Knowledge that Transforms

Using micro data for the UK and Germany, we provide novel evidence on the cyclical properties of reservation wages and estimate that wages and reservation wages are characterised by moderate and very similar degrees of cyclicality. Several job search models that quantitatively match the cyclicality of wages tend to overpredict the cyclicality in reservation wages. We show that this puzzle can be addressed when reservation wages display backward-looking reference dependence. Model calibrations that allow for reference dependence match the empirically observed cyclicality of wages and reservation wages for plausible value of all other model parameters.

Many democracies operate consumer debt relief programs. These are often implemented or adjusted during the election cycle, but their political effects are not well-understood. We investigate if debt relief can influence high-stakes elections. We utilize quasi-experimental variation generated by a very large privately-funded debt relief program enacted in the Republic of Georgia during the presidential election in 2018 that affected every sixth voter. We estimate that the program helped the incumbent candidate win that election, and that its effects persisted. Overall, we show how economic power can translate into political power in a democracy.

The effect of a treatment may depend on the intensity with which it is administered. We study identification of ordered treatment effects with a binary instrument, focusing on the effect of moving from the treatment's minimum to maximum intensity. With arbitrary heterogeneity across units, standard IV assumptions (Angrist and Imbens, 1995) do not constrain this parameter, even among compliers. We consider a range of additional assumptions and show how they can deliver sharp, informative bounds. We illustrate our approach with two applications, involving the effect of (1) health insurance on emergency department usage, and (2) attendance in an after-school program on student learning.

The low-frequency movements of economic variables play a prominent role in policy analysis and decision-making. We develop a robust estimation approach for these slow-moving trend processes which is guided by a judicious choice of priors and is characterized by sparsity. We present novel stylized facts from longer-run survey expectations that inform the structure of the estimation procedure. The general version of the proposed Bayesian estimator with a spike-and-slab prior accounts explicitly for cyclical dynamics. We show that it performs well in simulations against relevant benchmarks and report empirical estimates of trend growth for U.S. output and annual mean temperature.

How does persecution affect who migrates? We analyze migrants' self-selection out of the USSR and its satellite states before and after the collapse of Communism using census microdata. We find that migrants arriving before and around the time of the collapse (who were more likely to have moved because of persecution) were more educated and obtained better labor market outcomes than those arriving later. This change is not fully explained by the removal of Communist-era emigration restrictions. Instead, we show both theoretically and empirically that this pattern is consistent with more positive self-selection of migrants who are motivated by persecution.

This paper analyses the interaction between a present-biased saver and profit-maximising financial providers. Using a tractable theoretical model, I find that a naïve present-biased agent selects an ‘ineffciently cheap’ (low-yield, low-fee) contract when the income effect of an interest rate change is sufficiently strong, and an ‘inefficiently expensive’ (high-yield, high-fee) contract otherwise. Subsequently, I embed the contract choice in a calibrated life-cycle model. Given the extent of present bias, exploitative contracting reduces the naïve agent's pension wealth by 8%, lowering expected annual consumption in retirement by 3%. The associated loss of consumer welfare corresponds to 0:23% of annual consumption.

Worker shortages are common in many industries. This paper examines the effect of government subsidies to address these shortages in the context of a reform that tied Medicaid payments to nursing home staffing levels. We find that the reform substantially increased staffing, especially for facilities serving many Medicaid patients. Facilities responded primarily by hiring workers in lower-wage roles rather than increasing hours of incumbent or high-wage staff. This contrasts with null effects we estimate for a non-incentivized rate increase, suggesting that the incentive structure of government payments—rather than just the level—is key to boosting employment in sectors facing worker shortages.

The surge in foreign currency (FC) corporate debt in emerging economies has sparked concerns about macroeconomic stability, heightened by speculation about non-financial firms engaging in carry trades. Using firm-level data on the currency denomination of both assets and liabilities, we find evidence of firms' carry trades: firms save in local currency liquid assets and earn higher interest income after issuing short-term FC debt. They also set aside FC liquid assets as FX risk buffers. A large degree of heterogeneity in incentives is observed. Notably, listed firms participate more in carry trades and allocate less FX risk buffers than non-listed firms.

We leverage the high degree of worker mobility across production lines in a large Indian manufacturer to estimate the sorting of workers to managers, using data on daily worker productivity. We find negative assortative matching (NAM): better workers tend to be matched with worse managers. Estimates of the production technology, however, reveal that productivity would increase by up to 4% under positive sorting. Exploiting a survey of managers and data on orders from multinational brands, we document that NAM arises, at least partly, because maintaining valuable relationships with buyers provides strong incentives to avoid delays on any given production line.

We propose a new measure of underlying inflation that informs, in real time, about asymmetric risks on the outlook of inflationary pressures. The asymmetries are generated through nonlinearities induced by economic activity. The new indicator is based on a multivariate regime-switching framework jointly estimated on disaggregated sub-components of the euro area HICP and has several additional advantages. First, it is able to swiftly infer abrupt changes in underlying inflation. Second, it helps to timely track turning points in underlying inflation. Third, the proposed indicator also has a satisfactory performance with respect to various criteria relevant for inflation monitoring.