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Dr. Patricia Gomez-Gonzalez on Spain, Recession and Currency Unions

April 21, 2016 by Nimrod Segev

Gomez

Professor Gomez-Gonzalez will speak on currency unions with particular emphasis on Spain at 4pm Tuesday April 26th in LL309 or E205 Dealy Hall.  This ongoing research with coauthor  Daniel M. Rees Senior Economist at the Reserve Bank of Australia studies how Spain would have fared outside the Euro area during the recent crisis.

As part of a currency union, Spain could not devalue its currency in response to the double-dip recession of 2009 and 2013. Instead it had to undergo an ‘internal devaluation’ which can be very costly as it reduces employment and income growth.

The paper presents a two-economy New Keynesian model à la Gali and Monacelli (2005) with a structural break when Spain joined the Euro area in 1999. Before that, Spain is assumed to follow a Taylor rule which responds to domestic inflation and domestic output only.

The estimation of the model accounts for the structural break in 1999 because agents are forward looking, this structural break might cause changes in behavior before 1999. The estimation methodology infers breaks in beliefs of households and firms from the model’s observable variables.

The paper’s counterfactual exercises find that if hit by the same shocks of 2009-2014, Spain outside the Euro would have experienced a sizable exchange rate depreciation. This would have caused inflation, which in turn would have triggered an increase in the policy rate.

Output, consumption, and investment growth would have exhibited a similar pattern outside the Euro area as it did within. The evidence so far shows that the most relevant shocks in driving fluctuations in Spain during the crisis (aggregate technology, Euro demand shocks) are shocks outside the control of domestic monetary policy.

 

Filed Under: Posts, Research, spotlight

NYU’s Rajeev Dehejia discusses how external census data can be used to validate “local” fertility natural experiments

April 7, 2016 by Ruixuan Hu

Professor Dehejia will present his research at 4pm Tuesday April 12th in E530 Dealy.  He will present his coauthored NBER paper “From Local to Global: External Validity in a Fertility Natural esperiement. He and coauthors Cristian Pop-Eleches, and Cyrus Samii  investigate whether well-identified treatment effects from “reference” sites can be extrapolated to “target” sites of interest. They use use data from 166 country-year censuses to implement the Angrist and Evans (1998) natural experiment: that is, what is the effect two same sex children on future fertility and labor force participation by mothers. Reference-to-target group similarities in education, calendar year, and mothers’ labor force participation matter, whereas geographical differences per se do not. Errors do not approach zero if the available evidence is naively extrapolated, but with sufficient data extrapolation error goes to zero using a model-based approach.

1-dehejiarajeev2feb2010b

Short Bio: Professor Dehejia‘s research spans econometrics, development economics, labor economics, and public economics, with a focus on empirical microeconomic policy. His research interests include: econometric methods for program evaluation, financial development and growth, financial incentives and fertility decisions, moral hazard and automobile insurance, religion and consumption insurance, and the causes and consequences of child labor. His articles have appeared in The Journal of Law and Economics, The Journal of Human Resources, The Review of Economics and Statistics, the Journal of Business and Economic Statistics, the Journal of the American Statistical Association, The Quarterly Journal of Economics, the Journal of Econometrics, the Journal of Public Economics, the Journal of Development Economics, and Economic Development and Cultural Change. Rajeev is a Faculty Research Fellow of the National Bureau of Economic Research,  a Research Fellow at the Institut zur Zukunft der Arbeit (IZA), and a Research Network Fellow at CESifo. He is a coeditor of the Journal of Human Resources, and an Associate Editor of the Journal of Business and Economic Statistics and the Journal of the American Statistical Association. Rajeev Dehejia received his Ph.D. in economics from Harvard University in 1997. He has been on the faculty of the Department of Economics and The Fletcher School at Tufts University and of the Department of Economics and the School of International and Public Affairs at Columbia University, and has held visiting positions at Harvard, Princeton, and the London School of Economics.

http://wagner.nyu.edu/video/185

 

Filed Under: Events, Posts, Research

Joe Stiglitz addresses Inequality and the slow U.S. recovery as part of Fordham’s Nobel Lecture Series

March 13, 2016 by Rafia Zafar

Stiglitz2

“An economy that fails to serve a majority of its citizens is a failed economy. In that sense, ours is a failed economy,” Stiglitz argued during a March 9th Flom Auditorium lecture. “The median income of a full-time male worker is lower than it was 40 years ago. We’ve been telling people every generation gets better. It’s not true.”

“Seventy years ago, we could afford four years, eight years at the most expensive schools in our country, for anybody” Stiglitz observed (referring to the benefits of the GI Bill).  But when President Obama proposed two years of college education for our poorest, many people said ‘We can’t afford it.’ “I think the answer is, we can’t afford not to do it now,” (see Patrick Verel for Inside Fordham ).

This was Professor Stiglitz 2nd visit to Fordham’s Rosehill campus as part of the Nobel lecture series.  Like his recent appearance at a January AEA session in San Francisco, Stiglitz focused on why the U.S. recovery has been so week.   If growth had resumed at its 1990 to 2008 rate today’s GDP would be 15% higher Stiglitz pointed out.  Still the U.S. is doing well compared to Europe, Stiglitz conceded.  He argued for more public spending on infrastructure as well as measures to get banks to resume lending to SMEs and greater investment in education.

Professor Stiglitz received the Nobel Memorial Prize in Economic Sciences in 2001 and the John Bates Clark Medal in 1979.  Stiglitz’s Nobel Lecture follows that of Amartya Sen who focused on the impending election in India (he flew off to vote the next day).   Stiglitz is a University Professor at Columbia University, Co-Chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and Chief Economist of the Roosevelt Institute.  A former senior vice president and chief economist of the World Bank and chair of the US president’s Council of Economic Advisers under Bill Clinton, in 2000 he founded the Initiative for Policy Dialogue, a think tank on international development based at Columbia University. He has authored over 300 technical articles and 23 books. His most recent book is Rewriting the Rules of the American Economy.  Stiglitz’s received the Nobel prize for his work on asymmetric information as the key to understanding many observed market phenomena, including how credit markets work. He shared the 2001 Nobel Memorial Prize in Economics “for laying the foundations for the theory of markets with asymmetric information” with George “market for lemons” Akerlof (husband of Janet Yellen) and Michael Spence who focused on how education for example sends a signal to employers.

At the Nobel Lecture Series, Stiglitz addressed the issue of equitable and sustainable economic growth in the United States. He also spoke on the underperformance of the US economy in the January 2nd session of AEA organized and moderated by Fordham Professor Dominick Salvatore.

Stiglitz identifies lack of aggregate demand as the underlying problem of this slow recovery. Some components of the aggregate demand are weak like the huge inflow of money from monetary easing (also QE) has not led to an increase in investment. One of the reasons of the slow recovery is the misdiagnosis of the global recession. There was insufficient attention paid to improving the credit channel; SME lending is very low and the mortgage and financial market is not fixed. This partly explains why monetary easing didn’t work.

Joseph Stiglitz identifies the underlying problems with the US economy that need to be addressed. Foremost is the inequality, which has been rising. Unfortunately, the monetary policy and other factors (QE) have increased rather than reduce inequality.  The government needs to orchestrate a structural transformation as it did after WWI when the U.S. radically reduced employment in Agriculture.  Since the global manufacturing employment is declining and the U.S. share of that employment is declining, the United States needs to transform itself into a services based economy.  The first item on Stiglitz’s list of needed reforms was a carbon tax, then social security reforms and reforms in the education sector. There is an under-investment in technology, government support for basic research is lower and there is a dearth of innovation enhancing ideas, hence the current pause in productivity growth contributing to stagnating wages.

Stiglitz offered a seven point agenda to boost growth and speed recovery. There is a significant need to stimulate investment; one way is to impose environment taxes, another is for government to increase investment in infrastructure and technology. Since public and private investments are complements, this will increase private investment as well. Another way of increasing investment is to end austerity, if government borrows to improve infrastructure then the investment goes up. Also, the balanced budget multiplier means that increasing taxes (along with investment) increases GDP. Lastly, there is a need to fight inequality that will improve, both short term and long term, economic performance. He goes beyond the redistribution of wealth and stresses on the importance of more equitable distribution of market wealth. Instead of measuring economic performance using GDP we should measure the performance based on the living standards (especially of the bottom 50%). There is a need to address the fundamental problems with the economy to achieve a robust growth.

photo: Bruce Gilbert, Inside Fordham March 10th 

Filed Under: Events, Posts, spotlight Tagged With: inquality, recovery

NYU’s Michael Waugh to speak on “Risk, Selection, and Rural-Urban Migration”

February 26, 2016 by Lu Yu

 

On Tuesday March 1st, Michael Waugh will speak on “Risk, Selection, and Rural-Urban Migration” (4pm, E530 Dealy). Prior to joining NYU’s Stern School, Professor Waugh (MA Fordham, 2003; PhD University of Iowa, 2008) was a research economist at the Federal Reserve Bank of Minneapolis.  A common theme in Waugh’s research is the large potential  welfare gains from movement of goods and people.  In a paper entitled “Macroeconomics of Rural-Urban Migration”, Dr. Waugh and coauthors David Lagakos and Mushfiq Mobarak use new 2009-2010 tracking surveys from Tanzania, Uganda and Malawi to explore the impact of migration on total consumption.  Migration is driven by a rural-urban gap that incorporates migration risk, worker sorting, and the utility cost of migration. The model and data show that “rural-urban migrants experience large increases in consumption on average.”   Only 5% of migrants experience consumption declines. “On average, migrants doubled their consumption between survey years, while the median migrant had a consumption gain of 49 percent…. Relative to households that stayed in rural areas, migrants had 40 percent higher consumption…”  Though policy makers are often reluctant to encourage people to move, this paper’s findings suggest large potential gains from rural urban migration.

Similarly, Professor Waugh’s research points to large unrealized welfare gains from international trade.  A recent paper coauthored with B. Ravikumar, “Measuring Openness to Trade”, (forthcoming, Journal of Dynamics and Control) proposes a new measure of “trade potential”, which compares country’s observed trade/GDP share to “frictionless” trade share.  Each country’s potential welfare gain from moving to a world with frictionless trade is computed using a standard multi-country trade model. Each country’s potential depends only on its trade elasticity and the country’s observed trade and income.  It is found that poor countries have larger unrealized trade potentials compared to rich countries.  Rich countries are generally more open to trade realizing a greater share of their trade potential.  Trade potential index correlates strongly with estimates of trade costs, while the welfare cost of autarky and the observed volume of trade exhibit weak correlations with trade costs.  Despite large potential welfare gains from trade, rich and poor countries are surprisingly close to autarky as measured by this new trade potential index (see the top panel of Figure 2).   A closer look (zooming in on autarky, lower panel Figure 2) reveals that Germany, Luxembourg and the Netherlands are realizing the largest share, though by no means all of their potential welfare gains from trade.

 

Department Seminar: Tuesday, 1st March, 4 – 5:15 pm  Topic: Risk, Selection, and Rural-Urban Migration

Economics Conference Room, Dealy Hall E-530

mwaugh

 Openness

 

Filed Under: Events, Posts, Research, spotlight Tagged With: Events, Research, Upcoming Events

Columbia Professor Erick Veerhogen on innovation in the Pakistani Soccer Ball industry

February 22, 2016 by Darryl McLeod

Can sharing the benefits of technical change speed up the diffusion of cost saving innovations and make an important Pakistani export industry more competitive?  This is the question the Erick Veerhogen  Director of Columbia’s Center for Development and Economic Policy  (CDEP) will address during Tuesday’s Department Seminar, February 23rd, 4-5.15pm in E-530 Dealy.  Professor Veerhogen is Vice Dean at Columbia’s School of International Public Administration (SIPA) and Director of the Center for Development and Economic Policy (CDEP), a development research group that conducted the soccer ball innovation incentives experiments.

One of the largest soccer ball exporter in the mid-1990s, Pakistan lost ground to China post 2000 (Figure 1).  A FIFA video in the last panel shows the 2010 FIFA World Cup Adidas Jabulani match ball being produced in an Addidas Factory in  In  Organizational barriers to technology adoption: evidence from soccer-ball producers in Pakistan  Professor Veerhogen and his coauthors explore the process of cost saving innovation in the Pakistani soccer ball industry.  A new technology proposed by Veerhogen and collaborators increases the number of pentagons that can be cut from a rectangular sheet of material “by implementing the densest packing of pentagons in a plane knoViceDeanColumbiawn to mathematicians.”  “The most common soccer-ball design combines 20 hexagonal and 12 pentagonal panels” (see Figure 2 below).  The panels are cut from rectangular sheets of an artificial leather called rexine, typically by bringing a hydraulic press down on a hand-held metal die.  This new die reduces material cost by about 7% yielding a 1% drop in overall soccer ball costs.  Yet producers in the manufacturing city Sialkot were slow to adopt this new cost saving technology.  Experiments suggest the technology diffusion process was slowed by resistance from both workers and employers.  Yet even small incentives to spread the gains among workers and employers led to faster adoption of the new technology.   The famous Bucky Ball designed by R. Buckminster Fuller is shown as Photo #1 below, Figure 3 shows workers in a soccer ball factory in Sialkot, Pakistan.  Note that while workers in Bangladesh’s garment export industry are mainly women, almost all of the skilled Sialkot cutters are men.  Figures 3 and 5 show various stages in the production process.  The final photo takes you to a FIFA video shows the official 2010 World Cup Adidas Jabulani match ball being manufactured in China:  “All Official Match Balls for the 2010 FIFA World Cup have the same weight and the same circumference and are therefore always the same size. Production capacity for the Official Match Ball for South Africa: 1760 balls per day..” Compared to Pakistan the production process in China is quite automated, though fundamental aspects of the process are similar, including hexagon stamping dies.   The production process is quite global.  Assembled in China, the balls use latex bladders made in India along with thermoplastic polyurethane-elastomer from Taiwan  and ethylene vinyl acetate, isotropic polyester/cotton fabric, glue, and ink from China.”

Figure1SoccerBallImports

 

Figure2SoccerBallDies

BuckyBall

Rexine2

designs2

youtubeVideo

FIFAJubalaniMatchBall

Filed Under: Events, Posts, Research, spotlight, Uncategorized

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