth in global trade has been slow since 2012 While global trade downturns are not

unprecedented the observed change in the relationship of trade to GDP poses the question

whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon

brought about by structural changes This new dynamic coupled with the rise of protectionist

policies and rhetoric in many countries positions trade at the forefront of policy discussions

This brief reviews recent patterns in global trade examines the factors affecting trade--

distinguishing between transitory and structural components of the slowdown--and discusses

policies shaping the path of future trade

Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation

International Trade and Trade Rules International Economics and Trade Transport and

Trade Logistics Trade and Regional Integration Private Sector Development Industrial and

Consumer Services and Products Competitiveness and Competition Policy Marketing Labor

Markets Private Sector Development Law Private Sector Economics Industry Law and

Development Social Policy Legal Reform Social Development Treaties Economics and

Institutions Public Sector Management and Reform Macroeconomics and Economic Growth

Public Sector Development Regulatory Regimes International Law Non Governmental

Organiz

The Productivity J-Curve How Intangibles Complement General Purpose Technologies

by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)

Abstract

General purpose technologies (GPTs) such as AI enable and require

significant complementary investments including business process

redesign co-invention of new products and business models and

investments in human capital These complementary investments

are often intangible and poorly measured in the national

accounts even if they create valuable assets for the firm We

develop a model that shows how this leads to an underestimation

of output and productivity in the early years of a new GPT and

how later when the benefits of intangible investments are

harvested productivity will be overestimated Our model

generates a Productivity J-Curve that can explain the

productivity slowdowns often accompanying the advent of GPTs as

well as the follow-on increase in productivity later We use our

model to assess how AI-related intangible capital is currently

affecting measured total factor productivity (TFP) and output

We also conduct a historical analysis of the roles of intangibles

tied to RampD software and computer hardware finding substantial

and ongoing effects of software in particular and hardware to a

lesser extent

httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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New Technologies Global Value Chains and Developing Economies

by Dani Rodrik - 25164 (DEV EFG ITI)

Abstract

Many of the exports of developing countries are channeled through

global value chains (GVCs) which also act as conduits for new

technologies However new capabilities and productive

employment remain limited so far to a tiny sliver of globally

integrated firms GVCs and new technologies exhibit features

that limit the upside and may even undermine developing

countries economic performance In particular new technologies

present a double whammy to low-income countries First they are

generally biased towards skills and other capabilities This

bias reduces the comparative advantage of developing countries in

traditionally labor-intensive manufacturing (and other)

activities and decreases their gains from trade Second GVCs

make it harder for low-income countries to use their labor cost

advantage to offset their technological disadvantage by reducing

their ability to substitute unskilled labor for other production

inputs These are two independent shocks that compound each

other The evidence to date on the employment and trade fronts

is that the disadvantages may have more than offset the

advantages

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Bank Runs and Moral Hazard A Review of Deposit

Insurance World Bank Policy Research Working Paper No 8589

31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018

Deniz Anginer World Bank Research

Asli Demirguc-Kunt World Bank

Date Written September 19 2018

Abstract

Deposit insurance is a widely adopted policy to promote financial stability in the banking

sector Deposit insurance helps ensure depositors confidence in the financial system and

prevents contagious bank runs but it also comes with an unintended consequence of

encouraging banks to take on excessive risk This paper reviews the economic costs and

benefits of deposit insurance and highlights the importance of institutions and specific design

features for how well deposit insurance schemes work in practice

Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System

Reform Economic Growth

The Future of Work Race With-Not Against-The

Machine World Bank Research amp Policy Briefs Paper No 129680

4 Pages Posted 17 Sep 2018

Lay Lian Chuah World Bank - Development Research Group (DECRG)

Norman Loayza World Bank - Research Department

Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment

Research (IAB) University of Regensburg - Department of Economics and Econometrics

Date Written August 1 2018

Abstract

Will the revolution in digital and information technologies make us obsolete Will jobs be lost

and never replaced Will wages drop to intolerable levels History and economic theory and

evidence suggest that in the long term such fears are misplaced However in the short and

medium term dislocation can be severe for certain types of work places and populations In

the transition period policies are needed to facilitate labor market flexibility and mobility

introduce and strengthen safety nets and social protection and improve education and

training

Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security

An Economists Guide to Climate Change Science

by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)

Abstract

Climate change management is a global challenge that requires

social science as much as it requires natural science We

provide a brief introduction to the physical science of climate

change written to provide essential background for economists

and other social scientists We also highlight some key areas in

which economists--including those studying macroeconomics

political economy and development--are in a unique position to

help climate science advance

httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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The Intensive Margin in Trade

by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-

Clare - 25195 (ITI)

Abstract

The Melitz model highlights the importance of the extensive

margin (the number of firms exporting) for trade flows Using

the World Banks Exporter Dynamics Database (EDD) featuring

firm-level exports from 50 countries we find that around 50 of

variation in exports is along the extensive margin --- a

quantitative victory for the Melitz framework The remaining 50

on the intensive margin (exports per exporting firm) contradicts

a special case of Melitz with Pareto-distributed firm

productivity which has become a tractable benchmark This

benchmark model predicts that conditional on the fixed costs of

exporting all variation in exports across trading partners

should occur on the extensive margin We find that moving from a

Pareto to a lognormal distribution allows the Melitz model to

match the role of the intensive margin in the EDD We use

likelihood methods and the EDD to estimate a generalized Melitz

model with a joint lognormal distribution for firm-level

productivity fixed costs and demand shifters and use exact hat

algebra to quantify the effects of a decline in trade costs on

trade flows and welfare in the estimated model The welfare

effects turn out to be quite close to those in the standard

Melitz-Pareto model when we choose the Pareto shape parameter to

fit the average trade elasticity implied by our estimated

Melitz-lognormal model although there are significant

differences regarding the effects on trade flows

httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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Are Banks Engines of Export Financial Structures

and Export Dynamics World Bank Policy Research Working Paper No 8621

41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018

Raoul Minetti Michigan State University - Department of Economics

Alen Mulabdic World Bank

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Susan Chun Zhu Michigan State University - Department of Economics

Date Written October 25 2018

Abstract

This paper studies the impact of financial structures on the dynamics of the export sector

using rich data from over 60 countries The results reveal that bank-oriented financial

systems boost the size of the export sector more than market-oriented financial systems

However especially in middle- and low-income countries this effect mostly stems from banks

slowing down exporters exit rather than promoting firms entry into export The reduced exit

from the export sector appears to reflect domestic banks tendency to evergreen loans to

exporters (soft budget constraint) more than banks buffering role in difficult times Foreign

banks mitigate this effect and enhance the dynamism of the export sector

Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631

31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018

Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University

Hibret Belete Maemir World Bank

Hassen Abda Wako UNU-MERIT

Date Written October 30 2018

Abstract

A growing body of work has shown that the quality of national institutions that enforce

written contracts plays an important role in shaping a countrys comparative advantage

Using highly disaggregated bilateral and unique harmonized firm-level trade data across a

large number of countries this paper contributes to this literature by providing a

comprehensive analysis of the mechanisms through which institutional frictions affect the

pattern of aggregate trade flow distinguishing the effects on the intensive and extensive

margins The analysis finds that contractual friction distorts countries trade pattern beyond

its effect on domestic production structure by deterring the probability of exporting (the

extensive margin) and export sales after entry (the intensive margin) particularly in

industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup

problems) The analysis also finds that contractual frictions matter more for the intensive

margin than the extensive margin of exporting In addition better contracting institutions

increase the probability of survival of new export products in more contract-intensive

industries These results have important policy implications for developing countries that

seek to boost export growth but many of which suffer from poor contracting institutions

Nominal Exchange Rate Dynamics and Monetary

Policy Uncovered Interest Rate Parity and Purchasing

Power Parity Revisited CEPR Discussion Paper No DP13235

33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018

Yossi Saadon Bank of Israel - Research Department

Nathan Sussman Hebrew University of Jerusalem

Date Written October 2018

Abstract

The increasing globalization of trade in goods and services and the deepening of financial

markets have reduced frictions that may impede the operation of the PPP and UIP

relationships in the short run In this paper we estimate the short term relative PPP and UIP

relationships Using data from Israel which has a deep market for inflation expectations for

12 months we show that relative PPP and UIP cannot be rejected Deviations from

equilibrium last less than a year Data from Israels capital account of the balance of payments

shows that the deviations are not destabilizing Our findings suggest that greater globalization

and financial deepening contribute to the effectiveness of monetary policy

Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy

purchasing power parity uncovered interest rate parity

Macroeconomic Effects of Chinas Financial Policies

by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)

Abstract

The Chinese economy has undergone three major phases the

1978-1997 period marked as the SOE-led economy the 1998-2015

phase as the investment-driven economy and the new normal

economy since 2016 All three economies have been shaped by the

governments financial policies defined as a set of credit

policy monetary policy and regulatory policy We analyze the

macroeconomic effects of these financial policies throughout the

three phases and provide the stylized facts to substantiate our

analysis The stylized facts differ qualitatively across

different phases or economies We argue that the impacts of

Chinas financial policies work through transmission channels

different from those in developed economies and that a regime

switch from one economy to another was driven mainly by regime

changes in financial policies

httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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Factor Incomes in Global Value Chains The Role of Intangibles

by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)

Abstract

Recent studies document a decline in the share of labour and a

simultaneous increase in the share of residual (factorless)

income in national GDP We argue the need for study of factor

incomes in cross-border production to complement country studies

We define a GVC production function that tracks the value added

in each stage of production in any country-industry We define a

new residual as the difference between the value of the final

good and the payments to all tangibles (capital and labour) in

any stage We focus on GVCs of manufactured goods and find the

residual to be large We interpret it as income for intangibles

that are (mostly) not covered in current national accounts

statistics We document decreasing labour and increasing capital

income shares over the period 2000-14 This is mainly due to

increasing income for intangible assets in particular in GVCs of

durable goods We provide evidence that suggests that the 2000s

should be seen as an exceptional period in the global economy

during which multinational firms benefitted from reduced labour

costs through offshoring while capitalising on existing

firm-specific intangibles such as brand names at little

marginal cost

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Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade

in Value Added using Enterprise and Establishment Level Data

by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner

Jeffrey A Young - 25249 (ITI)

Abstract

This paper presents experimental tables created by the US

Bureau of Economic Analysis comparing industry-specific shares of

the components of total output of globally engaged firms located

in the United States that are part of a multinational enterprise

with those of firms that are part of an enterprise entirely

located in the United States Recent research has shown both the

importance of accounting for trade in value added when estimating

bilateral trade flows and that multinational enterprises located

in the United States account for the lions share of US trade

in goods and services However trade in value added is

typically accounted for using input-output tables that are

aggregated across all types of firms The experimental tables

are consistent with other research showing that value added as a

share of output is lower for foreign-owned firms compared with

domestic-owned firms and that exports and imports as a share of

output is larger for foreign-owned firms We also find

heterogeneity in the composition of output among different types

of domestic-owned firms Future work will analyze this

heterogeneity in more detail using establishment-level data on

production and trade

httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw

g10

The Falling Elasticity of Global Trade to Economic

Activity Testing the Demand Channel CESifo Working Paper No 7228

42 Pages Posted 31 Oct 2018

Marc Auboin World Trade Organization (WTO)

floriana borino World Trade Organization (WTO)

Date Written 2018

Abstract

Since the recovery from the great financial crisis in 2010 global real trade flows grew much

slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to

GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this

global trade slowdown and related falling trade-to-income elasticity was structural or

cyclical Some papers emphasized the slowing pace of international vertical specialization

Other works emphasized the prominent role of aggregate demand notably when weighted by

its trade component Our paper goes in this latter direction We estimated the standard

import equation for 38 advanced and developing countries over the period 1995-2015 using

an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-

output tables at country level and compared results with regressions using GDP The

integration of IAD allows us to predict 76 to 86 of the changes in global imports a better

performance than if using GDP The use of IAD also enabled us to measure the relative

importance of each component of demand according to their trade intensity The model is

able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone

explaining 80 of it The slowdown in global value chains explains more than half of the

remaining share of the global trade slowdown not explained by demand factors

Protectionism does not come up as statistically significant

Keywords investment global outlook trade policy trade forecasting business cycles

JEL Classification E220 F010 F130 F170 F440

Will Brexit Age Well Cohorts Seasoning and the Age-

Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288

38 Pages Posted 5 Nov 2018

Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic

Policy Research (CEPR)

Rebecca Mari Bocconi University

Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics

There are 3 versions of this paper

Date Written October 2018

Abstract

In the UKs 2016 referendum on EU membership young voters were more likely than their

elders to vote Remain Applying new methods to a half century of data we show that this

pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as

they age recent cohorts are also more pro-European than their predecessors Much of the

pro-Europeanism of these recent cohorts is accounted for by their greater years of education

Going forward the ageing of the electorate will thus be offset at least in part by the

replacement of older cohorts with younger better-educated and more pro-European ones

But we also document large nationwide swings in sentiment that have little to do with either

seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive

determinants of future changes in European sentiment Rather nationwide changes in

sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be

key

JEL Classification F0

Buying Votes and International Organizations The

Dirty Work-Hypothesis CEPR Discussion Paper No DP13290

62 Pages Posted 5 Nov 2018

Axel Dreher Heidelberg University

Valentin Lang University of Zurich

B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics

James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government

Date Written October 2018

Abstract

We show how major shareholders can exploit their power over international organizations to

hide their foreign-policy interventions from domestic audiences We argue that major powers

exert influence bilaterally when domestic audiences view the intervention favorably When

domestic audiences are more skeptical of a target country favors are granted via

international organizations We test this theory empirically by examining how the United

States uses bilateral aid and IMF loans to buy other countries votes in the United Nations

Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-

2015 period our results show that states allied with the US receive more bilateral aid when

voting in line with the United States in the UNSC while concurring votes of states less allied

with the US are rewarded with loans from the IMF Temporary UNSC members that vote

against the United States do not receive such perks

Keywords Aid IMF United Nations Security Council voting World Bank

JEL Classification F35 O11 O19

Page 4: Papers CIG 2018 - uniroma1.it

Yuemei Ji

University College London - School of Slavonic and East European Studies

Multiple version iconThere are 2 versions of this paper

Date Written January 15 2018

Abstract

This paper provides a critical overview of the state of the art in the economics literature on structural

reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence

We start with a simple theoretical framework for the relationship between structural reforms economic

growth and income inequality We argue that whether structural reforms have a positive or negative

impact depends on various factors The type of reform timing sequence and political constraints play

crucial roles in determining the effectiveness of reforms on economic growth and income inequality We

conclude by proposing a 7-point agenda for future research

Keywords structural reforms growth inequality

JEL Classification D600

Immigration assimilation and the future of public education

RyuichiTanaka LidiaFarre FrancescOrtega a

University of Tokyo Japan b

University of Barcelona Spain c

Queens College CUNY USA d

IAE-CSIC Spain

European Journal of Political Economy

Volume 52 March 2018 Pages 141-165

Abstract

This paper analyzes the effects of immigration on the size and quality of public education using a

quantitative political economy model that allows for a heterogeneous immigrant population Our analysis

distinguishes between short and long-run effects and accounts for the consequences of naturalization and

assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that

immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in

public education spending and almost a 1 percentage-point increase in the share of native households

using private schools Depending on the eventual degree of assimilation these trends will be greatly

intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that

assimilation in terms of family size and the value assigned to childrens education are the most relevant

dimensions quantitatively We also show that immigration policies that favor one group over another can

significantly alter the overall effects of immigration on the schooling system

Global Financial Cycles and the Exchange Rate

Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696

18 Pages Posted 14 Feb 2018

Maurice Obstfeld International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department

Date Written February 2018

Abstract

This paper examines the relevance of exchange rate regimes in the transmission of global

financial shocks to domestic financial and macroeconomic conditions Our findings suggest

that even in todays highly financially integrated world the nominal exchange rate regime

does matter-at least for emerging market economies The transmission of global financial

shocks to domestic variables is magnified under fixed exchange rate regimes relative to more

flexible regimes For advanced economies however the jury is still out as the recent paucity

of truly fixed regimes among these economies poses a challenge for estimating the effect of

exchange rate flexibility

Keywords emerging market economies global financial cycle trilemma

JEL Classification F31 F36 F41

Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815

47 Pages Posted 21 Feb 2018

Yvonne Giesing

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)

Date Written January 15 2018

Abstract

This paper establishes a causal link between the emigration of skilled workers and firm

performance in source countries Using firm-level panel data from ten Eastern European

countries we show that the emigration of skilled workers lowers firm total factor

productivity We exploit time country and industry differences in the opening of EU labor

markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from

new EU member states We argue that a potential channel behind this effect relates to the

reduction in firm-specific human capital due to a higher worker turnover

Keywords migration firm productivity human capital EU enlargement

JEL Classification O150 D240 F220 J240

Reserve Currency Blocs A Changing International

Monetary System IMF Working Paper No 1820

43 Pages Posted 20 Feb 2018

Camilo E Tovar International Monetary Fund

Tania Mohd Nor International Monetary Fund (IMF)

Date Written January 2018

Abstract

What is the extent of currency diversification in the international monetary system How

hasit evolved over time In this paper we quantify the degree of currency diversification

usingregression methods of currency co-movements to determine the extent to which

nationalcurrencies across the world belong to a reserve currency bloc We then use these

estimates tocalculate the economic size of each currency bloc A key contribution of our paper

is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the

internationalmonetary system has transitioned from a bi-polar system - consisting of the US

dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated

tocontinue to dominate having the largest share in global GDP (40 percent) followed by

therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence

forthe RMB bloc appears to be most evident among the BRICS currencies The British

poundand the Japanese yen blocs appear to play minor roles

Keywords Economic integration Foreign exchange International monetary system

Currency Bloc Internatinal Monetary System International Monetary Arrangements and

Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics

JEL Classification F15 F31 F33 F36 F41 O24

17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services

by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)

Abstract

About 8 cents out of every dollar spent in the United States is

spent on imports What if because of a wall or some other

extreme policy intervention imports were to remain on the other

side of the US border How much would US consumers be willing to

pay to prevent this hypothetical policy change from taking place

The answer to this question represents the welfare cost from

autarky or equivalently the welfare gains from trade In this

article we discuss how to evaluate these gains using the demand

for foreign factor services The estimates of gains from trade

for the US economy that we review range from 2 to 8 percent of

GDP

httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw

A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763

11 Pages Posted 6 Mar 2018

Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute

of Labor Economics

Prachi Mishra Government of India - Reserve Bank of India

Chris Papageorgiou International Monetary Fund (IMF) - Research Department

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)

University of Michigan at Ann Arbor - The William Davidson Institute

Date Written February 2018

Abstract

In this imaginary dialogue a populist and an economist discuss the role of economic shocks to

explain populism A simple correlation between economic shocks and populism is weak

However economic shocks can explain well the phenomenon of populism in countries with

low pre-existent level of trust This is confirmed both at the macro cross-country level and

also by micro evidence obtained from surveys Finally this finding is consistent with the

ideational approach in political science which emphasizes how the populist narrative

opposes the corrupt elite to the virtuous people

Keywords Europe Political parties populism

JEL Classification A10 A12

International Capital Flow Pressures IMF Working Paper No 1830

59 Pages Posted 14 Mar 2018

Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)

Signe Krogstrup IMF

There are 3 versions of this paper

Date Written February 2018

Abstract

This paper presents a new measure of capital flow pressures in the form of a recast

ExchangeMarket Pressure index The measure captures pressures that materialize in actual

internationalcapital flows as well as pressures that result in exchange rate adjustments The

formulation istheory-based relying on balance of payments equilibrium conditions and

international assetportfolio considerations Based on the modified exchange market pressure

index the paperalso proposes the Global Risk Response Index which reflects the country-

specific sensitivityof capital flow pressures to measures of global risk aversion For a large

sample of countriesover time we demonstrate time variation in the effects of global risk on

exchange marketpressures the evolving importance of the global factor across types of

countries and thechanging risk-on or risk-off status of currencies

Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange

Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven

Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General

JEL Classification F23 G11 G20 F32

Sovereign Defaults in Court CEPR Discussion Paper No DP12777

76 Pages Posted 13 Mar 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

Date Written March 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords debt restructuring enforcement government financing sovereign default

JEL Classification F34 G15 H63 K22

Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859

48 Pages Posted 20 Mar 2018

Florian Dorn

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-

University Munich Center for Economic Studies (CES)

Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written February 05 2018

Abstract

This paper re-examines the link between globalization and income inequality We use data for

140 countries over the period 1970-2014 and employ an IV approach to deal with the

endogeneity of globalization measures We find that the link between globalization and

income inequality differs across different groups of countries There is a robust positive

relationship between globalization and inequality in the transition countries including China

and most countries of Middle and Eastern Europe In the sample of the most advanced

economies neither OLS nor 2SLS results show any significant positive relationship between

globalization and inequality We conclude that institutions providing income insurance and

education which characterize most advanced economies but are less developed in transition

economies may have moderated effects of globalization on income inequality

Keywords globalization income inequality redistribution instrumental variable estimation

panel econometrics development levels transition economies China

JEL Classification D310 D630 F020 F600 C260 H110 H200

The US Gains from Trade Valuation Using the

Demand for Foreign Factor Services CEPR Discussion Paper No DP12788

34 Pages Posted 20 Mar 2018

Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of

Technology (MIT) - Department of Economics

Andres Rodriguez-Clare Inter-American Development Bank (IDB)

There are 2 versions of this paper

Date Written March 2018

Abstract

About 8 cents out of every dollar spent in the United States is spent on imports What if

because of a wall or some other extreme policy intervention imports were to remain on the

other side of the US border How much would US consumers be willing to pay to prevent this

hypothetical policy change from taking place The answer to this question represents the

welfare cost from autarky or equivalently the welfare gains from trade In this article we

discuss how to evaluate these gains using the demand for foreign factor services The

estimates of gains from trade for the US economy that we review range from 2 to 8 percent of

GDP

A Multidimensional Approach to Trade Policy

Indicators IMF Working Paper No 1832

38 Pages Posted 12 Mar 2018

Diego Cerdeiro International Monetary Fund (IMF)

Rachel Nam International Monetary Fund (IMF)

Date Written February 2018

Abstract

We present and discuss a set of indicators to help assess countries trade policies The

indicators relate to three policy areas - trade in goods trade in services and FDI Given

concerns about the direction of global trade policy we also consider a set of more granular

measures that reflect the evolution of countries policies since the 2008 financial crisis We

propose a simple approach to present the multidimensional aspects of trade policy that by

shedding light on relative openness across areas can facilitate policy discussions In the cross-

section of countries we find a diversity in the type of measures adopted both between and

(since the 2008 financial crisis) within policy areas lending support to the approach based on

multiple indicators The indicators time series suggest that advanced and especially

emerging economies are moving toward more open regimes over time although recently

progress has with some exceptions slowed across the board Lastly our findings also call for

stronger efforts to objectively quantify the different aspects of countries trade regimes More

data both across countries and in terms of policy areas that significantly affect trade are

needed for better-informed policy discussions

Keywords Foreign direct investment Trade policy indicators trade in goods services trade

trade barriers General Country and Industry Studies of Trade

JEL Classification F10 F14

Corporate Indebtedness and Low Productivity

Growth of Italian Firms IMF Working Paper No 1833

47 Pages Posted 12 Mar 2018

Gareth Anderson Bank of England

Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department

Date Written February 2018

Abstract

Productivity growth in Italy has been persistently anemic and has lagged that of the euro area

over the period 1999-2015 while the indebtedness of its corporate sector has increased

Using the ORBIS firm-level database this paper studies the long-term impact of persistent

corporate-debt accumulation on the productivity growth of Italian firms and investigates

whether total factor productivity growthvaries with the level of corporate indebtedness We

employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi

(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and

cross-sectional dependence arising from unobserved common factors (for example oil price

shocks labor and product market frictions and stance of global financial cycle) Filtering out

the effects of unobserved common factors and controlling for firm specific characteristics we

find significant negative effects of persistent corporate debt build-up on total factor

productivity growth and weak evidence of a threshold level of corporate debt beyond which

productivity growth drops off significantly Our results have strong policy implications for

example the design of the tax system should discourage persistent corporate debt

accumulation and effective and timely frameworks to reduce corporate debt overhangs are

essential

Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel

threshold models cross-sectional dependence Models with Panel Data Firm Behavior

Empirical Analysis General

JEL Classification C23 D22 D24 G30

Regulatory Cycles Revisiting the Political Economy of

Financial Crises IMF Working Paper No 188

90 Pages Posted 21 Mar 2018

Jihad C Dagher International Monetary Fund (IMF) - Research Department

There are 2 versions of this paper

Date Written January 2018

Abstract

Financial crises are traditionally analyzed as purely economic phenomena The political

economy of financial booms and busts remains both under-emphasized and limited to isolated

episodes This paper examines the political economy of financial policy during ten of the most

infamous financial booms and busts since the 18th century and presents consistent evidence

of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during

these episodes were often amplified by political regulatory stimuli credit subsidies and an

increasing light-touch approach to financial supervision The regulatory backlash that ensues

from financial crises can only be understood in the context of the deep political ramifications

of these crises Post-crisis regulations do not always survive the following boom The

interplay between politics and financial policy over these cycles deserves further attention

History suggests that politics can be the undoing of macro-prudential regulations

Keywords Political economy Political economy Financial crises Financial Regulation Boom-

Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and

Voting Behavior Positive Analysis of Policy-Making and Implementation General

Government Policy and Regulation General

JEL Classification D72 D78 G10 G18 N00 P16

Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872

26 Pages Posted 21 Mar 2018

Sanjit Dhami University of Leicester - Department of Economics

Ali al-Nowaihi University of Leicester - Department of Economics

Date Written February 12 2018

Abstract

We examine the various senses in which economist use the term ldquorationalityrdquo and then outline

some of the commonly drawn implications and auxiliary assumptions Finally we confront the

implications with the empirical evidence drawing on the insights from the exciting new field

of behavioral economics

Keywords rationality self-regarding preferences efficient markets heuristics optimization

JEL Classification B400

Nudging and Environmental Corporate

Responsibility A Natural Experiment CEIS Working Paper No 426

22 Pages Posted 3 Apr 2018

Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics

Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department

of Economics and Statistics

Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies

(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)

Date Written April 3 2018

Abstract

We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on

environmentally responsible products withwithout the increase of the responsible product

price We find that the simple use of a small shelf-poster explaining the importance of buying

a green product (withwithout a concurring price increase) generates significant changes in

market shares for some of the product classes for both food and non-food products Part of

the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-

increase treatment

Keywords nudging environmental sustainability randomised field experiment

JEL Classification C93 D12 M14 Q56

11 The Role of Financial Policy

by Roger Farmer - 24498 (EFG ME)

Abstract

I review the contribution and influence of Milton Friedmans 1968

presidential address to the American Economic Association I

argue that Friedmans influence on the practice of central

banking was profound and that his argument in favour of monetary

rules was responsible for thirty years of low and stable

inflation in the period from 1979 through 2009 I present a

critique of Friedmans position that market-economies are

self-stabilizing and I describe an alternative reconciliation of

Keynesian economics with Walrasian general equilibrium theory

from that which is widely accepted today by most neo-classical

economists

httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw

5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012

by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)

Abstract

We study immigrant entrepreneurship and firm ownership in 2007

and 2012 using the Survey of Business Owners (SBO) The survival

and growth of immigrant-owned businesses over time relative to

native-founded companies is evaluated by linking the 2007 SBO to

the Longitudinal Business Database (LBD) We quantify the

dependency of the United States as a whole as well as individual

states on the contributions of immigrant entrepreneurs in terms

of firm formation and job creation We describe differences in

the types of businesses started by immigrants and the quality of

jobs created by their firms First-generation immigrants create

about 25 of new firms in the United States but this share

exceeds 40 in some states In addition Asian and Hispanic

second-generation immigrants start about 6 of new firms

Immigrant-owned firms on average create fewer jobs than

native-owned firms but much of this is explained by the industry

and geographic location of the firms Immigrant-owned firms pay

comparable wages conditional on firm traits to native-owned

firms but are less likely to offer benefits

httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885

49 Pages Posted 9 Apr 2018

Axel Dreher University of Heidelberg

Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics

Sarah Langlotz University of Heidelberg

There are 2 versions of this paper

Date Written February 15 2018

Abstract

This article analyzes whether foreign aid affects the net flows of refugees from recipient

countries Combining refugee data on 141 origin countries over the 1976-2013 period with

bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos

aid receipts on both total refugee flows to the world and flows to donor countries The

interaction of donor-government fractionalization and a recipient countryrsquos probability of

receiving aid provides a powerful and excludable instrumental variable when we control for

country- and time-fixed effects that capture the levels of the interacted variables Although

our results suggest that aid induces recipient governments to encourage the return of their

citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor

countries in the short term However we observe long-run effects after four three-year

periods which appear to be driven by lagged positive effects of aid on growth

Keywords foreign aid Official Development Assistance migration refugees displaced

people humanitarian crises repatriation policies

JEL Classification F220 F350 F590 H840 O150 O190

The Political Economy of Ideas On Ideas Versus

Interests in Policymaking CEPR Discussion Paper No DP12820

44 Pages Posted 5 Apr 2018

Sharun Mukand University of Warwick - Department of Economics

Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)

National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written March 2018

Abstract

We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and

institutional change We make an explicit distinction between ideas and vested interests and

show how they feed into each other In doing so the paper integrates the Keynes-Hayek

perspective on the importance of ideas with the currently more fashionable Stigler-Becker

(in-terests only) approach to political economy We distinguish between two kinds of

ideational politics acircldquo the battle among different worldviews on the efficacy of policy

(worldview politics) versus the politics of victimhood pride and identity (identity politics)

Political entrepreneurs discover identity and policy memes (narratives cues framing) that

shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our

framework identifies a complementarity between worldview politics and identity politics and

illustrates how they may reinforce each other In particular an increase in identity

polarization may be associated with a shift in views about how the world works Furthermore

an increase in income inequality is likely to result in a greater incidence of ideational politics

Finally we show how ideas may not just constrain but also bite the interests that helped

propagate them in the first instance

Should Unemployment Insurance Be Centralized in a

State Union CESifo Working Paper Series No 6898

27 Pages Posted 19 Apr 2018

Robert Fenge University of Rostock - Department of Economics

Max Friese University of Rostock

Date Written February 21 2018

Abstract

This paper compares the decentral organization of unemployment insurance in member

states of a state union with the central organization at the upper unionrsquo level In a model of

two countries the labor force and the firm owners can migrate between the states Labor

markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a

decentral scenario the states organize independently unemployment insurance and decide

about the rate on wages contributed to the insurance budget Due to open borders they have

to take account of migration effects However with perfect mobility between the states each

government chooses a socially optimal contribution rate such that workers are fully insured

against unemployment In the central scenario the governments overestimate the costs of

insurance when bargaining about the contribution rate and observing the common insurance

budget of both countries This leads to a less than socially optimal contribution rate

Keywords unemployment insurance policy state union centralization migration

externalities

JEL Classification F660 H770 J650

Paris Climate Agreement and the Global Economy

Winners and Losers World Bank Policy Research Working Paper No 8392

Posted 3 Apr 2018

Muthukumara Mani World Bank

Zekarias Hussein Purdue University

G Badri Narayanan Purdue University - Center for Global Trade Analysis

Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)

Date Written April 2 2018

Abstract

The 2015 Paris Climate Agreement was the first instance of countries adhering to take a

collective action against global warming More than 190 countries came forward and

submitted their contributions in the form of Intended Nationally Determined Contributions

reflective of their ability and capacity to reduce greenhouse gas emissions as each country set

its own targets and actions For some countries it meant a significant decline in their

emissions by 2030 while others like China the United States and India decided on a more

gradual phasing out extending beyond 2030 This paper estimates the economic impacts of

implementation of the Paris Climate Agreement in terms of its implications for welfare gross

domestic product investments and trade for major countries and regions It uses a

computable general equilibrium framework to model global regional and country impacts

The analysis suggests that the economic impacts will be mostly felt in the European Union if

the Paris Agreement is fully implemented The European Union is likely to suffer a welfare

loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand

and Mexico will also be affected with an expected welfare loss of about 15 percent Some of

the major emitters such as China and India will experience minimal impacts to their welfare

and the United States will experience a welfare loss of only about 07 by 2030 The sectoral

analysis of production and trade suggests a significant loss to fossil fuelbased sectors while

clean energy sectors can experience significant gains

Keywords International Trade and Trade Rules Energy and Mining Energy and

Environment Energy Demand Global Environment Energy Policies amp Economics Science of

Climate Change Climate Change and Environment Climate Change and Health

Immigrants Residential Choices and Their

Consequences CEPR Discussion Paper No DP12842

59 Pages Posted 12 Apr 2018

Christoph Albert Universitat Pompeu Fabra Students

Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)

There are 2 versions of this paper

Date Written April 2018

Abstract

This paper investigates the causes and effects of the spatial distribution of immigrants across

US cities We document that a) immigrants concentrate in large high-wage expensive cities

b) the earnings gap between immigrants and natives is higher in larger more expensive cities

and c) immigrants consume less locally than natives In order to explain these findings we

develop a quantitative spatial equilibrium model in which immigrants consume a fraction of

their income in their countries of origin Thus immigrants care not only about local prices but

also about price levels in their home countries This gives them a comparative advantage

relative to natives for living in high-wage high-price high-productivity cities where they also

accept lower wages than natives These incentives are stronger for immigrants coming from

lower-price index countries of origin We rely on immigrant heterogeneity to estimate the

model With the estimated model we show that current levels of immigration have reduced

economic activity in smaller less productive cities by around 5 percent while they have

expanded it in large productive cities by around 6 percent This has increased total aggregate

output per worker by around 03 percent We also discuss the welfare implications of these

results

Keywords Immigration location choices spatial equilibrium

JEL Classification F22 J31 J61 R11

The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844

48 Pages Posted 12 Apr 2018

Thierry Mayer Sciences Po

Vincent Vicard Banque de France

Soledad Zignago Banque de France

There are 2 versions of this paper

Date Written April 2018

Abstract

In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each

country member has reaped from the European Union Thirty years after the terminology of

Non-Europe was used to give estimates of the gains from further integration we use modern

versions of the gravity model to estimate the trade creation implied by the EU and apply

those to counterfactual exercises where for instance the EU returns to a normal shallow-

type regional agreement or reverts to WTO rules Those scenarios are envisioned with or

without the exit of the United Kingdom from the EU (Brexit) happening which points to

interesting cross-country differences and potential cascade effects in doing and undoing of

trade agreements

Keywords European Union Gravity trade integration

JEL Classification F1

The Political Impact of Immigration Evidence from

the United States CEPR Discussion Paper No DP12848

57 Pages Posted 12 Apr 2018

Anna Maria Mayda

Georgetown University - Department of Economics IZA Institute of Labor Economics

Giovanni Peri University of California Davis - Department of Economics

Walter Steingress Government of Canada - Bank of Canada

Date Written April 2018

Abstract

In this paper we study the impact of immigration to the United States on the vote for the

Republican Party by analyzing county-level data on election outcomes between 1990 and

2010 Our main contribution is to separate the effect of high-skilled and low-skilled

immigrants by exploiting the different geography and timing of the inflows of these two

groups of immigrants We find that an increase in the first type of immigrants decreases the

share of the Republican vote while an inflow of the second type increases it These effects are

mainly due to the local impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find that the pro-Republican

impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards the Republican Party in places

where low-skilled immigrants are more likely to be perceived as competition in the labor

market and for public resources

Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party

JEL Classification F22 J61

15 Escaping Import Competition and Downstream Tariffs

by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)

Abstract

We propose and provide evidence for a new source of gains from

trade Firms invest in product differentiation to escape import

competition In the data and in the model these investments are

associated with increases in measured productivity introduction

of new goods and shifts to skill-intensive sectors Investment

in differentiation downstream leads upstream firms to also

invest in differentiation For China these downstream tariff

reductions lead to big increases in measured productivity for

upstream suppliers The effect on measured productivity is

larger for upstream than for downstream firms and we explain

this difference theoretically through heterogeneous changes in

markups

httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw

20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy

by Chong Xiang Stephen Yeaple - 24524 (ITI)

Abstract

A countrys welfare depends on its ability to accumulate

cognitive and noncognitive human capital However we do not

fully understand what makes some countries successful at

producing human capital and even struggle with measurement eg

international test scores are informative about the cognitive

dimension but neglect the non-cognitive dimension In this

paper we develop a multi-country open-economy

general-equilibrium framework in which countries ability to turn

resources into human capital along the cognitive and

non-cognitive dimensions is revealed by the endogenous

educational and occupational choices of its citizens and their

subsequent performance on international exams Our model allows

us to estimate countries underlying productivities of cognitive

and non-cognitive human capital We find that high test scores

do not necessarily imply high cognitive productivities (eg

Switzerland Hong Kong) and that many countries with low test

scores have high non-cognitive productivities (eg the US and

UK)

We then aggregate over these two dimensions to construct a single

educational quality index and illustrate its intuition using an

iso-education-quality curve We use our model to decompose

variation in output per capita across countries into a component

involving the educational quality index and another involving

output TFP This exact decomposition shows that the differences

in cognitive and noncognitive productivities across countries

have large implications for differences in output per worker

These results help quantify the potential payoffs of education

policies and clarify their objective eg excessive attention

to test scores may decrease aggregate output

International trade plays an important role in our model because

the gains from trade help to compensate a country for uneven

productivity across human capital types In counterfactual

exercises we show that if barriers to trade are completely

eliminated we would obtain a very different

iso-education-quality curve This implies large improvements of

overall education quality and large gains from trade for the

countries with strong comparative advantages in producing

cognitive (eg S Korea would gain 301 to 441 of its

output) or non-cognitive human capital (eg the Netherlands

would gain 188 to 556)

httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Il Contributo Della Demografia Alla Crescita

Economica Duecento Anni Di ldquoStoriardquo Italiana (The

Contribution of Demography to Italys Economic

Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431

37 Pages Posted 20 Apr 2018

Federico Barbiellini Amidei Bank of Italy

Matteo Gomellini Bank of Italy

Paolo Piselli Bank of Italy

Date Written March 28 2018

Abstract

Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita

economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro

Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra

come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave

lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con

ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente

negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale

contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre

sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash

lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del

lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili

legati allrsquoevoluzione nella struttura per etagrave

English Abstract This paper examines the contribution of demography to economic growth

in Italy by comparing the countryrsquos past present and future We use an accounting framework

to decompose GDP and per capita GDP growth and we show how changes in the age structure

of the population produced a positive demographic dividend in the past By contrast in the

last twenty-five years and arguably in the future demography has made and will continue to

make a direct negative contribution to economic growth Expected migration flows will

noticeably limit the extent of this negative contribution but they will not be able to reverse its

sign We analyze three possible developments potentially driven by demography itself or

fostered by policy actions ndash longer working lives an increase in female labour market

participation and higher education levels ndash which could counteract the pure negative

accounting effects produced by the evolution of the age structure

Note Downloadable document is in Italian

Keywords economic history demography demographic dividend forecasts

JEL Classification J11 N30

The Effects of Cash Transfers on Adult Labor Market

Outcomes World Bank Policy Research Working Paper No 8404

29 Pages Posted 16 Apr 2018

Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)

David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics

Berk Ozler World Bank - Development Economics Research Group (DECRG)

Date Written April 12 2018

Abstract

The basic economic model of labor supply has a very clear prediction of what should be

expected when an adult receives an unexpected cash windfall they should work less and earn

less This intuition underlies concerns that many types of cash transfers ranging from

government benefits to migrant remittances will undermine work ethics and make recipients

lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off

that can make this intuition misleading in low- and middle-income countries including

missing markets price effects from conditions attached to transfers and dynamic and general

equilibrium effects The paper uses this as a lens through which to examine the evidence on

the adult labor market impacts of a wide range of cash transfer programs government

transfers charitable giving and humanitarian transfers remittances cash assistance for job

search cash transfers for business start-up and bundled interventions Overall cash transfers

that are made without an explicit employment focus (such as conditional and unconditional

cash transfers and remittances) tend to result in little to no change in adult labor The main

exceptions are transfers to the elderly and some refugees who reduce work In contrast

transfers made for job search assistance or business start-up tend to increase adult labor

supply and earnings with the likely main channels being the alleviation of liquidity and risk

constraints

Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to

Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health

Care Services Industry

Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877

24 Pages Posted 23 Apr 2018

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

Date Written April 2018

Abstract

External trade affects the internal spatial structure of an economy promoting growth in some

cities or regions and decline in others Internal adjustment to these changes has often proved

to be extremely slow and painful This paper combines elements of urban and international

economics to draw out the implications of trade shocks for city performance Localisation

economies in production of internationally tradable goods mean that cities divide into two

types those producing tradables and those specialising in sectors producing just for the

national market (non-tradables) Negative trade shocks (and possibly also some positive

ones) reduce the number of cities engaged in tradable production increasing the number

producing just non-tradables This has a negative effect across all non-tradable cities which

lose population and land value Remaining tradable cities boom gaining population and land

value Depending on the initial position city size dispersion may increase this raising the

share of urban land-rents in national income and reducing the share of labour

Keywords de-industrialisation globalisation Polarisation urban

JEL Classification F12 R11 R12

Place-Based Policies for Development World Bank Policy Research Working Paper No 8410

75 Pages Posted 24 Apr 2018

Gilles Duranton University of Pennsylvania - Real Estate Department

Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written April 17 2018

Abstract

Many development policies such as placement of infrastructure or local economic

development schemes are place-based Such policies are generally intended to stimulate

private sector investment and economic growth in the treated place and as such they are

difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of

such policies and assessing their social value It then reviews the literature on place-based

policies in the contexts of transport improvements economic corridors special economic

zones lagging regions and urban policies

Keywords Transport Services Labor Markets Urban Governance and Management Urban

Housing and Land Settlements Municipal Management and Reform Urban Housing

Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity

Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage

Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General

Manufacturing Construction Industry Pulp amp Paper Industry

Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4

79 Pages Posted 8 Dec 2017

Alexander A Popov European Central Bank (ECB)

Date Written December 6 2017

Abstract

This paper reviews and appraises the body of empirical research on the association between

financial markets and economic growth that has accumulated over the past quarter-century

The bulk of the historical evidence suggests that financial development affects economic

growth in a positive monotonic way yet recent research endeavors have provided useful and

important qualifications of this conventional wisdom Moreover the proliferation of micro-

level datasets has enabled researchers to study more precise links between theory and

measurement The paper highlights the mechanisms through which financial markets benefit

society as well as the channels through which finance can slow down long-term growth

Keywords financial markets growth

JEL Classification O4 G1

Why Has Economic Growth Slowed When Innovation Appears to be Accelerating

by Robert J Gordon - 24554 (DAE EFG PR)

Abstract

Measured between quarters with identical unemployment rates U

S economic growth slowed by more than half from 32 percent per

year during 1970-2006 to only 14 percent during 2006-16 and

only half of this GDP growth slowdown is accounted for diminished

productivity growth The paper starts from the proposition that

GDP growth matters not just productivity growth because slower

GDP growth provides fewer resources to address the nations

problems including faltering education aging infrastructure

and the looming shortfall in funding for Social Security and

Medicare and it also implies lower net investment and a reduced

rate at which new capital can embody the latest technology

The paper documents the contribution to slower GDP growth of the

separate components of demography -- fertility mortality life

expectancy and immigration Particular emphasis is placed on

the interaction between rising inequality and the slower secular

rise of life expectancy in the US compared to other developed

countries both in the form of a large gap in life expectancy

between rich and poor and the stagnation of life expectancy for

the lowest income quintile Further contributions to slowing

growth are made by a decline in the population share of both

legal and illegal immigration and a turnaround from rising to

declining labor force participation Rising inequality creates a

gap between the growth of average real per-capita income relative

to that of median real income and alternative measures of the

evolution of this gap are compared and assessed

Causes of declining productivity growth begin with the slowdown

in the rate of increase of educational attainment resulting from

the interplay of demand and supply factors including the

flattening of the college wage premium and the rising relative

price of college education Why did productivity growth decline

after 2006 despite an increase in the rate at which new US

patents were issued in 2006-16 compared to earlier decades Part

of the slowdown is attributed to the maturity of the IT

revolution which also helps to explain the trajectory of the

college wage premium Aspects of the productivity growth

slowdown include the declining productivity of research workers

diminishing returns to drug innovation and the evolutionary

rather than revolutionary impact of robots and artificial

intelligence which are replacing workers slowly and only in a

minority of industrial sectors throughout the economy Also

considered are alternative explanations of slower productivity

growth including low investment and mismeasurement

httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Childbearing Postponement its Option Value and the

Biological Clock CEPR Discussion Paper No DP12884

48 Pages Posted 23 Apr 2018

David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic

University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Aude Pommeret Universiteacute de Savoie

Date Written April 2018

Abstract

Having children is like investing in a risky project Postponing birth is like delaying an

irreversible investment It has an option value which depends on its costs and benefits and in

particular on the additional risks motherhood brings We develop a parsimonious theory of

childbearing postponement along these lines We derive its implications for asset

accumulation income optimal age at first birth and childlessness The structural parameters

are estimated by matching the predictions of the model to data from the National Longitudinal

Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase

with childbearing and this increase is stronger for more educated people This effect alone

can explain why the age at first birth and the childlessness rate both increase with education

We use the model to simulate two hypothetical policies Providing free medically assisted

reproduction technology does not affect the age at first birth much but lowers the

childlessness rate Insuring mothers against income risk is powerful in lowering the age at

first birth

Keywords Assisted reproduction technology Career uncertainty Late parenthood Real

option

JEL Classification D91 J13

Economic Upgrading Through Global Value Chain

Participation Which Policies Increase the Value

Added Gains World Bank Policy Research Working Paper No 8007

45 Pages Posted 1 May 2018

Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)

Daria Taglioni European Central Bank (ECB) - Directorate General Economics

Deborah E Winkler World Bank

Date Written March 16 2017

Abstract

The emergence of global value chains has opened up new ways to achieve development and

industrialization However new evidence shows that not all countries have gained from

participating in global value chains and that country-specific characteristics matter for

economic upgrading in global value chains This paper uses two panel data sets of developing

and industrialized countries at the sectoral level to relate global value chain participation as a

buyer and seller to domestic value added These are combined with a wide range of policy

measures at the country level that can play a role in economic upgrading through global value

chains by targeting global value chain integration or the quality and conditions of input and

output factors First the study finds that global value chain integration increases domestic

value added especially on the selling side which holds across all income levels Second the

results highlight the importance of policy for economic upgrading through global value chain

integration Although the study cannot claim causal evidence all the assessed policy areas are

consistently shown to mediate the effects of global value chains and magnify the gains for

domestic value added Third a detailed analysis shows that several policy areas mediate the

gains from global value chains more through integration as a seller Finally the study

observes that many of the results are driven by high- and upper-middle-income countries

Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp

Beverage Industry Construction Industry Business Cycles and Stabilization Policies General

Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper

Industry Plastics amp Rubber Industry Global Environment

Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami

by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)

Abstract

How does immigration affect labor market opportunities in a

receiving country This paper contributes to the voluminous

literature by reporting findings from a new (but very old) data

set Beginning in 1951 the Conference Board constructed a

monthly job vacancy index by counting the number of help-wanted

ads published in local newspapers in 51 metropolitan areas We

use the Help-Wanted Index (HWI) to document how immigration

changes the number of job vacancies in the affected labor

markets Our analysis begins by revisiting the Mariel episode

The data reveal a marked decrease in Miamis HWI relative to many

alternative control groups in the first 4 or 5 years after

Mariel followed by recovery afterwards We find a similar

initial decline in the number of job vacancies after two other

supply shocks that hit Miami over the past few decades the

initial wave of Cuban refugees in the early 1960s as well as the

1995 refugees who were initially detoured to Guantanamo Bay We

also look beyond Miami and estimate the generic spatial

correlations that dominate the literature correlating changes in

the HWI with immigration across metropolitan areas These

correlations consistently indicate that more immigration is

associated with fewer job vacancies The trends in the HWI seem

to most strongly reflect changing labor market conditions for

low-skill workers (in terms of both wages and employment) and a

companion textual analysis of help-wanted ads in Miami before and

after the Mariel supply shock suggests a slight decline in the

relative number of low-skill job vacancies

httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895

21 Pages Posted 1 May 2018

Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and

Statistics (CREST) Centre for Economic Policy Research (CEPR)

Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National

Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics

(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 2018

Abstract

Somatic distance or differences in physical appearance proves to be extremely important in

the gravity model of bilateral trade in conformity with results in other areas of economics and

outside of it in the social sciences This is also true quite independently of survey evidence

about bilateral trust These findings are obtained in a sample of the 15 members of the

European Economic Association in 1996 Robustness tests also show that somatic distance

has a more reliable influence on bilateral trade than the other cultural variables The article

finally discusses the interpretation and the breadth of application of these results

Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust

The Paradox of Global Thrift CEPR Discussion Paper No DP12894

59 Pages Posted 1 May 2018

Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate

School of Economics (Barcelona GSE)

Federica Romei LUISS Guido Carli University

Date Written April 2018

Abstract

This paper describes a paradox of global thrift Consider a world in which interest rates are

low and monetary policy cannot stabilize the economy because it is frequently constrained by

the zero lower bound Now imagine that governments complement monetary policy with

prudential financial and fiscal policies because they perceive that limiting private and public

borrowing during booms will help stabilize the economy by reducing the risk of financial

crises and by creating space for fiscal interventions during busts We show that these policies

while effective from the perspective of individual countries might backfire if applied on a

global scale In a financially integrated world in fact prudential policies generate a rise in the

global supply of savings or equivalently a drop in global aggregate demand In turn weaker

global aggregate demand depresses output in countries whose monetary policy is constrained

by the zero lower bound Due to this effect the world might paradoxically experience a fall in

output and welfare following the implementation of well-intended prudential policies

Keywords aggregate demand externalities Capital Flows current account policies fiscal

policies international cooperation Liquidity traps macroprudential policies zero lower

bound

JEL Classification E32 E44 E52 F41 F42

Multihorizon Currency Returns and Purchasing

Power Parity CEPR Discussion Paper No DP12893

59 Pages Posted 1 May 2018

Mikhail Chernov UCLA Anderson

Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics

There are 2 versions of this paper

Date Written April 2018

Abstract

Exposures of expected future depreciation rates to the current interest rate differential

violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon

Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the

two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the

depreciation rate inflation differential domestic and foreign yield curves Short-term

departures from PPP generate the first pattern The risk premiums for these departures

generate the second pattern

Keywords affine term structure model cointegration multiple horizons purchasing power

parity uncovered interest parity

Networks and Trade CEPR Discussion Paper No DP12891

33 Pages Posted 1 May 2018

Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for

Economic Policy Research (CEPR)

Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written April 2018

Abstract

Trade occurs between firms both across borders and within countries and the vast majority

of trade transactions includes at least one large firm with many trading partners This paper

reviews the literature on firm-to-firm connections in trade A growing body of evidence

coming from domestic and international transaction data has established empirical

regularities which have inspired the development of new theories emphasizing firm

heterogeneity among both buyers and suppliers in production networks Theoretical work

has considered both static and dynamic matching environments in a framework of many-to-

many matching The literature on trade and production networks is at an early stage and

there are a large number of unanswered empirical and theoretical questions

Keywords International Trade offshoring production networks productivity

JEL Classification F10 F12 F14 L11 L21

One More Time What are Institutions and How Do

They Change World Bank Policy Research Working Paper No 8422

39 Pages Posted 1 May 2018 Last revised 3 May 2018

Roumeen Islam World Bank

Date Written April 30 2018

Abstract

This paper defines institutions presents their basic characteristics and discusses forces for

institutional change It draws on a wealth of research and study by scholars in different fields

and follows from the flagship 2002 World Development Report on this topic including

relevant new research since then that illuminates key issues The definition of institutions

includes rules and organizations (specifically rules guiding peoples actions) The paper

emphasizes the diversity of institutions that can effectively perform similar functions the

arguments for and against standardization of institutions across specific transactions or

groups and the implications of these choices It highlights the relationship between informal

and formal institutions It discusses forces for institutional change influencing all economies

ranging from external shocks (whether they be economic or weather-related shocks or driven

by wars) to internal dynamics such as those following population growth or compositional

changes and those following technological innovations Many of these forces have a two-way

relationship with institutions they are affected by them and in turn influence whether and

when they change A special section is devoted to institutional transplants and their

effectiveness The paper concludes with a discussion of whether and under what conditions

institutional change can be externally directed and the lessons for aid donors

Keywords International Trade and Trade Rules Social Policy Common Property Resource

Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System

Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and

Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational

Sciences Competitiveness and Competition Policy

Globalization Government Popularity and the Great

Skill Divide

CEPR Discussion Paper No DP12897

56 Pages Posted 1 May 2018

Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics

Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and

Development (EBRD)

Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science

There are 2 versions of this paper

Date Written April 2018

Abstract

How does international trade affect the popularity of governments and leaders We provide

the first large-scale systematic evidence that the divide between skilled and unskilled

workers worldwide is producing corresponding differences in the response of political

preferences to trade shocks Using a unique data set including 118 countries and nearly

450000 individuals we find that growth in high skill intensive exports (of goods and

services) increases approval of the leader and incumbent government among skilled

individuals Growth in high skill intensive imports has the opposite effect There is no effect

on political approval among the unskilled To identify exogenous variation in international

trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our

findings suggest that the political effects of international trade differ with skill intensity and

that skilled individuals respond differently from their unskilled counterparts to trade shocks

Keywords International trade political approval political polarization skill intensity of

trade

Migratory Pressures in the Long Run International

Migration Projections to 2050 Banco de Espana Article 3817

9 Pages Posted 3 Jan 2018

Rodolfo G Campos Banco de Espantildea

Date Written December 5 2017

Abstract

This article presents bilateral international migration projections to 2050 based on a new

methodology that takes into account the population growth both in countries of origin and

countries of destination To do this the methodology used by Hanson and McIntosh (2016) to

project the future migratory flows to a sample of OECD countries is generalised to all

countries worldwide The United Nations population growth forecasts are used as a basis for

projecting future migratory flows The main findings of the exercise indicate that the number

of migrants is projected to increase from 28 of the world population in 2010 to around

35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa

Against this background and despite the slowdown in demographic growth in Latin America

the United States is expected to continue to receive high net immigration flows and to remain

the country with the highest stock of immigrants globally while continental Europe will post

larger net immigration flows

Immigration and Electoral Support for the Far-Left

and the Far-Right CESifo Working Paper Series No 6918

53 Pages Posted 7 May 2018

Anthony Edo Paris School of Economics (PSE)

Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)

Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and

Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of

Labor Economics

Date Written March 05 2018

Abstract

Immigration has become one of the most divisive political issues in the United States the

United Kingdom France and several other Western countries We estimate the impact of

immigration on voting for far-left and far-right candidates in France using panel data on

presidential elections from 1988 to 2017 To derive causal estimates we instrument more

recent immigration flows by past settlement patterns in 1968 We find that immigration

increases support for far-right candidates and has no robust effect on far-left voting The

increased support for far-right candidates is driven by low educated immigrants from non-

Western countries

Keywords voting immigration political economy

JEL Classification D720 F220 J150 P160

Institutions Trade and Development A Quantitative

Analysis CESifo Working Paper Series No 6920

64 Pages Posted 7 May 2018

Cosimo Beverelli World Trade Organization (WTO)

Alexander Keck World Trade Organization (WTO)

Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo

Institute for Economic Research GEP at the University of Nottingham

Yoto Yotov Drexel University - Department of Economics amp International Business

Date Written March 05 2018

Abstract

We propose and apply methods to quantify the impact of national institutions on international

trade and development We are able to identify the direct impact of country-specific

institutions on international trade within the structural gravity framework Our approach

naturally addresses the prominent issue of endogenous institutions The empirical analysis

offers robust evidence that stronger institutions promote trade A counterfactual analysis

reveals that the changes in institutional quality in the poor countries in our sample between

1996 and 2006 have had via their impact on imports from rich countries significant and

heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily

applicable to identifying the impact of a wide range of country-specific variables on

international trade

Keywords institutional quality international trade development structural gravity

JEL Classification F130 F140 F160

5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-

evaluating the Role of Monetary Policy in Economic Fluctuations

by Christiane Baumeister James D Hamilton - 24597 (EFG ME)

Abstract

Reporting point estimates and error bands for structural vector

autoregressions that are only set identified is a very common

practice However unless the researcher is persuaded on the

basis of prior information that some parameter values are more

plausible than others this common practice has no formal

justification When the role and reliability of prior

information is defended Bayesian posterior probabilities can be

used to form an inference that incorporates doubts about the

identifying assumptions We illustrate how prior information can

be used about both structural coefficients and the impacts of

shocks and propose a new distribution which we call the

asymmetric t distribution for incorporating prior beliefs about

the signs of equilibrium impacts in a nondogmatic way We apply

these methods to a three-variable macroeconomic model and

conclude that monetary policy shocks were not the major driver of

output inflation or interest rates during the Great Moderation

httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw

11 The Political Impact of Immigration Evidence from the United States

by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)

Abstract

In this paper we study the impact of immigration to the United

States on the vote for the Republican Party by analyzing

county-level data on election outcomes between 1990 and 2010

Our main contribution is to separate the effect of high-skilled

and low-skilled immigrants by exploiting the different geography

and timing of the inflows of these two groups of immigrants We

find that an increase in the first type of immigrants decreases

the share of the Republican vote while an inflow of the second

type increases it These effects are mainly due to the local

impact of immigrants on votes of US citizens and they seem

independent of the country of origin of immigrants We also find

that the pro-Republican impact of low-skilled immigrants is

stronger in low-skilled and non-urban counties This is

consistent with citizens political preferences shifting towards

the Republican Party in places where low-skilled immigrants are

more likely to be perceived as competition in the labor market

and for public resources

httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw

23 The Impact of Exports on Innovation Theory and Evidence

by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)

Abstract

This paper investigates the effect of export shocks on

innovation On the one hand a positive shock increases market

size and therefore innovation incentives for all firms On the

other hand it increases competition as more firms enter the

export market This in turn reduces profits and therefore

innovation incentives particularly for firms with low

productivity Overall the positive impact of the export shock on

innovation is magnified for high productivity firms whereas it

may negatively affect innovation in low productivity firms We

test this prediction with patent customs and production data

covering all French manufacturing firms To address potential

endogeneity issues we construct firm-level export proxies which

respond to aggregate conditions in a firms export destinations

but are exogenous to firm-level decisions We show that

patenting robustly increases more with export demand for

initially more productive firms This effect is reversed for the

least productive firms as the negative competition effect

dominates

httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Sovereign Defaults in Court CESifo Working Paper Series No 6931

75 Pages Posted 8 May 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

There are 3 versions of this paper

Date Written March 08 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords sovereign default enforcement government financing debt restructuring

JEL Classification F340 G150 H630 K220

ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172

54 Pages Posted 14 May 2018

Martina Cecioni Bank of Italy

Date Written May 3 2018

Abstract

The paper provides empirical evidence on the effects of ECB conventional and unconventional

monetary policy on the euro exchange rate focusing on the period from January 2013 to

September 2017 Innovations to conventional and unconventional monetary policies are

identified through changes in respectively short- and long-term interest rates immediately

after Governing Council meetings Both types of measures contributed to the depreciation of

the euro from mid-2014 surprises associated with conventional measures had a stronger and

more persistent effect than those associated with unconventional ones Time-varying

estimates of the effects of conventional surprises since 1999 show that the responsiveness of

exchange rates to monetary news increased markedly from 2013 State-dependence analysis

finds that the exchange rate became more sensitive to monetary policy when the ECB adopted

a policy of negative interest rates and when conventional and unconventional monetary

surprises moved in the same direction

Keywords unconventional monetary policy exchange rates European Central Bank

JEL Classification E52 E58 F31

The ECBs Fiscal Policy

by Hans-Werner Sinn - 24613 (ME)

Abstract

While the ECB helped mitigate the euro crisis in the aftermath of

Lehman it has stretched its monetary mandate and moved into

fiscal territory This text describes and summarizes the crucial

role played by the ECB in the intervention spiral resulting from

its bid to manage the crisis It also outlines ongoing

competitiveness problems in southern Europe discusses the

so-called austerity policy of the Troika comments on QE and

presents two alternative paths for the future development of

Europe

httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Real Convergence in the Euro Area A Long-Term

Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6

102 Pages Posted 5 Dec 2017

Juan Luis Diaz del Hoyo European Central Bank (ECB)

Ettore Dorrucci European Central Bank (ECB)

Frigyes Ferdinand Heinz European Central Bank (ECB)

Sona Muzikarova European Central Bank (ECB)

Date Written December 1 2017

Abstract

In the euro area there is mixed evidence that the GDP per capita of lower-income economies

has been catching up with that of higher-income economies since the start of monetary union

The significant real convergence performance of some of the most recent members contrasts

with that of the economies of southern Europe which have not met expectations However

attributing all the blame for this outcome to the introduction of the single currency simply

misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this

paper shows that certain member countries began to face a ldquonon-convergence traprdquo long

before the euro years We also provide stylised facts on (i) the central role of total factor

productivity in driving real convergence in the euro area over time alongside other factors

and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and

institutional quality the other two key components of sustainable economic convergence We

conclude that it is critical that the euro area countries facing convergence challenges enhance

the resilience of their economic structures by improving the relevant institutions and

governance

Keywords sustainable economic convergence real convergence nominal convergence GDP

per capita Maastricht convergence criteria institutional quality labour productivity total

factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU

JEL Classification E01 F15 J11 O11 O43 O47 O52 O57

Monetary Policy Transmission in the Eastern

Caribbean Currency Union IMF Working Paper No 1870

31 Pages Posted 22 May 2018

Alla Myrvoda International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written March 2018

Abstract

This paper empirically investigates international and domestic monetary policy transmission

mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-

through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into

domestic interest rates through the interest rate channel While economic theory suggests

that the international pass-through should be high in small open economies with fixed

exchange rates and open capital accounts our findings based on regression analysis point to

a low long-run pass-through coefficient of the US interest rate The domestic transmission

channel however is found to operate through changes in the MSR The results hold for

different interest rates (deposit and lending) and are supported by survey-based findings

Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint

Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy

transmission interest rate pass-through ECCU monetary policy transmission interest rate

pass-through ECCU General Monetary Policy (Targets Instruments and Effects)

JEL Classification E43 E50 E52 F31 F33 F36 O54

On the Impact of Structural Reforms on Output and

Employment Evidence from a Cross-Country Firm-

Level Analysis IMF Working Paper No 1873

36 Pages Posted 22 May 2018

Luiza Antoun de Almeida International Monetary Fund (IMF)

Vybhavi Balasundharam University of Michigan at Ann Arbor

Date Written April 2018

Abstract

This paper analyzes the effects of selected structural reforms on output and employment in

the short and medium term It uses a comprehensive cross-country firm-level dataset

covering both advanced and emerging market economies over the period 2003-2014 In line

with previous studies it finds that structural reforms have in general a positive impact on

output and employment in the medium term Furthermore the paper also assesses whether

the impact of structural reforms varies with firm-specific characteristics such as size

leverage profitability and sector We find evidence that firm characteristics do influence the

effectiveness of structural reforms These findings have relevant policy implications as they

help policymakers tailor the design of structural reforms to maximize their payoffs taking

into account their heterogeneous impact on firms

Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed

countries Emerging markets structural reforms firm-level data Orbis dataset potential

growth

JEL Classification L51 D04 D22

Production Integration in the European Union CESifo Working Paper Series No 6944

34 Pages Posted 17 May 2018

Hakan Nordstrom Swedish Board of Trade

Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic

Studies and Ifo Institute)

Date Written March 21 2018

Abstract

Measured by trade in intermediate inputs economic integration has increased between 2000

and 2014 between members of the European Union and even more with non-members

Integration is negatively related to economic size and positively to the number of years as a

member Germany is the largest hub in the production network and the centre of gravity has

moved eastward Older member states are increasingly exporting service inputs and new

member states primary and manufacturing inputs Wages are increasing faster in countries

with low initial wages indicating wage convergence as a result of production integration

Keywords global value chains economic integration input-output models wage

convergence

JEL Classification E100 F100 F600 J310

Democratic Tipping Points CESifo Working Paper Series No 6945

36 Pages Posted 17 May 2018

Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy

Research (CEPR) Institute for the Study of Labor (IZA)

There are 2 versions of this paper

Date Written March 21 2018

Abstract

I examine whether transitory events can tip the scales against authoritarian regimes and lead

to persistent democratization I think of situations where this is a possibility as democratic

tipping points The transitory events I focus on are rainfall shocks in the most agricultural

countries in the world I show that while these shocks only affect agricultural output

contemporaneously they have persistent effects on political institutions Authoritarian

regimes experiencing negative rainfall shocks are more likely to be democratic three five and

ten years later

Keywords transitory shocks persistent democratization

Globalization and the New Normal IMF Working Paper No 1875

41 Pages Posted 22 May 2018

Bertrand Candelon University of Maastricht - Department of Economics

Alina Carare International Monetary Fund (IMF)

Jean-Baptiste Hasse

Aix-Marseille University

Date Written April 2018

Abstract

This study expands the empirical specification of Cerra and Saxena (2008) and allows short-

termoutput growth regimes to be determined by globalization Relying on a non-linear

dynamic panelrepresentation it reconciles the earlier results in the literature regarding the

two oppositenarratives of the effects of globalization on output growth Countries experience

higher growth onaverage the more open and integrated they are into the world However

once they reach a certainglobalization threshold (endogenously estimated) countries may

also experience a new normalpersistently lower short-term output growth following a

financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization

process for low- and middle-income countriesTo solely reap the globalization benefits on

growth sound policies should be in place to mitigatethe negative effects stemming from

increased vulnerabilities brought by globalization

Keywords Globalization Financial crisis Banking crisis Output growth New Normal

Globalization Financial crises Banking crises Output growth

JEL Classification F30 F43 F62 F65

Public Policy in an AI Economy

by Austan Goolsbee - 24653 (PE PR)

Abstract

This paper considers the role of policy in an AI-intensive

economy (interpreting AI broadly) It emphasizes the speed of

adoption of the technology for the impact on the job market and

the implications for inequality across people and across places

It also discusses the challenges of enacting a Universal Basic

Income as a response to widespread AI adoption discuss pricing

privacy and competition policy the question of whether AI could

improve policy making itself

httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Aggregate and Distributional Effects of Financial

Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883

62 Pages Posted 22 May 2018

Davide Furceri International Monetary Fund (IMF)

Prakash Loungani International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Date Written April 2018

Abstract

We take a fresh look at the aggregate and distributional effects of policies to

liberalizeinternational capital flows-financial globalization Both country- and industry-level

resultssuggest that such policies have led on average to limited output gains while

contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-

off Behindthis average lies considerable heterogeneity in effects depending on country

characteristicsLiberalization increases output in countries with high financial depth and

those that avoidfinancial crises while distributional effects are more pronounced in countries

with lowfinancial depth and inclusion and where liberalization is followed by a crisis

Difference-indifferenceestimates using sectoral data suggest that liberalization episodes

reduce the shareof labor income particularly for industries with higher external financial

dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic

shocks and thosewith a higher elasticity of substitution between capital and labor The

sectoral resultsunderpin a causal interpretation of the findings using macro data

Keywords Globalization Inequality Capital Account Openness Crises Institutions

JEL Classification F13 G32 O11

The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921

44 Pages Posted 15 May 2018

Francisco Roch International Monetary Fund (IMF)

Harald Uhlig University of Chicago - Department of Economics

There are 2 versions of this paper

Date Written May 2018

Abstract

Motivated by the recent European debt crisis this paper investigates the scope for a bailout

guarantee in a sovereign debt crisis Defaults may arise from negative income shocks

government impatience or a sunspot-coordinated buyers strike We introduce a bailout

agency and characterize the strategy with the minimal actuarially fair intervention which

guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual

financing The intervention makes it cheaper for governments to borrow inducing them

borrow more leaving default probabilities possibly rather unchanged The maximal backstop

will be pulled precisely when fundamentals worsen

Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-

term debt OMT Self-fulfilling Crises

JEL Classification F34 F41

Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia

by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki

Syamsulhakim - 24670 (CH DEV PE)

Abstract

Conditional cash transfer (CCT) programs have spread worldwide

and are designed to promote comprehensive human capital

investments in children starting from encouraging pre-natal and

maternal care and early childhood health interventions and

continuing through incentivizing school attendance Yet

evaluating these claims over more than a few years is hard as

most CCT experiments extend the program to the control group

after a short experimental period This paper experimentally

estimates the impacts of Indonesias cash transfer program (PKH)

six years after the program launched using data from about

14000 households in 360 sub-districts across Indonesia taking

advantage of the fact that treatment and control locations

remained largely intact throughout the period We find that PKH

continues to have large static incentive effects on many of the

targeted indicators increasing usage of trained health

professionals for childbirth dramatically and halving the share

of children age 7-15 who are not enrolled in school Wage labor

for 13-15 year olds was reduced by at least one-third We also

begin to observe impacts on outcomes that may require cumulative

investments for example six years later we observe large

reductions in stunting and some evidence of increased high school

completion rates The results suggest that CCT investments can

have substantial effects on the accumulation of human capital

and that these effects can persist even when programs are

operating at large-scale without researcher intervention

httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Services Development and Comparative Advantage in

Manufacturing World Bank Policy Research Working Paper No 8450

47 Pages Posted 23 May 2018

Xuepeng Liu Kennesaw State University - Department of Economics and Finance

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Zhi Wang George Mason University - Schar School of Policy and Government

Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre

for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of

Economics amp Management

Date Written May 22 2018

Abstract

Most manufacturing activities use inputs from the financial and business services sectors But

these services sectors also compete for resources with manufacturing activities provoking

concerns about de-industrialization -- financial services in industrial countries like the United

States and the United Kingdom and business services in developing countries like India and

the Philippines This paper examines the implications of services development for the export

performance of manufacturing sectors It develops a methodology to quantify the indirect role

of services in international trade in goods and constructs new measures of revealed

comparative advantage based on domestic value added in gross exports The paper shows

that the development of financial and business services enhances the revealed comparative

advantage of manufacturing sectors that use these services intensively but not that of other

manufacturing sectors It also finds that a country can partially overcome the handicap of an

underdeveloped domestic services sector by relying more on imported services inputs Thus

lower services trade barriers in developing countries can help to promote their

manufacturing exports

Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General

Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry

Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and

Trade Rules Trade and Services Financial Economics Finance and Development Economic

Growth Economic Theory amp Research Industrial Economics

Thou Shalt Not Breach The Impact on Sovereign

Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887

37 Pages Posted 22 May 2018

Federico Kalan International Monetary Fund (IMF)

Adina Popescu International Monetary Fund (IMF)

Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne

Date Written April 2018

Abstract

There is evidence that fiscal rules in particular well-designed rules are associated with lower

sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not

been examined in the literature This paper estimates the effect of the Excessive Deficit

Procedure (EDP) on sovereign spreads of European Union member states Based on a sample

including the 28 European Union countries over the period 1999 to 2016 sovereign spreads

of countries placed under an EDP are found to be on average higher compared to countries

that are not under an EDP The interpretation of this result is not straight-forward as different

channels may be at play in particular those related with the credibility and the design of the

EU fiscal framework The specification accounts for typical macroeconomic fiscal and

financial determinants of sovereign spreads the System Generalized Method of Moments

estimator is used to control for endogeneity and results are robust to a range of checks on

variables and estimators

Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models

with Panel Data

JEL Classification E62 H60 C23

ldquoUnconventionalrdquo Monetary Policy as Conventional

Monetary Policy A Perspective from the US In the

1920s

FEDS Working Paper No 2018-019

45 Pages Posted 6 Jun 2018

Mark A Carlson Board of Governors of the Federal Reserve System

Burcu Duygan-Bump Federal Reserve Board

Date Written 2018-03-09

Abstract

To implement monetary policy in the 1920s the Federal Reserve utilized administered

interest rates and conducted open market operations in both government securities and

private money market securities sometimes in fairly considerable amounts We show how the

Fed was able to effectively use these tools to influence conditions in money markets even

those in which it was not an active participant Moreover our results suggest that the

transmission of monetary policy to money markets occurred not just through changing the

supply of reserves but importantly through financial market arbitrage and the rebalancing of

investor portfolios The tools used in the 1920s by the Federal Reserve resemble the

extraordinary monetary policy tools used by central banks recently and provide further

evidence on their effectiveness even in ordinary times

Keywords Monetary policy Unconventional monetary policy Central banking Administered

rates Money markets Quantitative easing

JEL Classification E52 E58 N22

New Perspectives on the Decline of US

Manufacturing Employment FEDS Working Paper No 2018-023

37 Pages Posted 7 Jun 2018

Teresa Fort Dartmouth College - Tuck School of Business

Justin R Pierce Federal Reserve Board

Peter Schott Yale School of Management National Bureau of Economic Research (NBER)

Date Written 2018-04-13

Abstract

We use relatively unexplored dimensions of US microdata to examine how US manufacturing

employment has evolved across industries firms establishments and regions from 1977 to

2012 We show that these data provide support for both trade- and technology-based

explanations of the overall decline of employment over this period while also highlighting the

difficulties of estimating an overall contribution for each mechanism Toward that end we

discuss how further analysis of these trends might yield sharper insights

Keywords Employment Manufacturing Output Technology Trade

AI and the Economy

by Jason Furman Robert Seamans - 24689 (PR)

Abstract

We review the evidence that artificial intelligence (AI) is

having a large effect on the economy Across a variety of

statistics--including robotics shipments AI startups and patent

counts--there is evidence of a large increase in AI-related

activity We also review recent research in this area which

suggests that AI and robotics have the potential to increase

productivity growth but may have mixed effects on labor

particularly in the short run In particular some occupations

and industries may do well while others experience labor market

upheaval We then consider current and potential policies around

AI that may help to boost productivity growth while also

mitigating any labor market downsides including evaluating the

pros and cons of an AI specific regulator expanded antitrust

enforcement and alternative strategies for dealing with the

labor-market impacts of AI including universal basic income and

guaranteed employment

httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Economic Policy for Artificial Intelligence

by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)

Abstract

Recent progress in artificial intelligence (AI) - a general

purpose technology affecting many industries - has been focused

on advances in machine learning which we recast as a

quality-adjusted drop in the price of prediction How will this

sharp drop in price impact society Policy will influence the

impact on two key dimensions diffusion and consequences

First in addition to subsidies and IP policy that will influence

the diffusion of AI in ways similar to their effect on other

technologies three policy categories - privacy trade and

liability - may be uniquely salient in their influence on the

diffusion patterns of AI Second labor and antitrust policies

will influence the consequences of AI in terms of employment

inequality and competition

httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Missing Profits of Nations

by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)

Abstract

By combining new macroeconomic statistics on the activities of

multinational companies with the national accounts of tax havens

and the worlds other countries we estimate that close to 40 of

multinational profits are shifted to low-tax countries each year

Profit shifting is highest among US multinationals the tax

revenue losses are highest for the European Union and developing

countries We show theoretically and empirically that in the

current international tax system tax authorities of high-tax

countries do not have incentives to combat profit shifting to tax

havens They instead focus their enforcement effort on

relocating profits booked in other high-tax countries--in effect

stealing revenue from each other This policy failure can

explain the persistence of profit shifting to low-tax countries

despite the high costs involved for high-tax countries We

provide a new cross-country database of GDP corporate profits

trade balances and factor shares corrected for profit shifting

showing that the global rise of the corporate capital share is

significantly under-estimated

httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums

by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)

Abstract

This paper studies the synchronization of financial cycles across

17 advanced economies over the past 150 years The comovement in

credit house prices and equity prices has reached historical

highs in the past three decades The sharp increase in the

comovement of global equity markets is particularly notable We

demonstrate that fluctuations in risk premiums and not risk-free

rates and dividends account for a large part of the observed

equity price synchronization after 1990 We also show that US

monetary policy has come to play an important role as a source of

fluctuations in risk appetite across global equity markets

These fluctuations are transmitted across both fixed and floating

exchange rate regimes but the effects are more muted in floating

rate regimes

httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Geography of Linguistic Diversity and the Provision of Public Goods

by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)

Abstract

This paper analyzes the importance of local interaction between

individuals of different linguistic groups for the provision of

public goods at the national level The micro-founded conceptual

framework we develop predicts that a countrys public goods (i)

decrease in its overall linguistic fractionalization and (ii)

either increase or decrease in its local learning multiplier a

measure of how local interaction affects antagonism towards other

groups in the society at large After constructing a 5 km by 5

km dataset on language use for 223 countries we empirically

explore these theoretical predictions While overall

fractionalization worsens public goods outcomes we find a

positive causal effect of local learning Conditional on a

countrys overall diversity public goods outcomes are maximized

when there are a few large-sized groups and the diversity of each

location mirrors that of the country as a whole Our large-scale

study spanning the entire globe confirms experimental

micro-evidence in favor of contact theory

httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Misfits in the Car Industry Offshore Assembly

Decisions at the Variety Level CEPR Discussion Paper No DP12940

39 Pages Posted 21 May 2018

Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics

Thierry Mayer Sciences Po

Date Written May 2018

Abstract

This paper estimates the role of countryvariety comparative advantage in the decision to

offshore assembly of more than 2000 models of 197 car brands headquartered in 23

countries While offshoring in the car industry has risen from 2000 to 2016 the top five

offshoring brands account for half the car assembly relocated to low-wage countries We show

that the decision to offshore a particular car model depends on two types of cost

(dis)advantage of the home country relative to foreign locations The first type the assembly

costs common to all models is estimated via a structural triadic gravity equation The second

effect model-level comparative advantage is an interaction between proxies for the models

skill and capital intensity and headquarter countrys abundance in these factors

Keywords cars Gravity offshoring

JEL Classification F1

Global Crises and Populism The Role of Eurozone

Institutions CEPR Discussion Paper No DP12944

46 Pages Posted 21 May 2018

Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)

Helios Herrera University of Warwick

Massimo Morelli Bocconi University

Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for

Economic Performance (CEP)

Date Written May 2018

Abstract

Populist parties are likely to gain consensus when mainstream parties and status quo

institutions fail to manage the shocks faced by their economies Institutional constraints

which limit the possible actions in the face of shocks result in poorer performance and

frustration among voters who turn to populist movements We rely on this logic to explain the

different support of populist parties among European countries in response to the

globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a

greater success of populist parties in response to these shocks in Euro zone countries and our

empirical analysis confirms this prediction This is consistent with voters frustration for the

greater inability of the Euro zone governments to react to di cult-to-manage globalization

shocks and financial crises Our evidence has implications for the speed of construction of

political unions A slow staged process of political unification can expose the EU to a risk of

political backlash if hard to manage shocks hit the economies during the integration process

Keywords Financial Dependence Frustration Globalization populism Relocation

JEL Classification D72 D78 F14 F16

Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954

50 Pages Posted 31 May 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Date Written May 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity

Translog

JEL Classification F14 F15 F33

Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960

76 Pages Posted 5 Jun 2018

Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR

Daragh Clancy European Stability Mechanism

Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs

Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic

Policy Research (CEPR)

There are 2 versions of this paper

Date Written May 2018

Abstract

This paper explores a natural connection between fiscal multipliers and foreign holdings of

public debt Although fiscal expansions can raise domestic economic activity through various

channels they can also have crowding-out effects if the resources used to acquire public debt

reduce domestic consumption and investment Thus these crowding-out effects are likely to

be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-

war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the

present To do so we assemble a novel database of public debt holdings by domestic and

foreign creditors for a large set of advanced economies We combine this data with standard

measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is

increasing in the share of public debt held by foreigners In particular the fiscal multiplier is

smaller than one when the foreign share is low such as in the US in the 1950s and 1960s

and Japan today and larger than one when the foreign share is high such as in the US and

Ireland today

Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt

JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63

Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961

26 Pages Posted 30 May 2018

Leonid V Azarnert Ariel University Center

Date Written April 09 2018

Abstract

This paper studies the effect of refugee resettlement on human capital accumulation The

analysis is performed in a growth model with endogenous fertility I show how refugee

resettlement from a more advanced and wealthier economy to a less advanced and less

wealthy economy combined with income transfers is Pareto-improving for indigenous

populations in both countries I also derive conditions for the proposed resettlement policy to

stimulate human capital accumulation and hence economic growth in both economies

Keywords refugee resettlement fertility human capital growth

JEL Classification D300 F220 J100 O100

The Impact of Trade Liberalization on Firm Productivity and Innovation

by Pian Shu Claudia Steinwender - 24715 (ITI PR)

Abstract

This chapter reviews the empirical economics literature on the

impact of trade liberalization on firms innovation-related

outcomes We define and examine four types of shocks to trade

flows import competition export opportunities access to

imported intermediates and foreign input competition Our

review reveals interesting heterogeneities at the country and

firm levels In emerging countries trade liberalization appears

to spur productivity and innovation In developed countries

export opportunities and access to imported intermediates tend to

encourage innovation but the evidence on import competition is

mixed especially for firms in the United States At the firm

level the positive effects of trade on innovation are more

pronounced at the initially more productive firms while the

negative effects are more pronounced at the initially less

productive firms

httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The IT Revolution and the Globalization of RampD

by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)

Abstract

Since the 1990s RampD has become less geographically concentrated

and has seen especially fast growth in emerging markets One of

the distinguishing features of the RampD globalization phenomenon

is its concentration within the softwareIT domain the increase

in foreign RampD has been largely concentrated within software and

IT-intensive multinationals and new RampD destinations are also

more software and IT-intensive multinationals than traditional

RampD destinations In this paper we document three important

phenomena (1) the globalization of RampD (2) the growing

importance of software and IT to firm innovation and (3) the

rise of new RampD hubs We argue that the shortage in

softwareIT-related human capital resulting from the large IT-

and software-biased shift in innovation drove US MNCs abroad and

particularly drove them abroad to new hubs with large

quantities of STEM workers who possessed IT and software skills

Our findings support the view that the globalization of US

multinational RampD has reinforced the technological leadership of

US-based firms in the information technology domain and that

multinationals ability to access a global talent base could

support a high rate of innovation even in the presence of the

rising (human) resource cost of frontier RampD

httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969

60 Pages Posted 5 Jun 2018

Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco

Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)

Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of

Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)

Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

There are 2 versions of this paper

Date Written June 2018

Abstract

This paper studies the synchronization of financial cycles across 17 advanced economies over

the past 150 years The comovement in credit house prices and equity prices has reached

historical highs in the past three decades The sharp increase in the comovement of global

equity markets is particularly notable We demonstrate that fluctuations in risk premiums

and not risk-free rates and dividends account for a large part of the observed equity price

synchronization after 1990 We also show that US monetary policy has come to play an

important role as a source of fluctuations in risk appetite across global equity markets These

fluctuations are transmitted across both fixed and floating exchange rate regimes but the

effects are more muted in floating rate regimes

Keywords asset prices equity return premium financial centers financial cycles policy

spillovers

JEL Classification E50 F33 F42 F44 G12 N10 N20

Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974

32 Pages Posted 11 Jun 2018

Hideki Nakamura Osaka City University

Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)

LUISS Guido Carli DPTEA

Date Written June 2018

Abstract

This paper presents a model of technical change that combines two lines of research together

It is a task based model in which automation turns labor tasks to mechanized ones and there

is also a continuous addition of new labor tasks as in the expanding variety literature We

impose three simple restrictions on the model The first is that all new tasks are adopted The

second is that all new automation innovations are adopted and the third is that the share of

labor does not converge to zero in the long run We show that these restrictions imply that

unemployment due to automation is expected to converge to zero over time

Keywords automation growth Labor Income Share technical change unemployment

JEL Classification J64 O14 O30 O40

Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976

56 Pages Posted 11 Jun 2018

Sergio de Ferra Stockholm University

Federica Romei LUISS Guido Carli University

Date Written June 2018

Abstract

In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound

have limited the ability of policy-makers in the European monetary union to achieve their

stabilization objective This paper investigates the interaction between sovereign default risk

and the conduct of monetary policy when borrowers can act strategically and they share with

their lenders a single currency in a monetary union We address this question in an

endogenous sovereign default model of heterogeneous countries in a monetary union where

the monetary authority may be constrained by the zero lower bound We uncover three main

results First in normal times debtors have a stronger incentive to default to induce more

expansionary monetary policy Second the zero lower bound or constraints on monetary

policy may act as a disciplining device to enforce repayment of sovereign debt Third

sovereign default risk induces countries with a preference for tight monetary policy to accept

a laxer policy stance These results help to shed light on the recent European experience of

high default risk expansionary monetary policy and low nominal interest rates

Keywords Heterogeneous Countries monetary union sovereign default zero lower bound

JEL Classification F34 F42 F45 H63

Evolution of Modern Business Cycle Models Accounting for the Great Recession

by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)

Abstract

Modern business cycle theory focuses on the study of dynamic

stochastic general equilibrium models that generate aggregate

fluctuations similar to those experienced by actual economies

We discuss how this theory has evolved from its roots in the

early real business cycle models of the late 1970s through the

turmoil of the Great Recession four decades later We document

the strikingly different pattern of comovements of macro

aggregates during the Great Recession compared to other postwar

recessions especially the 1982 recession We then show how two

versions of the latest generation of real business cycle models

can account respectively for the aggregate and the

cross-regional fluctuations observed in the Great Recession in

the United States

httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw

What Happened Financial Factors in the Great Recession

by Mark Gertler Simon Gilchrist - 24746 (EFG ME)

Abstract

Since the onset of the Great Recession an explosion of both

theoretical and empirical research has investigated how the

financial crisis emerged and how it was transmitted to the real

sector The goal of this paper is to describe what we have

learned from this new research and how it can be used to

understand what happened during the Great Recession In the

process we also present some new evidence on the role of the

household balance sheet channel versus the disruption of banking

We examine a panel of quarterly state level data on house

prices mortgage debt and employment along with a measure of

banking distress Then exploiting both panel data and time

series methods we analyze the contribution of the house price

decline versus the banking distress indicator to the overall

decline in employment during the Great Recession We confirm a

common finding in the literature that the household balance sheet

channel is important for regional variation in employment

However we also find that the disruption in banking was central

to the overall employment contraction

httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The Changing Structure of Immigration to the OECD

What Welfare Effects on Member Countries CESifo Working Paper Series No 6992

40 Pages Posted 27 Jun 2018

Michał Burzyński Universite du Luxembourg

Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management

UK IZA Institute of Labor Economics

Hillel Rapoport Paris School of Economics (PSE)

Date Written April 24 2018

Abstract

We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and

2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we

develop a general equilibrium model that accounts for the main channels of transmission of

immigration shocks ndash the employment and wage effects the fiscal effect and the market size

effect ndash and for the interactions between them We parameterize our model for 20 selected

OECD member states We find that the three waves induce positive effects on the real income

of natives however the size of these gains varies considerably across countries and across

skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to

the previous ones This is due to the changing origin mix of immigrants which translates into

lower levels of human capital and smaller fiscal gains However differences across cohorts

explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic

benefits from immigration

Keywords immigration welfare crisis inequality general equilibrium

JEL Classification C680 F220 J240

Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470

19 Pages Posted 11 Jun 2018

Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia

Daniel Lederman World Bank - Latin America and Caribbean Region

Laura Zoratto World Bank

Date Written June 7 2018

Abstract

Recent literature has shown evidence of positive contributions of export promotion agencies

around the world in raising exports through the intensive and extensive margins of trade The

number of export promotion agencies has increased substantially over the past two decades

and most of them focus on assisting exporters in understanding and finding markets for their

products This paper describes the characteristics of export promotion agencies around the

world using a novel database from the World Bank in collaboration with the International

Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the

literature on the impacts of export promotion agencies

Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin

Trade Policy Trade and Multilateral Issues Trade and Services

Optimal Inflation and the Identification of the Phillips

Curve CEPR Discussion Paper No DP12981

29 Pages Posted 11 Jun 2018

Michael McLeay Bank of England - Monetary Assessment and Strategy Division

Silvana Tenreyro London School of Economics (LSE)

Date Written June 2018

Abstract

This paper explains why inflation follows a seemingly exogenous statistical process unrelated

to the output gap In other words it explains why it is difficult to empirically identify a Phillips

curve We show why this result need not imply that the Phillips curve does not hold -- on the

contrary our conceptual framework is built under the assumption that the Phillips curve

always holds The reason is simple if monetary policy is set with the goal of minimising

welfare losses (measured as the sum of deviations of inflation from its target and output from

its potential) subject to a Phillips curve a central bank will seek to increase inflation when

output is below potential This targeting rule will impart a negative correlation between

inflation and the output gap blurring the identification of the (positively sloped) Phillips

curve

Keywords identification Inflation targeting Phillips curve

GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980

43 Pages Posted 11 Jun 2018

Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII

Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)

Date Written April 19 2018

Abstract

Geography economic size or common history help predicting signed regional trade

agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic

determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms

addressed in this paper We estimate the time-varying probability for a country pair to sign a

trade agreement and build upon structural gravity in general equilibrium to determine how

the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results

confirm that the endogenous geography of RTAs is shaped by the development of GVCs

Keywords preferential trade agreements global value chains structural gravity

JEL Classification F130 F140 F150

Diversity and Growth CEPR Discussion Paper No DP13011

37 Pages Posted 26 Jun 2018

Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and

Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group

(DECRG)

There are 2 versions of this paper

Date Written June 2018

Abstract

The diversity of social interaction within economic communities affects productivity and

growth and is itself shaped by economic conditions These reciprocal effects raise the

possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty

on a new path of social integration and economic growth through external intervention or an

internal political initiative This paper describes a simple analytical model that captures these

reciprocal effects and sheds light on the role of government capacity community leadership

federation and external credit or aid in achieving economic growth through social integration

The Economics of Language CEPR Discussion Paper No DP13002

85 Pages Posted 26 Jun 2018

Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School

Date Written June 2018

Abstract

The paper brings together methodological theoretical and empirical analysis into the single

framework of linguistic diversity It reflects both historical and contemporary research by

economists and other social scientists on the impact of language on economic outcomes and

public policies We examine whether and how language influences human thinking (including

emotions) and behavior analyze the effects of linguistic distances on trade migrations

financial markets language learning and its returns The quantitative foundations of linguistic

diversity which rely on group identification linguistic distances as well as fractionalization

polarization and disenfranchisement indices are discussed in terms of their empirical

challenges and uses We conclude with an analysis of linguistic policies and shifts of languages

and examine their welfare effects and the trade-offs between the development of labor

markets and the social costs that they generate in various countries

Financial and Fiscal Interaction in the Euro Area

Crisis This Time Was Different CEPR Discussion Paper No DP13016

39 Pages Posted 3 Jul 2018

Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics

(ECARES)

Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in

Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank

(ECB)

Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE

Date Written June 2018

Abstract

This paper highlights the anomalous characteristics of the Euro Area `twin crises by

contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the

business cycle fluctuations of the previous decades We report three stylised facts First the

contraction in output was marked by an anomalous downfall in investment while

consumption savings and unemployment followed their historical relation with GDP Second

households and financial corporations debts and house prices deviated from their pre-crisis

trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and

so was the fiscal consolidation that followed Our analysis points to the financial nature of the

crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in

large part explained by extraordinary measures in support of the financial sector which show

up in the stock-flow adjustments and reveal a key interaction between the fiscal and the

financial sectors

Keywords Euro Area Government Debt Recessions

JEL Classification C11 C32 C54 E52 E62 F45

The Shocks Matter Improving Our Estimates of

Exchange Rate Pass-Through CEPR Discussion Paper No DP13037

43 Pages Posted 9 Jul 2018

Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic

Research (NBER)

Ida Hjortsoe

Bank of England

Tsvetelina Nenova Bank of England

There are 4 versions of this paper

Date Written July 2018

Abstract

A major challenge for monetary policy is predicting how exchange rate movements will

impact inflation We propose a new focus directly incorporating the underlying shocks that

cause exchange rate fluctuations when evaluating how these fluctuations pass through to

import and consumer prices A standard open-economy model shows that the relationship

between exchange rates and prices depends on the shocks which cause the exchange rate to

move We build on this to develop a structural Vector Autoregression (SVAR) framework for a

small open economy and apply it to the UK We show that prices respond differently to

exchange rate movements based on what caused the movements For example exchange rate

pass-through is low in response to domestic demand shocks and relatively high in response to

domestic monetary policy shocks This framework can improve our ability to estimate how

pass-through can change over short periods of time For example it can explain why sterlings

post-crisis depreciation caused a sharper increase in prices than expected while the effect of

sterlings 2013-15 appreciation was more muted We also apply this framework to forecast

the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote

to leave the European Union

Keywords consumer prices exchange rate pass-through import prices inflation vector

autoregressions

JEL Classification E31 F3 F41

Why Has Economic Growth Slowed When Innovation

Appears to Be Accelerating CEPR Discussion Paper No DP13039

29 Pages Posted 9 Jul 2018

Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)

Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written July 2018

Abstract

U S economic growth slowed by more than half from 32 percent per year during 1970-2006

to only 14 percent during 2006-16 and this decline was divided equally between slower

growth in hours of work and slower growth in output per hour In explaining slower growth

in hours particular emphasis is placed on the slower secular rise of life expectancy in the US

compared to other developed countries Further contributions to slowing growth are made by

a decline in the population share of both legal and illegal immigration and a turnaround from

rising to declining labor force participation Causes of declining productivity growth begin

with the slowdown in the rate of increase of educational attainment Why did productivity

growth decline after 2006 despite an increase in the rate at which new US patents were

issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the

maturity of the IT revolution which also helps to explain the trajectory of the college wage

premium Aspects of the productivity growth slowdown include the declining productivity of

research workers diminishing returns to drug innovation and the evolutionary rather than

revolutionary impact of robots and artificial intelligence

Keywords Economic Growth Immigration Innovation labor force participation Mortality

productivity

JEL Classification D24 E24

On DSGE Models

by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)

Abstract

The outcome of any important macroeconomic policy change is the

net effect of forces operating on different parts of the economy

A central challenge facing policy makers is how to assess the

relative strength of those forces Dynamic Stochastic General

Equilibrium (DSGE) models are the leading framework that

macroeconomists have for dealing with this challenge in an open

and transparent manner This paper reviews the state of DSGE

models before the financial crisis and how DSGE modelers

responded to the crisis and its aftermath In addition we

discuss the role of DSGE models in the policy process

httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports

by Andrew K Rose - 24817 (IFM ITI)

Abstract

I investigate whether countries that use unconventional monetary

policy (UMP) experience export booms I use a popular gravity

model of trade which requires neither the exogeneity of UMP nor

instrumental variables for UMP In practice countries that

engage in UMP experience a drop in exports vis-a-vis countries

that are not engaged in such policies holding other things

constant Quantitative easing is associated with exports that

are about 10 lower to countries not engaged in UMP this amount

is significantly different from zero and similar to the effect of

negative nominal interest rates Thus there is no evidence that

countries have gained export markets through unconventional

monetary policy currency wars that have been launched have also

been lost UMP is also associated with a comparable drop in

imports and exchange rates suggesting that countries engage in

UMP when they are experiencing adverse macroeconomic shocks

concurrent with those that eviscerate international trade

httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Granular Comparative Advantage

by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)

Abstract

Large firms play a pivotal role in international trade shaping

the export patterns of countries We propose and quantify a

granular multi-sector model of trade which combines fundamental

comparative advantage across sectors with granular comparative

advantage embodied in outstanding individual firms We develop

an SMM-based estimation procedure which takes full account of

the general equilibrium of the model to jointly estimate these

fundamental and granular forces using French micro-data with

information on firm domestic and export sales across

manufacturing industries We find that granularity accounts for

about 20 of the variation in realized export intensity across

sectors and is more pronounced in the most export-intensive

sectors In turn idiosyncratic firm dynamics accounts for a

large share of the evolution of a countrys comparative advantage

over time Governments face strong incentives to target trade

policy at large individual foreign exporters and to use lenient

antitrust regulation at home to substitute for

beggar-thy-neighbor trade policy

httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The State of New Keynesian Economics A Partial Assessment

by Jordi Gali - 24845 (EFG ME)

Abstract

I provide an overview of recent developments in monetary

economics with an emphasis on extensions of the New Keynesian

framework that assume a zero lower bound on the short term

nominal rate as well as models with household heterogeneity

httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Artificial Intelligence Economics and Industrial Organization

by Hal Varian - 24839 (IO PR)

Abstract

Machine learning (ML) and artificial intelligence (AI) have been

around for many years However in the last 5 years remarkable

progress has been made using multilayered neural networks in

diverse areas such as image recognition speech recognition and

machine translation AI is a general purpose technology that is

likely to impact many industries In this chapter I consider how

machine learning availability might affect the industrial

organization of both firms that provide AI services and

industries that adopt AI technology My intent is not to

provide an extensive overview of this rapidly-evolving area but

instead to provide a short summary of some of the forces at work

and to describe some possible areas for future research

httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066

20 Pages Posted 24 Jul 2018

Maurice Obstfeld International Monetary Fund (IMF)

Date Written July 2018

Abstract

As international capital markets expanded in breadth and depth after the middle 1990s

global current account imbalances also expanded markedly Some have linked the origin of

the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes

answers to four questions about the recent history of global imbalances Why did global

imbalances expand after the mid-1990s What circumstances and concomitant factors

provide clues about the origins of the GFC If one accepts that a mono-causal story about the

GFC based on global imbalances is inaccurate how should one view the potential threats from

excessive global imbalances today And finally what policy implications follow

Keywords current account global financial crisis (GFC) global imbalances IMF External

Sector Report

Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share

by David Autor Anna Salomons - 24871 (EFG LS)

Abstract

Many technological innovations replace workers with machines but

this capital-labor substitution need not reduce aggregate labor

demand because it simultaneously induces four countervailing

responses own-industry output effects cross-industry

input-output effects between-industry shifts and final demand

effects We quantify these channels using four decades of

harmonized cross-country and industry data where we measure

automation as industry-level movements in total factor

productivity (TFP) that are common across countries We find

that automation displaces employment and reduces labors share of

value-added in the industries in which it originates (a direct

effect) In the case of employment these own-industry losses

are reversed by indirect gains in customer industries and induced

increases in aggregate demand By contrast own-industry labor

share losses are not recouped elsewhere Our framework can

account for a substantial fraction of the reallocation of

employment across industries and the aggregate fall in the labor

share over the last three decades It does not however explain

why the labor share fell more rapidly during the 2000s

httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Dynamic Effects of Co-Ethnic Networks on

Immigrants Economic Success CESifo Working Paper Series No 7084

43 Pages Posted 21 Jul 2018

Michele Battisti University of Palermo LUISS Guido Carli University

Giovanni Peri University of California Davis - Department of Economics

Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Date Written June 06 2018

Abstract

This paper investigates how the size of co-ethnic networks at the time of arrival affect the

economic success of immigrants in Germany Applying panel analysis with a large set of fixed

effects and controls we isolate the association between initial network size and long-run

immigrant outcomes We also look at those who were assigned to an initial location

independently of their choice allows a causal interpretation of our estimates We find that

immigrants initially located in places with larger co-ethnic networks are more likely to be

employed at first but have a lower probability of investing in human capital

Keywords networks immigration human capital employment

JEL Classification J240 J610 R230

Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070

36 Pages Posted 31 Jul 2018

Karol Borowiecki University of Southern Denmark

Kathryn Graddy Brandeis University - Department of Economics

Date Written July 2018

Abstract

In order to investigate the role of immigrant artists on the development of artistic clusters in

US cities we use the US Census and American Community Survey collected every 10 years

since 1850 We identify artists and art teachers authors musicians and music teachers actors

and actresses architects and journalists their geographical location and their status as a

native or an immigrant We look at the relative growth rate of the immigrant population in

these occupations over a ten year period and how it affects the relative growth rate of native-

born individuals in these artistic occupations We find that cities that experienced immigrant

artist inflows also see a greater inflow of native artists

Keywords artistic occupations artists Immigration

JEL Classification J4 J6 N3 N9 Z1

Global Value Chains and Inequality with Endogenous Labor Supply

by Eunhee Lee Kei-Mu Yi - 24884 (ITI)

Abstract

We assess the role of global value chains in transmitting global

integration shocks to aggregate trade as well as distributional

outcomes We develop a multi-country general equilibrium trade

model that features multi-stage production with different stages

having different productivities and using factors (occupations)

with different intensities The model also features a Roy

mechanism in which heterogeneous workers endogenously choose

their sector and occupation Country- and worker-level

comparative advantages interact A reduction in trade costs

leads to countries specializing in their comparative advantage

sectors and production stages This specialization changes labor

demand and also leads to more workers shifting to their

comparative advantage sectors and occupations We calibrate our

model to the US China and the rest of the world in 2000 and

we simulate a decline in Chinas trade costs with the US

designed to mimic Chinas entry into the WTO Our simulation

results imply an increase in the skill premium in both the US

and China and the GVC ie specialization across stages is

critical to this outcome

httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective

by Robert J Gordon - 24891 (EFG)

Abstract

In the late 1960s the stable negatively sloped Phillips Curve

(PC) was overturned by the Friedman-Phelps natural rate model

Their PC was vertical in the long run at the natural unemployment

rate and their short-run curve shifted up whenever unemployment

was pushed below the natural rate This paper criticizes the

underlying assumption of the Friedman-Phelps approach that the

labor market continuously clears and that changes in unemployment

down or up occur only in response to fooling of workers firms

or both A preferable and resolutely Keynesian approach

explains quantity rationing by inertia in price and wage setting

The positive correlation of inflation and unemployment in the

1970s and again in the 1990s is explained by joining the

negatively sloped Phillips Curve with a positively sloped dynamic

demand curve For any given growth of nominal GDP higher

inflation caused by adverse supply shocks implies slower real GDP

growth and higher unemployment This triangle model based on

inflation inertia demand and supply worked well to explain why

inflation and unemployment were both positively and negatively

correlated between the 1960s and 1990s but in the past decade

the slope of the short-run Phillips Curve has flattened as

inflation exhibited a muted response to high unemployment in

2009-13 and low unemployment in 2016-2018 It remains to be

seen whether a continuation of low unemployment will cause a

modest and fixed extra amount of inflation thus reviving the

stable Phillips curve of the early 1960s or whether inflation

will continuously accelerate as Friedman and Phelps would have

predicted

httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Tax Policy Measures in Advanced and Emerging

Economies A Novel Database IMF Working Paper No 18110

61 Pages Posted 1 Aug 2018

David Amaglobeli International Monetary Fund (IMF)

Valerio Crispolti International Monetary Fund (IMF)

Era Dabla-Norris International Monetary Fund (IMF)

Pooja Karnane International Monetary Fund (IMF)

Florian Misch International Monetary Fund (IMF)

Date Written May 2018

Abstract

This paper describes a new comprehensive database of tax policy measures in 23 advanced

and emerging market economies over the last four decades We extract this information from

more than 900 OECD Economic Surveys and 37000 tax-related news from the International

Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset

lies in its granularity changes in the rates and bases of personal and corporate income taxes

value added and sale taxes social security contributions excise and property taxes are

systematically documented In addition the database provides information on the

announcement and implementation dates whether the measures represent major changes

are part of a broader tax package and phased in over several years The paper also presents a

range of stylized facts suggesting that information from this database is useful to deepen the

analysis of tax policy changes for research and policy purposes

Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value

added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets

Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax

Policy Implementation Lags Methodology for Collecting Estimating and Organizing

Macroeconomic Data General

JEL Classification C82 E61 H20 P16

Inequality Aversion Populism and the Backlash

Against Globalization CEPR Discussion Paper No DP13107

69 Pages Posted 21 Aug 2018

Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

Pietro Veronesi

University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National

Bureau of Economic Research (NBER)

There are 3 versions of this paper

Date Written August 2018

Abstract

Motivated by the recent rise of populism in western democracies we develop a model in

which a populist backlash emerges endogenously in a growing economy In the model voters

dislike inequality especially the high consumption of the ``elites Economic growth

exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality

rich-country voters optimally elect a populist promising to end globalization Redistribution is

of limited value in containing the backlash against globalization Countries with more

inequality higher financial development and current account deficits are more vulnerable to

populism both in the model and in the data Evidence on who voted for Brexit and Trump in

2016 also largely supports the model

Keywords Brexit Globalization inequality populism risk aversion Trump

JEL Classification D72 F65 G11 G12 G18 P16

Underemployment in the US and Europe

by David NF Bell David G Blanchflower - 24927 (IFM LS ME)

Abstract

Large numbers of part-time workers around the world both those

who choose to be part-time and those who are there involuntarily

and would prefer a full-time job report they want more hours

Full-timers who say they want to change their hours mostly say

they want to reduce them When recession hit in most countries

the number of hours of those who said they wanted more hours

rose sharply and there was a fall in the number of hours that

full-timers wanted their hours reduced by Even though the

unemployment rate has returned to its pre-recession levels in

many advanced countries underemployment in most has not

We produce estimates for a new and better underemployment rate

for twenty-five European countries In most underemployment

remains elevated We provide evidence for the UK and the US as

well as some international evidence that underemployment rather

than unemployment lowers pay in the years after the Great

Recession We also find evidence for the US that falls in the

home ownership rate have helped to keep wage pressure in check

Underemployment replaces unemployment as the main influence on

wages in the years since the Great Recession

httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Does Machine Translation Affect International Trade Evidence from a Large Digital Platform

by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)

Abstract

Artificial intelligence (AI) is surpassing human performance in a

growing number of domains However there is limited evidence of

its economic effects Using data from a digital platform we

study a key application of AI machine translation We find

that the introduction of a machine translation system has

significantly increased international trade on this platform

increasing exports by 175 Furthermore heterogeneous

treatment effects are all consistent with a substantial reduction

in translation-related search costs Our results provide causal

evidence that language barriers significantly hinder trade and

that AI has already begun to improve economic efficiency in at

least one domain

httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw

The US Personal Saving Rate IMF Working Paper No 18128

35 Pages Posted 1 Aug 2018

Sam Ouliaris International Monetary Fund (IMF)

Celine Rochon University of Oxford IMF

Date Written June 2018

Abstract

This paper develops a time series model for aggregate consumption to predict the US

personal saving rate It then uses the model to test whether there has been a structural break

in consumption behavior because of the 2008 financial crisis Before the crisis the personal

saving rate was trending downwards However in 2008 there was a significant rise in the

saving rate that continued until the end of 2012 suggesting a permanent change in household

behavior To assess this issue formally the unknown parameters of the model are estimated

using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to

predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate

after 2008 was due to sizable but transitory incomewealth shocks or to changes in the

underlying elasticities between saving and its determinants (hence structural) The statistical

evidence suggests there was no structural break in the household saving behavior implying

that the rise in the saving rate during 2008-2012 was caused by the negative shocks to

income employment and wealth This result explains why the saving rate resumed its decline

in 2013 as real disposable income employment and net worth recovered Assuming that the

real growth in these determinants remains strong the estimated model predicts continued

negative pressures on the current account deficit and further external imbalances attributable

to the US household sector

Keywords United States Western Hemisphere consumption behavior personal saving rate

vector error-correction model structural break Consumer Economics Empirical Analysis

Personal Finance Forecasting and Simulation

JEL Classification D12 D14 E21 E27

Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123

49 Pages Posted 24 Aug 2018

Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 2 versions of this paper

Date Written June 28 2018

Abstract

How do trade costs affect international trade This paper offers a new approach We rely on a

flexible gravity equation that predicts variable trade cost elasticities both across and within

country pairs We apply this framework to the effect of currency unions on international

trade While we estimate that currency unions are associated with a trade increase of around

38 percent on average we find substantial underlying heterogeneity Consistent with the

predictions of our framework we find effects around three times as strong for country pairs

associated with small import shares and a zero effect for large import shares Our results

imply that conventional homogeneous currency union estimates do not provide helpful

guidance for countries considering to join a currency union Instead countries need to take

into account the distribution of their trade shares to assess the impact of trade costs

Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog

JEL Classification F140 F150 F330

How Do Migration and Remittances Affect Inequality

A Case Study of Mexico IMF Working Paper No 18136

22 Pages Posted 1 Aug 2018

Zsoka Koczan International Monetary Fund (IMF)

Franz Loyola International Monetary Fund (IMF)

Date Written June 2018

Abstract

The poverty-reducing effects of remittances have been well-documented however their

effects on inequality are less clear This paper examines the impact of remittances on

inequality in Mexico using household-level information on the receiving side It hopes to

speak to their insurance role by examining how remittances are affected by domestic and

external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that

remittances lower inequality and that they become more pro-poor over time as migration

opportunities become more widespread This also strengthens their insurance effects

mitigating some of the negative impact of shocks on the poorest

Keywords Migration Remittances Financial crises Income inequality Income distribution

Poverty reduction inequality Firm Behavior International Lending and Debt Problems

JEL Classification D21 F32 F34 J61 D31 F22 F24

Exchange Rate Forecasting on a Napkin

ECB Working Paper No 2151

Contact MICHELE CAZORZI

European Central Bank (ECB)

Email michelecazorziecbint

Auth-Page httpsssrncomauthor=343031

Co-Author MICHAŁ RUBASZEK

National Bank of Poland Warsaw

School of Economics (SGH)

Email michalrubaszeknbppl

Auth-Page httpsssrncomauthor=850188

Full Text httpsssrncomabstract=3183690

ABSTRACT This paper shows that there are two regularities in

foreign exchange markets in advanced countries with flexible

regimes First real exchange rates are mean-reverting as

implied by the Purchasing Power Parity model Second the

adjustment takes place via nominal exchange rates These features

of the data can be exploited even on the back of a napkin to

generate nominal exchange rate forecasts that outperform the

random walk The secret is to avoid estimating the pace of mean

reversion and assume that relative prices are unchanged Direct

forecasting or panel data techniques are better than the random

walk but fail to beat this simple calibrated model

______________________________

Home Sweet Home The Effect of Sugar Protectionism

on Emigration in Italy 1876-1913 CEIS Working Paper No 437

49 Pages Posted 29 Jun 2018

Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics

Alberto Dalmazzo University of Siena - Department of Economics

Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and

Ifo Institute for Economic Research)

Date Written June 8 2018

Abstract

Protectionist policies are often considered or even implemented as a reaction to increasing

globalization This is not new in history This paper uses the introduction of import duties on

sugar in the late nineteenth century Italy to measure the impact of protectionism on migration

out flows at the time of the fi

rst globalization Both for climate reasons and the nature of the soil the cultivation and

processing of sugar beets was geographically concentrated in a small area leading de facto to

a regional protectionist policy Our theoretical model illustrates how a tariff that favours local

producers may affect residents incentives to migrate abroad The predictions of the model

are tested with the synthetic control method which uses the variation in sugar cultivation

across areas to estimate the effect of interest Our results show that protectionism effectively

reduced the relative incentive to migrate away from sugar-producing areas

Keywords protectionism regional economics migrations 19th century Italy

JEL Classification N93 J4 C23

Integrating Services in the Economic Fitness

Approach World Bank Policy Research Working Paper No 8485

35 Pages Posted 28 Aug 2018

Andrea Zaccaria Sapienza University of Rome

Saurabh Mishra International Monetary Fund (IMF)

Masud Z Cader World Bank - International Finance Corporation (IFC)

Luciano Pietronero Sapienza University of Rome

Date Written June 21 2018

Abstract

Economic Complexity is a set of network-based and algorithmic methods for the study of

economic development and competitiveness In this framework Economic Fitness is an

innovative approach that improves the mathematical and conceptual scheme For

convenience these methods were originally conceived on trade in goods This paper extends

the Economic Fitness methodology to include a trade in services element to yield a universal

matrix of world trade and thus provide a more complete picture of a countrys development

and global competitiveness The paper applies two algorithms to the universal trade in goods

and services matrix to contrast country competitiveness and change in complexity and

diversification when services are added to the traditional goods-only matrix The results show

that (i) the competitiveness of many countries was previously over- or underestimated that

is many countries gain or lose positions in the ranking of economic fitness when services

trade is considered alongside goods and (ii) complex services tend to cluster with complex

manufacturing suggesting a common capabilities structure These findings show how

developing complex services aids diversification strategies for developing countries

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry

Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp

Paper Industry Trade and Services Macroeconomic Management ICT Applications

Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491

39 Pages Posted 28 Aug 2018

Edith Laget World Bank

Alberto Osnago World Bank

Nadia Rocha World Trade Organization

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written June 25 2018

Abstract

Preferential trade agreements have become deeper over time often encompassing policy

areas that go beyond traditional trade policy such as investment competition and intellectual

property rights protection In the literature a prominent argument why countries sign deep

agreements is to promote and facilitate the operation of global value chains This paper

exploits a new data set on the content of trade agreements and data on trade in value added

and in parts and components to quantify the impact of the depth of trade agreements on

bilateral cross-border production linkages The results show that adding a policy area to a

trade agreement increases the domestic value added of intermediates (forward global value

chain linkages) and the foreign value added of intermediates (backward global value chain

linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of

deep trade agreements is higher for higher value-added industries suggesting that deep

agreements help countries to integrate in industries with higher levels of value added For a

larger sample of countries and years the results confirm that an additional provision in a

trade agreement increases bilateral trade in parts and components by 03 percent The

content of trade agreements also matters for global value chain integration but the impact

varies by income group Provisions outside the current mandate of the World Trade

Organization (investment and competition policy) drive the effect of trade agreements on

North-South trade in parts and components Provisions under the current World Trade

Organization mandate (tariff reduction and customs facilitation) drive the effect of trade

agreements on South-South trade in parts and components

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Competition Policy Competitiveness and

Competition Policy Trade Finance and Investment

The Effect of Immigration on Natives School

Achievement Does Length of Stay in the Host

Country Matter World Bank Policy Research Working Paper No 8492

62 Pages Posted 28 Aug 2018

Laurent Bossavie The World Bank

Date Written June 25 2018

Abstract

Using a rich data set of primary school students this paper estimates the effects of immigrant

concentration in the classroom on the academic achievement of natives In contrast with

previous contributions it exploits rare information on age-at-migration to estimate separate

spillover effects by duration of stay of immigrant classmates To identify treatment effects it

uses cohort-by-cohort deviations in immigrant concentration within schools combined with

attractive features of the Dutch school system Overall the paper finds no effect of the

concentration of immigrant students on natives test scores However although immigrant

students who have been in the country for some time have virtually no effect on natives the

analysis finds a small negative effect of recent immigrants in the classroom on natives test

scores The effect is significant only for language test scores but insignificant for mathematics

test scores When significant effect sizes are quite small compared to other educational

interventions and classroom peer effects estimated in other contexts

Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities

Educational Sciences International Migration Migration and Development Human Migrations

amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities

Trade and Immigration 1870-2010

by David S Jacks John P Tang - 25010 (DAE)

Abstract

In this chapter we describe long-run trends in global

merchandise trade and immigration from 1870 to 2010 We revisit

the reasons why these two forces moved largely in parallel in the

decades leading up to World War I collapsed during the interwar

period and then rebounded (but with much more pronounced growth

in trade than in immigration) More substantively we also

document a large redistribution in the regional sources of goods

and people with a shift from the former industrialized core

countries--especially Europe--to those in the former

periphery--especially Asia--as well as a very striking change in

the composition of merchandise trade towards manufactured goods

precisely dating from 1950 Finally using a triple differences

framework in combination with a dramatic change in US immigration

policy we find evidence that immigration and trade potentially

acted as substitutes at least for the United States in the

interwar period

httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw

Attitudes Towards Euro Area Reforms Evidence from

a Randomized Survey Experiment CESifo Working Paper Series No 7141

35 Pages Posted 28 Aug 2018

Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics

Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students

Date Written July 09 2018

Abstract

We present the first evidence on public attitudes towards two prominent euro area reform

proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)

and assess potential impediments to their implementation by means of a randomized survey

experiment in Germany We find that there is a low willingness among German voters to

accept fiscal risk-sharing through common unemployment insurance while a sovereign

insolvency procedure aimed at strengthening market discipline is supported by a majority of

the electorate Our randomized treatments confronting survey participants with potential

adverse effects of the reforms lead to significant downward shifts in approval rates Altruism

cosmopolitanism political preferences and income are important predictors of support for

the reform proposals We also show that there is a striking contrast between the low level of

support for transfers to other euro area member states and a broad acceptance of inner

German transfers

Keywords public attitudes euro area reforms European unemployment insurance

sovereign insolvency procedure

JEL Classification H550 H240 J260 D140

The Economic Effects of Refugee Return and Policy

Implications World Bank Policy Research Working Paper No 8497

65 Pages Posted 28 Aug 2018

Uri Dadush World Bank

Date Written June 27 2018

Abstract

The recent surge in the number of forcibly displaced who cross international borders in

search of protection has prompted interest in evaluating policies that achieve the possible

end points of the phenomenon As envisaged by United Nations High Commissioner for

Refugees (UNHCR) these are the integration in the country of destination relocation in a

third country and return to the country of origin The focus of this paper is on the third

aspect namely the appropriate conduct of return policy viewed from the perspective of the

host country More specifically the main question is whether it is in the economic self-interest

of host countries to return forcibly displaced persons In addressing the question four

ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their

return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of

refugees and of their return and (iv) how return policy should be formulated and executed

The available evidence and analyses allow this papers main conclusion namely that the costs

of hosting asylum seekers and refugees are front-loaded while the benefits accruing from

their integration into the labor market and the host economy typically take years to

materialize It follows that from the economic perspective their return after a short stay may

represent a costlier option than continuing to invest in their successful integration Countries

with a flexible labor market strong investment climate and a welcoming attitude to

immigrants tend to see the economic benefits of refugee inflows materialize faster

The Effect of Remittances on the Current Account in

Developing and Emerging Economies World Bank Policy Research Working Paper No 8498

26 Pages Posted 28 Aug 2018

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written June 27 2018

Abstract

This paper presents an analysis of the effect of remittances on the current account in

developing and emerging economies incorporating an assessment of the extent to which

exchange rate regimes impact the relationship The main findings suggest there is a positive

effect of remittances on the current account contemporaneously but that the lagged effect is

negative which could be indicative of the existence of some underlying mechanisms

characteristic of the Dutch disease phenomenon In addition the results show that a more

flexible exchange regime dampens the contemporaneous positive effect that remittances have

on the current account The paper therefore asserts that policy makers face trade-offs

pertaining to the use of exchange rate policy in managing the effects of remittances on the

current account which should be given due consideration when such policy choices are made

Learning About Fiscal Multipliers During the

European Sovereign Debt Crisis Evidence from a

Quasi-Natural Experiment ECB Working Paper No 2154

30 Pages Posted 18 Jun 2018

Gόrnicka Lucyna IMF

Christophe Kamps European Central Bank (ECB)

Gerrit B Koester European Central Bank (ECB)

Nadine Leiner-Killinger European Central Bank (ECB)

Date Written May 30 2018

Abstract

Identifying fiscal multipliers is usually constrained by the absence of a counterfactual

scenario Our new data set allows overcoming this problem by making use of the fact that

recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline

no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the

macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU

countries to which 48 EDP recommendations were applied between 2009 and 2015 we

derive country-specific fiscal multipliers as actually applied by forecasters during the crisis

Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned

during the crisis According to our findings fiscal multipliers as applied by the European

Commission increased over time ndash from about 14 in the early years of the crisis to about 23

in the later years However different from Blanchard and Leigh (2013 2014) we do not find

evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1

during the crisis

Keywords fiscal consolidation fiscal multipliers business cycle

JEL Classification E32 E62 H20 H5

Trade in Developing East Asia How it Has Changed

and Why it Matters World Bank Policy Research Working Paper No 8533

58 Pages Posted 28 Aug 2018

Ileana Cristina Constantinescu World Bank

Aaditya Mattoo World Bank - Development Research Group (DECRG)

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Date Written July 13 2018

Abstract

East Asia for long the epitome of successful engagement in trade faces serious challenges

technological change that may threaten the very model of labor intensive industrialization

and a backlash against globalization that may reduce access to important markets A detailed

analysis of the evolution of East Asias trade and trade policy in goods and services leads to

the conclusion that how East Asia copes with these global challenges will depend on how it

addresses three more proximate national and regional challenges The first is the emergence

of one East Asian country China as a global trade giantaccounting for nearly one-seventh of

global exports and one-tenth of global imports -- which is fundamentally altering the trading

patterns and opportunities of its neighbors The second is the asymmetric implementation of

national reform -- remarkable openness to goods trade and investment coexists with relative

restrictiveness of services policies -- which is affecting the evolution of comparative

advantage and productivity in each country The third is the divergence between the

relatively shallow and fragmented agreements that regulate the regions trade and

investment and the growing importance of regional and global value chains as crucial drivers

of productivity growth

Keywords International Trade and Trade Rules Common Carriers Industry Food amp

Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies

Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp

Leather Industry Export Competitiveness Industrial and Consumer Services and Products

Transport and Trade Logistics

Who are Americas Star Firms World Bank Policy Research Working Paper No 8534

70 Pages Posted 28 Aug 2018

Meghana Ayyagari George Washington University - School of Business

Asli Demirguc-Kunt World Bank

Vojislav Maksimovic University of Maryland - Robert H Smith School of Business

There are 2 versions of this paper

Date Written July 13 2018

Abstract

There is wide spread concern about a growing gap between top-performing publicly listed

firms and the rest of the economy and the implications of this for rising inequality in the US

Using conventional return calculations there is indeed a widening gap between star firms

(defined as those in top 10 percent of return on invested capital in any year) and the rest of

the economy over time especially in industries that rely on a skilled labor force However

once measurement error in intangible capital is accounted for this gap shrinks dramatically

and has not been widening over time While pricing power as measured by markups predicts

star firm status a large fraction of star firms have low markups and there is no evidence that

star firms are cutting output or investment more than other firms for the same markup The

effect of star status is persistent Five years later star firms have higher growth profits and

Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with

much higher returns and the potential to exercise market power in the future

Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles

Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common

Carriers Industry Construction Industry General Manufacturing Labor Markets Employment

and Unemployment

Bought Sold and Bought Again The Impact of

Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535

45 Pages Posted 28 Aug 2018

Francois Michel Marie Raphael De Soyres World Bank

Erik Frohm World Bank

Vanessa Gunnella European Central Bank (ECB)

Elena Pavlova European Central Bank (ECB)

Date Written July 13 2018

Abstract

Global value chain participation affects the exchange rate pass-through to export prices and

export volumes The paper develops a partial equilibrium model of international trade with

cross-border production and shows that higher participation in global value chains reduces

the elasticities Specifically a higher share of foreign value added in exports reduces the

exchange rate pass-through to export prices and export volumes A greater share of exports

that return as imports also reduces the responsiveness of export volumes to changes in

bilateral exchange rates Finally exports of inputs that are further re-exported increase the

responsiveness to the trading partners effective exchange rate Using a novel sector-level

panel dataset with 40 countries the analysis tests and finds strong empirical support for the

theoretical predictions The paper further shows that some sectors in some countries can

even experience a decline in gross exports when their currency depreciates

Keywords International Trade and Trade Rules Industrial and Consumer Services and

Products Transport and Trade Logistics Trade and Services Macroeconomic Management

Did Austerity Cause Brexit CESifo Working Paper Series No 7159

101 Pages Posted 25 Sep 2018

Thiemo Fetzer University of Warwick

Date Written July 25 2018

Abstract

Did austerity cause Brexit This paper shows that the rise of popular support for the UK

Independence Party (UKIP) as the single most important correlate of the subsequent Leave

vote in the 2016 European Union (EU) referendum along with broader measures of political

dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure

to austerity since 2010 In addition to exploiting data from the population of all electoral

contests in the UK since 2000 I leverage detailed individual level panel data allowing me to

exploit within-individual variation in exposure to specific welfare reforms as well as broader

measures of political preferences The results suggest that the EU referendum could have

resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms

Further auxiliary results suggest that the welfare reforms activated existing underlying

economic grievances that have broader origins than what the current literature on Brexit

suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across

the skill divide through transfer payments This pattern markedly stops from 2010 onwards

as austerity started to bite

Keywords political economy austerity globalization voting EU

JEL Classification H200 H300 H500 P160 D720

Resolving Sovereign Debt Crises The Role of Political

Risk CESifo Working Paper Series No 7161

42 Pages Posted 26 Sep 2018

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Date Written August 02 2018

Abstract

Sovereign defaults are bad news for investors and debtor countries in particular if a default

becomes messy and protracted Why are some debt crises resolved quickly in a matter of

months while others take many years to settle This paper studies the duration of sovereign

debt crises based on a new dataset and case study archive on debt renegotiations between

governments and foreign banks and bondholders Using Cox proportional hazard models I

find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation

delays after controlling for macroeconomic conditions Government crises resignations and

street protests are particularly disruptive for a quick settlement process Overall the evidence

suggests that debtor countries often lack the political ability to resolve a debt crisis

Governments in turmoil are unlikely to exit a default quickly

Keywords sovereign default crisis resolution political economy

JEL Classification F340 F510 H630

Market Potential and Global Growth over the Long

Twentieth Century CESifo Working Paper Series No 7164

53 Pages Posted 27 Sep 2018

David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

There are 3 versions of this paper

Date Written August 02 2018

Abstract

We examine the evolution of market potential and its role in driving economic growth over

the long twentieth century Theoretically we exploit a structural gravity model to derive a

closed-form solution for a widely-used measure of market potential We are thus able to

express market potential as a function of directly observable and easily estimated variables

Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output

for 51 countries We find that market potential exhibits an upward trend across all regions of

the world from the early 1930s and that this trend significantly deviates from the evolution of

world GDP Finally using exogenous variation in trade-related distances to world markets we

demonstrate a significant causal role of market potential in driving global income growth over

this period

Keywords economic geography market potential structural gravity trade costs

JEL Classification F100 N700

Growth Inequality and Poverty A Robust

Relationship World Bank Policy Research Working Paper No 8578

42 Pages Posted 17 Sep 2018

Gustavo A Merrero University of La Laguna

Luis Serveacuten World Bank - Development Research Group (DECRG)

Date Written September 6 2018

Abstract

An extensive literature on poverty traps suggests that high levels of poverty deter growth

However a seemingly basic implication of the underlying theoretical models namely that

countries suffering from higher levels of poverty should grow less rapidly has remained

untested A parallel literature has suggested a variety of mechanisms through which

inequality may affect growth in opposing directions Because inequality and poverty are

different aspects of the income distribution inequality can also affect growth through poverty

an indirect channel that has not been explicitly analyzed This paper contributes to fill both

gaps Using a large cross-country panel data set it estimates a reduced-form growth equation

adding both inequality and poverty to an otherwise standard set of growth determinants

Given inequality the correlation of growth with poverty is consistently negative In contrast

given poverty the correlation of growth with inequality can be positive or negative

depending on the empirical specification and econometric approach used Yet the indirect

effect of inequality on growth through its correlation with poverty is robustly negative Closer

inspection shows that these results are driven by the sample observations featuring high (but

not extremely high) poverty rates These empirical findings are consistent with the

predictions from an analytical framework with learning-by-doing and knowledge spillovers

in which consumers cannot save and invest if their initial endowment is below a minimum

consumption level

Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty

Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty

Impact Evaluation Educational Sciences

Comparison of Welfare Gains in the Armington

Krugman and Melitz Models Insights from a

Structural Gravity Approach World Bank Policy Research Working Paper No 8570

63 Pages Posted 17 Sep 2018

Edward Jay Balistreri Iowa State University

David G Tarr International Trade Analysis

Date Written August 28 2018

Abstract

How large are the estimated gains from trade from a reduction in trade costs in the

heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)

models Surprisingly little is known beyond the one-sector model This paper analyzes this

question using a global trade model that contains ten regions and various numbers of sectors

(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant

across the model comparisons based on a structural gravity estimate Various model features

and scenarios are introduced that are important to real economies almost none of which has

been examined across the three market structures with a constant trade response In

response to global reductions in iceberg trade costs in all the multi-sector models the

ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model

captures between 75 and 95 percent on the additional gains above the Armington model that

are estimated by the Melitz model However for individual regions there are numerous cases

of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual

regions however the welfare ranking of the Armington Krugman and Melitz market

structures is model data parameter and scenario dependent The results highlight the need

for data and structural considerations in policy analysisltkrugman

Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade

and Multilateral Issues

The Economic Effects of Brexit - Evidence from the

Stock Market CEPR Discussion Paper No DP13147

35 Pages Posted 17 Sep 2018

Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London

School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)

Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics

Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance

(CEP) CESifo (Center for Economic Studies and Ifo Institute)

Thomas Sampson London School of Economics amp Political Science (LSE)

Ahmed Usman University of Nottingham

Date Written August 2018

Abstract

We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess

investors expectations about the effects of leaving the European Union on the UK economy

Our results suggest that initial stock price movements were driven by fears of a cyclical

downturn and by the sterling depreciation following the referendum We also find tentative

evidence that market reactions to two subsequent speeches by Theresa May (her

Conservative Party conference and Lancaster House speeches) were more closely correlated

with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that

investors may have updated their expectations in light of the possibility of a hard Brexit We

do not find a correlation between the share of EU migrants in different industries and stock

market returns

Keywords Brexit depreciation event study Recession Stock market tariffs

JEL Classification F15 F23 G14

Understanding Euro Area Inflation Dynamics Why so

Low for so Long

IMF Working Paper No 18188

26 Pages Posted 1 Oct 2018

Yasser Abdih International Monetary Fund (IMF)

Li Lin International Monetary Fund (IMF)

Anne-Charlotte Paret Banque de France

Date Written August 2018

Abstract

Despite closing output gaps and tightening labor markets inflation has remained low inthe

euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-

sometimes attributed to low global inflation-has been primarily causedby a remarkable

persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to

be specific to the euro area (in comparison with the United States)Monetary policy needs to

stay accommodative to help guide inflation back to target

Keywords Inflation Inflation expectations Inflation persistence Monetary policy

Econometric models Euro Area Phillips curve inflation persistence and expectations

General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)

JEL Classification E10 E31 E32 E37 E52 C22 C50

Financial Development Exchange Rate Regimes and

Growth Dynamics World Bank Policy Research Working Paper No 8562

34 Pages Posted 28 Aug 2018

Woubet Kassa The World Bank

Emmanuel Kwasi Koranteng Lartey World Bank

Date Written August 20 2018

Abstract

This paper utilizes data for African countries to analyze the extent to which financial

development affects the dynamics of the relationship between exchange rate flexibility and

economic growth The findings indicate that financial development exerts a positive influence

on the relationship between exchange rate flexibility and GDP growth as well as total factor

productivity growth The paper also documents a positive impact of trade openness on the

relationship between exchange rate flexibility and growth Moreover the results show a

strong and positive association between exchange rate flexibility and financial development

The findings therefore suggest that discussions and decisions on exchange rate policy should

be undertaken with consideration for structural policies that address the development of the

financial sector In addition the paper asserts that policy makers should adopt a stance that

facilitates some flexibility in exchange rates to foster development of the financial

infrastructure in these economies

Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp

Research Economic Growth Currencies and Exchange Rates Educational Sciences

Macroeconomic Management

Unequal Gains Prolonged Pain A Model of

Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160

53 Pages Posted 17 Sep 2018

Emily J Blanchard Dartmouth College - Tuck School of Business

Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)

Date Written September 2018

Abstract

We develop a model of democratic political responses to macroeconomic shocks in the short

and long run We show that when economic adjustment is slower than potential political

change exogenous changes in the global marketplace can trigger populist surges in favor of

distortionary economic policies Applied to trade policy our model demonstrates that an

exogenous terms-of-trade improvement or skill-biased technological change will lead to a

spike in protectionism that blunts the younger generations incentive to acquire education In

the long run the initial surge in protectionism will gradually diminish if and only if education

enables less-skilled workers to catch up with the overall economy The more unequal the

initial distribution of human capital the greater and longer-lasting the protectionist backlash

will be unequal gains prolonged pain Evidence on key data markers suggested by the model

exhibits patterns consistent with recent populist support for Brexit and Trump

Keywords Dynamic Political Economy education Endogenous Tari Human Capital

Overlapping Generations Overshooting populism protectionism

JEL Classification D7 E6 F5

Threat or Help The Effects of Unskilled Immigrant

Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185

4 Pages Posted 17 Sep 2018

Sharmila Devadas Central Bank of Malaysia

Date Written March 1 2017

Abstract

While unskilled immigrant workers have relatively low formal human capital theory suggests

that they can still contribute to productivity improvements by helping to increase efficiency

and upgrading the skills of the native labor force Empirical studies indicate that positive

productivity effects do occur This body of evidence does not provide a compelling argument

for the closing of national borders to unskilled foreigners on economic grounds

Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements

Construction Industry Common Carriers Industry Food amp Beverage Industry General

Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business

Cycles and Stabilization Policies International Migration Indigenous Communities Migration

and Development

Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899

4 Pages Posted 17 Sep 2018

Dorina Peteva Georgieva World Bank

Norman Loayza World Bank - Research Department

Fabian Mendez Ramos Development Research Group The World Bank

Date Written February 1 2018

Abstract

Growth in global trade has been slow since 2012 While global trade downturns are not

unprecedented the observed change in the relationship of trade to GDP poses the question

whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon

brought about by structural changes This new dynamic coupled with the rise of protectionist

policies and rhetoric in many countries positions trade at the forefront of policy discussions

This brief reviews recent patterns in global trade examines the factors affecting trade--

distinguishing between transitory and structural components of the slowdown--and discusses

policies shaping the path of future trade

Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation

International Trade and Trade Rules International Economics and Trade Transport and

Trade Logistics Trade and Regional Integration Private Sector Development Industrial and

Consumer Services and Products Competitiveness and Competition Policy Marketing Labor

Markets Private Sector Development Law Private Sector Economics Industry Law and

Development Social Policy Legal Reform Social Development Treaties Economics and

Institutions Public Sector Management and Reform Macroeconomics and Economic Growth

Public Sector Development Regulatory Regimes International Law Non Governmental

Organiz

The Productivity J-Curve How Intangibles Complement General Purpose Technologies

by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)

Abstract

General purpose technologies (GPTs) such as AI enable and require

significant complementary investments including business process

redesign co-invention of new products and business models and

investments in human capital These complementary investments

are often intangible and poorly measured in the national

accounts even if they create valuable assets for the firm We

develop a model that shows how this leads to an underestimation

of output and productivity in the early years of a new GPT and

how later when the benefits of intangible investments are

harvested productivity will be overestimated Our model

generates a Productivity J-Curve that can explain the

productivity slowdowns often accompanying the advent of GPTs as

well as the follow-on increase in productivity later We use our

model to assess how AI-related intangible capital is currently

affecting measured total factor productivity (TFP) and output

We also conduct a historical analysis of the roles of intangibles

tied to RampD software and computer hardware finding substantial

and ongoing effects of software in particular and hardware to a

lesser extent

httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw

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New Technologies Global Value Chains and Developing Economies

by Dani Rodrik - 25164 (DEV EFG ITI)

Abstract

Many of the exports of developing countries are channeled through

global value chains (GVCs) which also act as conduits for new

technologies However new capabilities and productive

employment remain limited so far to a tiny sliver of globally

integrated firms GVCs and new technologies exhibit features

that limit the upside and may even undermine developing

countries economic performance In particular new technologies

present a double whammy to low-income countries First they are

generally biased towards skills and other capabilities This

bias reduces the comparative advantage of developing countries in

traditionally labor-intensive manufacturing (and other)

activities and decreases their gains from trade Second GVCs

make it harder for low-income countries to use their labor cost

advantage to offset their technological disadvantage by reducing

their ability to substitute unskilled labor for other production

inputs These are two independent shocks that compound each

other The evidence to date on the employment and trade fronts

is that the disadvantages may have more than offset the

advantages

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Bank Runs and Moral Hazard A Review of Deposit

Insurance World Bank Policy Research Working Paper No 8589

31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018

Deniz Anginer World Bank Research

Asli Demirguc-Kunt World Bank

Date Written September 19 2018

Abstract

Deposit insurance is a widely adopted policy to promote financial stability in the banking

sector Deposit insurance helps ensure depositors confidence in the financial system and

prevents contagious bank runs but it also comes with an unintended consequence of

encouraging banks to take on excessive risk This paper reviews the economic costs and

benefits of deposit insurance and highlights the importance of institutions and specific design

features for how well deposit insurance schemes work in practice

Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System

Reform Economic Growth

The Future of Work Race With-Not Against-The

Machine World Bank Research amp Policy Briefs Paper No 129680

4 Pages Posted 17 Sep 2018

Lay Lian Chuah World Bank - Development Research Group (DECRG)

Norman Loayza World Bank - Research Department

Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment

Research (IAB) University of Regensburg - Department of Economics and Econometrics

Date Written August 1 2018

Abstract

Will the revolution in digital and information technologies make us obsolete Will jobs be lost

and never replaced Will wages drop to intolerable levels History and economic theory and

evidence suggest that in the long term such fears are misplaced However in the short and

medium term dislocation can be severe for certain types of work places and populations In

the transition period policies are needed to facilitate labor market flexibility and mobility

introduce and strengthen safety nets and social protection and improve education and

training

Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security

An Economists Guide to Climate Change Science

by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)

Abstract

Climate change management is a global challenge that requires

social science as much as it requires natural science We

provide a brief introduction to the physical science of climate

change written to provide essential background for economists

and other social scientists We also highlight some key areas in

which economists--including those studying macroeconomics

political economy and development--are in a unique position to

help climate science advance

httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw

g10

The Intensive Margin in Trade

by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-

Clare - 25195 (ITI)

Abstract

The Melitz model highlights the importance of the extensive

margin (the number of firms exporting) for trade flows Using

the World Banks Exporter Dynamics Database (EDD) featuring

firm-level exports from 50 countries we find that around 50 of

variation in exports is along the extensive margin --- a

quantitative victory for the Melitz framework The remaining 50

on the intensive margin (exports per exporting firm) contradicts

a special case of Melitz with Pareto-distributed firm

productivity which has become a tractable benchmark This

benchmark model predicts that conditional on the fixed costs of

exporting all variation in exports across trading partners

should occur on the extensive margin We find that moving from a

Pareto to a lognormal distribution allows the Melitz model to

match the role of the intensive margin in the EDD We use

likelihood methods and the EDD to estimate a generalized Melitz

model with a joint lognormal distribution for firm-level

productivity fixed costs and demand shifters and use exact hat

algebra to quantify the effects of a decline in trade costs on

trade flows and welfare in the estimated model The welfare

effects turn out to be quite close to those in the standard

Melitz-Pareto model when we choose the Pareto shape parameter to

fit the average trade elasticity implied by our estimated

Melitz-lognormal model although there are significant

differences regarding the effects on trade flows

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Are Banks Engines of Export Financial Structures

and Export Dynamics World Bank Policy Research Working Paper No 8621

41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018

Raoul Minetti Michigan State University - Department of Economics

Alen Mulabdic World Bank

Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International

Monetary Fund (IMF)

Susan Chun Zhu Michigan State University - Department of Economics

Date Written October 25 2018

Abstract

This paper studies the impact of financial structures on the dynamics of the export sector

using rich data from over 60 countries The results reveal that bank-oriented financial

systems boost the size of the export sector more than market-oriented financial systems

However especially in middle- and low-income countries this effect mostly stems from banks

slowing down exporters exit rather than promoting firms entry into export The reduced exit

from the export sector appears to reflect domestic banks tendency to evergreen loans to

exporters (soft budget constraint) more than banks buffering role in difficult times Foreign

banks mitigate this effect and enhance the dynamism of the export sector

Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631

31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018

Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University

Hibret Belete Maemir World Bank

Hassen Abda Wako UNU-MERIT

Date Written October 30 2018

Abstract

A growing body of work has shown that the quality of national institutions that enforce

written contracts plays an important role in shaping a countrys comparative advantage

Using highly disaggregated bilateral and unique harmonized firm-level trade data across a

large number of countries this paper contributes to this literature by providing a

comprehensive analysis of the mechanisms through which institutional frictions affect the

pattern of aggregate trade flow distinguishing the effects on the intensive and extensive

margins The analysis finds that contractual friction distorts countries trade pattern beyond

its effect on domestic production structure by deterring the probability of exporting (the

extensive margin) and export sales after entry (the intensive margin) particularly in

industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup

problems) The analysis also finds that contractual frictions matter more for the intensive

margin than the extensive margin of exporting In addition better contracting institutions

increase the probability of survival of new export products in more contract-intensive

industries These results have important policy implications for developing countries that

seek to boost export growth but many of which suffer from poor contracting institutions

Nominal Exchange Rate Dynamics and Monetary

Policy Uncovered Interest Rate Parity and Purchasing

Power Parity Revisited CEPR Discussion Paper No DP13235

33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018

Yossi Saadon Bank of Israel - Research Department

Nathan Sussman Hebrew University of Jerusalem

Date Written October 2018

Abstract

The increasing globalization of trade in goods and services and the deepening of financial

markets have reduced frictions that may impede the operation of the PPP and UIP

relationships in the short run In this paper we estimate the short term relative PPP and UIP

relationships Using data from Israel which has a deep market for inflation expectations for

12 months we show that relative PPP and UIP cannot be rejected Deviations from

equilibrium last less than a year Data from Israels capital account of the balance of payments

shows that the deviations are not destabilizing Our findings suggest that greater globalization

and financial deepening contribute to the effectiveness of monetary policy

Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy

purchasing power parity uncovered interest rate parity

Macroeconomic Effects of Chinas Financial Policies

by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)

Abstract

The Chinese economy has undergone three major phases the

1978-1997 period marked as the SOE-led economy the 1998-2015

phase as the investment-driven economy and the new normal

economy since 2016 All three economies have been shaped by the

governments financial policies defined as a set of credit

policy monetary policy and regulatory policy We analyze the

macroeconomic effects of these financial policies throughout the

three phases and provide the stylized facts to substantiate our

analysis The stylized facts differ qualitatively across

different phases or economies We argue that the impacts of

Chinas financial policies work through transmission channels

different from those in developed economies and that a regime

switch from one economy to another was driven mainly by regime

changes in financial policies

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Factor Incomes in Global Value Chains The Role of Intangibles

by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)

Abstract

Recent studies document a decline in the share of labour and a

simultaneous increase in the share of residual (factorless)

income in national GDP We argue the need for study of factor

incomes in cross-border production to complement country studies

We define a GVC production function that tracks the value added

in each stage of production in any country-industry We define a

new residual as the difference between the value of the final

good and the payments to all tangibles (capital and labour) in

any stage We focus on GVCs of manufactured goods and find the

residual to be large We interpret it as income for intangibles

that are (mostly) not covered in current national accounts

statistics We document decreasing labour and increasing capital

income shares over the period 2000-14 This is mainly due to

increasing income for intangible assets in particular in GVCs of

durable goods We provide evidence that suggests that the 2000s

should be seen as an exceptional period in the global economy

during which multinational firms benefitted from reduced labour

costs through offshoring while capitalising on existing

firm-specific intangibles such as brand names at little

marginal cost

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Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade

in Value Added using Enterprise and Establishment Level Data

by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner

Jeffrey A Young - 25249 (ITI)

Abstract

This paper presents experimental tables created by the US

Bureau of Economic Analysis comparing industry-specific shares of

the components of total output of globally engaged firms located

in the United States that are part of a multinational enterprise

with those of firms that are part of an enterprise entirely

located in the United States Recent research has shown both the

importance of accounting for trade in value added when estimating

bilateral trade flows and that multinational enterprises located

in the United States account for the lions share of US trade

in goods and services However trade in value added is

typically accounted for using input-output tables that are

aggregated across all types of firms The experimental tables

are consistent with other research showing that value added as a

share of output is lower for foreign-owned firms compared with

domestic-owned firms and that exports and imports as a share of

output is larger for foreign-owned firms We also find

heterogeneity in the composition of output among different types

of domestic-owned firms Future work will analyze this

heterogeneity in more detail using establishment-level data on

production and trade

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The Falling Elasticity of Global Trade to Economic

Activity Testing the Demand Channel CESifo Working Paper No 7228

42 Pages Posted 31 Oct 2018

Marc Auboin World Trade Organization (WTO)

floriana borino World Trade Organization (WTO)

Date Written 2018

Abstract

Since the recovery from the great financial crisis in 2010 global real trade flows grew much

slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to

GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this

global trade slowdown and related falling trade-to-income elasticity was structural or

cyclical Some papers emphasized the slowing pace of international vertical specialization

Other works emphasized the prominent role of aggregate demand notably when weighted by

its trade component Our paper goes in this latter direction We estimated the standard

import equation for 38 advanced and developing countries over the period 1995-2015 using

an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-

output tables at country level and compared results with regressions using GDP The

integration of IAD allows us to predict 76 to 86 of the changes in global imports a better

performance than if using GDP The use of IAD also enabled us to measure the relative

importance of each component of demand according to their trade intensity The model is

able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone

explaining 80 of it The slowdown in global value chains explains more than half of the

remaining share of the global trade slowdown not explained by demand factors

Protectionism does not come up as statistically significant

Keywords investment global outlook trade policy trade forecasting business cycles

JEL Classification E220 F010 F130 F170 F440

Will Brexit Age Well Cohorts Seasoning and the Age-

Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288

38 Pages Posted 5 Nov 2018

Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic

Policy Research (CEPR)

Rebecca Mari Bocconi University

Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics

There are 3 versions of this paper

Date Written October 2018

Abstract

In the UKs 2016 referendum on EU membership young voters were more likely than their

elders to vote Remain Applying new methods to a half century of data we show that this

pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as

they age recent cohorts are also more pro-European than their predecessors Much of the

pro-Europeanism of these recent cohorts is accounted for by their greater years of education

Going forward the ageing of the electorate will thus be offset at least in part by the

replacement of older cohorts with younger better-educated and more pro-European ones

But we also document large nationwide swings in sentiment that have little to do with either

seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive

determinants of future changes in European sentiment Rather nationwide changes in

sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be

key

JEL Classification F0

Buying Votes and International Organizations The

Dirty Work-Hypothesis CEPR Discussion Paper No DP13290

62 Pages Posted 5 Nov 2018

Axel Dreher Heidelberg University

Valentin Lang University of Zurich

B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics

James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government

Date Written October 2018

Abstract

We show how major shareholders can exploit their power over international organizations to

hide their foreign-policy interventions from domestic audiences We argue that major powers

exert influence bilaterally when domestic audiences view the intervention favorably When

domestic audiences are more skeptical of a target country favors are granted via

international organizations We test this theory empirically by examining how the United

States uses bilateral aid and IMF loans to buy other countries votes in the United Nations

Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-

2015 period our results show that states allied with the US receive more bilateral aid when

voting in line with the United States in the UNSC while concurring votes of states less allied

with the US are rewarded with loans from the IMF Temporary UNSC members that vote

against the United States do not receive such perks

Keywords Aid IMF United Nations Security Council voting World Bank

JEL Classification F35 O11 O19

Page 5: Papers CIG 2018 - uniroma1.it

using private schools Depending on the eventual degree of assimilation these trends will be greatly

intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that

assimilation in terms of family size and the value assigned to childrens education are the most relevant

dimensions quantitatively We also show that immigration policies that favor one group over another can

significantly alter the overall effects of immigration on the schooling system

Global Financial Cycles and the Exchange Rate

Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696

18 Pages Posted 14 Feb 2018

Maurice Obstfeld International Monetary Fund (IMF)

Jonathan D Ostry International Monetary Fund (IMF)

Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department

Date Written February 2018

Abstract

This paper examines the relevance of exchange rate regimes in the transmission of global

financial shocks to domestic financial and macroeconomic conditions Our findings suggest

that even in todays highly financially integrated world the nominal exchange rate regime

does matter-at least for emerging market economies The transmission of global financial

shocks to domestic variables is magnified under fixed exchange rate regimes relative to more

flexible regimes For advanced economies however the jury is still out as the recent paucity

of truly fixed regimes among these economies poses a challenge for estimating the effect of

exchange rate flexibility

Keywords emerging market economies global financial cycle trilemma

JEL Classification F31 F36 F41

Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815

47 Pages Posted 21 Feb 2018

Yvonne Giesing

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)

Date Written January 15 2018

Abstract

This paper establishes a causal link between the emigration of skilled workers and firm

performance in source countries Using firm-level panel data from ten Eastern European

countries we show that the emigration of skilled workers lowers firm total factor

productivity We exploit time country and industry differences in the opening of EU labor

markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from

new EU member states We argue that a potential channel behind this effect relates to the

reduction in firm-specific human capital due to a higher worker turnover

Keywords migration firm productivity human capital EU enlargement

JEL Classification O150 D240 F220 J240

Reserve Currency Blocs A Changing International

Monetary System IMF Working Paper No 1820

43 Pages Posted 20 Feb 2018

Camilo E Tovar International Monetary Fund

Tania Mohd Nor International Monetary Fund (IMF)

Date Written January 2018

Abstract

What is the extent of currency diversification in the international monetary system How

hasit evolved over time In this paper we quantify the degree of currency diversification

usingregression methods of currency co-movements to determine the extent to which

nationalcurrencies across the world belong to a reserve currency bloc We then use these

estimates tocalculate the economic size of each currency bloc A key contribution of our paper

is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the

internationalmonetary system has transitioned from a bi-polar system - consisting of the US

dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated

tocontinue to dominate having the largest share in global GDP (40 percent) followed by

therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence

forthe RMB bloc appears to be most evident among the BRICS currencies The British

poundand the Japanese yen blocs appear to play minor roles

Keywords Economic integration Foreign exchange International monetary system

Currency Bloc Internatinal Monetary System International Monetary Arrangements and

Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics

JEL Classification F15 F31 F33 F36 F41 O24

17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services

by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)

Abstract

About 8 cents out of every dollar spent in the United States is

spent on imports What if because of a wall or some other

extreme policy intervention imports were to remain on the other

side of the US border How much would US consumers be willing to

pay to prevent this hypothetical policy change from taking place

The answer to this question represents the welfare cost from

autarky or equivalently the welfare gains from trade In this

article we discuss how to evaluate these gains using the demand

for foreign factor services The estimates of gains from trade

for the US economy that we review range from 2 to 8 percent of

GDP

httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw

A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763

11 Pages Posted 6 Mar 2018

Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute

of Labor Economics

Prachi Mishra Government of India - Reserve Bank of India

Chris Papageorgiou International Monetary Fund (IMF) - Research Department

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)

University of Michigan at Ann Arbor - The William Davidson Institute

Date Written February 2018

Abstract

In this imaginary dialogue a populist and an economist discuss the role of economic shocks to

explain populism A simple correlation between economic shocks and populism is weak

However economic shocks can explain well the phenomenon of populism in countries with

low pre-existent level of trust This is confirmed both at the macro cross-country level and

also by micro evidence obtained from surveys Finally this finding is consistent with the

ideational approach in political science which emphasizes how the populist narrative

opposes the corrupt elite to the virtuous people

Keywords Europe Political parties populism

JEL Classification A10 A12

International Capital Flow Pressures IMF Working Paper No 1830

59 Pages Posted 14 Mar 2018

Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)

Signe Krogstrup IMF

There are 3 versions of this paper

Date Written February 2018

Abstract

This paper presents a new measure of capital flow pressures in the form of a recast

ExchangeMarket Pressure index The measure captures pressures that materialize in actual

internationalcapital flows as well as pressures that result in exchange rate adjustments The

formulation istheory-based relying on balance of payments equilibrium conditions and

international assetportfolio considerations Based on the modified exchange market pressure

index the paperalso proposes the Global Risk Response Index which reflects the country-

specific sensitivityof capital flow pressures to measures of global risk aversion For a large

sample of countriesover time we demonstrate time variation in the effects of global risk on

exchange marketpressures the evolving importance of the global factor across types of

countries and thechanging risk-on or risk-off status of currencies

Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange

Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven

Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General

JEL Classification F23 G11 G20 F32

Sovereign Defaults in Court CEPR Discussion Paper No DP12777

76 Pages Posted 13 Mar 2018

Julian Schumacher European Central Bank (ECB)

Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)

Enderlein Henrik Hertie School of Governance

Date Written March 2018

Abstract

For centuries defaulting governments were immune from legal action by foreign creditors

This paper shows that this is no longer the case Building a dataset covering four decades we

find that creditor lawsuits have become an increasingly common feature of sovereign debt

markets The legal developments have strengthened the hands of creditors and raised the cost

of default for debtors We show that legal disputes in the US and the UK disrupt government

access to international capital markets as foreign courts can impose a financial embargo on

sovereigns The findings are consistent with theoretical models with creditor sanctions and

suggest that sovereign debt is becoming more enforceable We discuss how the threat of

litigation affects debt management government willingness to pay and the resolution of debt

crises

Keywords debt restructuring enforcement government financing sovereign default

JEL Classification F34 G15 H63 K22

Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859

48 Pages Posted 20 Mar 2018

Florian Dorn

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-

Unive