Category: Economics

Cross-border effects of regulatory spillovers: Evidence from Mexico

Forthcoming JIE publication by Jagdish Tripathy ’11 (Economics)

Economics alum Jagdish Tripathy ’11 has a paper forthcoming in the Journal of International Economics on “Cross-border effects of regulatory spillovers: Evidence from Mexico.”

Paper abstract

This paper studies the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan demand by the non-tradable sector to changes in household credit supply range from 1.2–1.8. These results emphasize cross-border effects of regulations in the presence of global banks.

Key takeaways

Loan-loss provisions introduced in Spain in 2012 imposed a significant burden on the balanced sheet of Spanish banks. This regulation was unrelated to the Mexican financial system or the credit conditions of Mexican households. However, Mexican subsidiaries of two large Spanish banks, BBVA and Santander, reduced lending to Mexican households in response to the regulation (Fig. 1).

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Fig. 1. Growth in credit lending by Spanish and non-Spanish banks in Mexico.

Mexican municipalities with a higher exposure to Spanish banks (Fig. 2) experienced a larger contraction in lending to households. This drop in lending to households (i.e. a drop in credit supply) was associated with a reduction in lending to the local non-tradable sector driven by a drop in local demand. This shows (1) cross-border effects of a macroprudential regulation on lending and economic activity, and (2) the macroeconomic effects of shocks in lending to households in an emerging economy.

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Fig. 2. Share of Spanish banks in the household credit market across Mexican municipalities.
Read the paper on the JIE website

About the author

Jagdish Tripathy ’11 is an Advisor at Bank of England. He is an alum of the Barcelona GSE Master’s in Economics and has his PhD from GPEFM (UPF and Barcelona GSE).

LinkedIn | Twitter | Website

Markets, Politics, and the Political: Can economics solve today’s most pressing problems?

by Pablo Hubacher Haerle ’20 (Economics)

Can economics be trusted in taking care of the most pressing questions of today in a neutral and un-ideological way? That is the topic of an essay written by Economics alum Pablo Hubacher Haerle ’20 for Chasmotics, an online publishing platform which seeks to question and problematize contemporary times through philosophical thought.

"The Babylonian Marriage Market." Artist: Edwin Long. Year: 1875.
“The Babylonian Marriage Market.” Edwin Long (1875).

Exploring the link between politics and economics

Economics has long been perceived as an unattractively technocratic discipline. Recently, this trend seems to reverse, as economics becomes more popular among young people devoted to change the world for the better. Effective altruists, who seek to do the most good in the most efficient way, recommend that students acquire a PhD in economics, because “you have a high chance of landing an impactful research job” and it is “one of the most promising graduate study options for people who want to make a difference” (Duda 2015).

It is argued that tackling some of today’s pressing political problems such as climate change, income inequality or racism within the economical framework has the advantage of, unlike in less quantitative subjects such as history or sociology, dealing with such political issues with evidence, instead of ideology. But what exactly is the link between politics and economics? How do these two fields interact? And, can economics be trusted in taking care of the most pressing questions of today in a neutral and unideological way?

Looking at the relationship between economic thinking and politics, this essay suggests an answer.

Read the full essay on Chaosmotics

About the author

Pablo Hubacher Haerle ’20 is a recent graduate from the Barcelona GSE Master’s in Economics.

Accounting for Mismatch Unemployment

JEEA publication by Benedikt Herz ’08 and Thijs van Rens (former BGSE professor)

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Benedkit Herz (Economics ’08, GPEFM ’13), has published a paper in the Journal of the European Economic Association. His co-author is former Barcelona GSE Professor Thijs van Rens (now at Warwick).

Paper abstract

We investigate unemployment due to mismatch in the United States over the past three and a half decades. We propose an accounting framework that allows us to estimate the contribution of each of the frictions that generated labor market mismatch. Barriers to job mobility account for the largest part of mismatch unemployment, with a smaller role for barriers to worker mobility. We find little contribution of wage-setting frictions to mismatch.

View paper in JEEA

Benedikt Herz ’08 is member of the Chief Economist’s Team, European Commission DG for Internal Market and Industry. He is an alum of the Barcelona GSE Master’s in Economics.

Website | LinkedIn

Democratic tipping points

VoxEU article by Adilzhan Ismailov ’15 (Economics) and Professor Antonio Ciccone

CEPR’s policy portal VoxEU has published the article “Democratic tipping points” by Economics alum Adilzhan Ismailov ’15 and Antonio Ciccone, professor at the Barcelona GSE and the UPF Economics department, where Adilzhan is currently doing his PhD.

VoxEU promotes “research-based policy analysis and commentary by leading economists.” The site receives about a half million page views per month.

View this article on VoxEU

Article summary

Persistence of democratisation following transitory economic shocks plays an important role in the theory of political institutions. This column tests the theory of democratic tipping points using rainfall shocks in the world’s most agricultural countries since 1946. Negative rainfall shocks have a strong and transitory effect on agricultural output, but a persistent positive effect on the probability of democratisation even after ten years.

Key conclusions

The recent history of democratic (non-)transitions in the world’s most agricultural countries indicates that transitory events can have enduring effects on democratic institutions. When lower rainfall led to below-average agricultural output in these countries, countries ruled by authoritarian regimes were more likely to democratise and more likely to be democratic ten years later.

The shape of the effect of rainfall on the probability of democratisation indicates that the effect is through agricultural output. The agricultural economics literature finds an inverted-U-shaped effect of rainfall on agricultural output. In the theory of Acemoglu and Robinson (2001, 2006) we build on, transitorily lower output raises the probability of democratisation, and transitorily higher output lowers the probability of democratisation. Hence, the inverted-U-shaped effect of rainfall on agricultural output should translate into a U-shaped effect of rainfall on the probability of democratisation. We find this to be the case. Moreover, our results indicate that rainfall shocks tend to produce the largest change in the probability of democratisation when the estimated effect of rainfall on agricultural output is largest.

Figure. Effect of rainfall on real agricultural output and on the probability of democratisation

Note: The inverted-U-shaped solid black line is the effect of rainfall in year t on real agricultural output in year t and is measured on the left axis. The U-shaped coloured lines are the effect of rainfall on the probability of democratisation between years t-1 and t (one year later). The three classifications of democratic and autocratic regimes used in the figure are those of Acemoglu et al. (2019) (blue solid line); Przeworski et al. (2000) (red dotted line), as updated by Cheibub et al. (2010) and Bjornskov and Rode (2020); and Geddes et al. (2014) (green dashed line). The effect of rainfall on the probability of democratisation is calculated using the effect of rainfall in year t in column (1) of Tables 2 and 3 in the paper respectively for the Acemoglu et al. and the Przeworski et al. democratisation indicator. For the Geddes et al. democratisation indicator, the effect of rainfall on the probability of democratisation is calculated using the effect of rainfall in year t-1 in column (5) of Table 3. This is because of Geddes et al.’s unconventional start date for democratic regime transitions; see page 16 for details. Real agricultural output is an index with the base period 2004-2006. Rainfall is measured in dm.
View this article on VoxEU
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Adilzhan Ismailov ’15 is a PhD candidate at GPEFM (UPF and Barcelona GSE). He is an alum of the Barcelona GSE Master’s in Economics.

Backlash: The Unintended Effects of Language Prohibition in US Schools after World War I

Review of Economic Studies publication by Vicky Fouka ’10 (Economics)

The paper Backlash: The Unintended Effects of Language Prohibition in U.S. Schools after World War I by Economics alum Vicky Fouka ’10 has been published in the Review of Economic Studies (REStud).

Her research on the topic was also featured in The Washington Post last year!

Paper abstract

Do forced assimilation policies always succeed in integrating immigrant groups? This paper examines how a specific assimilation policy – language restrictions in elementary school – affects integration and identification with the host country later in life. After World War I, several US states barred the German language from their schools. Affected individuals were less likely to volunteer in WWII and more likely to marry within their ethnic group and to choose decidedly German names for their offspring. Rather than facilitating the assimilation of immigrant children, the policy instigated a backlash, heightening the sense of cultural identity among the minority.

“Banning immigrants’ languages can backfire. Just ask Ohio and Indiana.”
The Washington Post. May 11, 2019.
View paper on REStud
View story on WaPo

Vicky Fouka ’10 is Assistant Professor of Political Science at Stanford University. She is an alum of the Barcelona GSE Master’s in Economics and earned her PhD in Economics at GPEFM (UPF and BGSE).

Covid-19 and regional employment in Europe

BIS Bulletin by Sebastian Doerr ’13 (Economics) and Leonardo Gambacorta

The outbreak of Covid-19 and the ensuing measures to contain the pandemic have brought Europe into a deep downturn. GDP is expected to drop by around 8% in the euro area this year (ECB (2020)), a significantly steeper decline than forecasted for the United States or Asia (IMF (2020)). One of the major reasons why the European economy is expected to be so hard-hit is its high share of small firms, especially in southern and eastern European countries. Small firms are financially more constrained and bank-dependent than larger firms. They also sell goods predominantly in local markets and with less diversified sources of revenue.

This Bulletin investigates which European regions face higher risks to employment from Covid-19. We first use data on local industry-level employment before the outbreak and construct a measure of local employment exposure to Covid-19, using the methodology developed in Doerr and Gambacorta (2020) for the US. We then extend the analysis by taking into account the share of employment among small firms in different regions. Specifically, we calculate an employment risk index based on the interaction of sectoral exposure and the share of small business employment. Our results show that while several European regions employ a high share of people in sectors particularly exposed to the economic consequences of the pandemic, the high share of small firms in southern Europe puts employment in those regions particularly at risk. We show that regions with a higher employment risk index, ie those with higher sectoral exposure and a higher share of small businesses, also exhibit a stronger increase in Google searches for unemployment, providing a cross-check of our measure of local employment risk.

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The left-hand panel shows the evolution of Apple Covid-19 Mobility Trends Reports from 1 February to 21 April 2020 for individual European countries (grey lines) and the European average (red line). The index is averaged across all subcategories. The Mobility Trends index reflects requests for directions in Apple Maps and is standardised to 100 on 13 January 2020. The right-hand panel shows the relative frequency of Google searches for the topic “unemployment” from 1 February to 21 April 2020 for individual European countries (grey lines) and the European average (red line). For illustration, country-specific lines are Hodrick Prescott-filtered trend components with a smoothing parameter of 500.

Sources: Apple Covid-19 Mobility Trends Reports; Google Trends; authors’ calculations.

Key takeaways

  • We construct employment risk indices for European regions that reflect the share of jobs under threat from Covid-19. The risk index is based on local employment in sectors that are more exposed to the pandemic and on the regional incidence of small firms.
  • Employment in regions in southern Europe and France is shown to have high risk indices, while regions in northern Europe have lower risk indices. Eastern and central European regions have intermediate risk indices.
  • Regions with a higher risk index have a bigger jump in Google searches for unemployment-related terms.
Read the full BIS Bulletin

Sebastian Doerr ’13 is an Economist at the Bank for International Settlements. He is an alum of the Barcelona GSE Master’s in Economics.

LinkedIn | BIS Publications

Household Behaviour: The COVID-19 “Dance” Phase

Help Economics alum Steffi Huber ’10 by participating this survey!

I’d like to invite Barcelona GSE students and alumni to participate in a survey I’m conducting with Isabelle Salle (Bank of Canada, research fellow at the University of Amsterdam) to help understanding households’ consumption and investment responses to the prolonged “dance” phase of the COVID-19 crisis.

As yet, policymakers and academics do not have good estimates for how people might behave in this crucial period. You can help to fill this gap, and in the process help to build a collective understanding of the economic consequences of the pre-vaccine crisis. 

We’ve received around 1,000 responses to the survey so far, and we are using it as a trial survey which will be adjusted for a large grant application to run a representative survey in all major European countries.

Take the survey here

Please read below to know more about what is involved.

Purpose of the research

This research survey aims to shed light on household responses to the COVID-crisis in two ways. First, we want to investigate how the crisis has already changed investment and consumption demands. Second, we want to understand the expected consumption and investment behavior of households when lockdown restrictions are progressively lifted but prior to an effective treatment or vaccine being available.  

What taking part involves

There will be a series of questions about your current and planned consumption and investments. The survey requires no special knowledge for you to complete it. Your participation is voluntary, you do not have to answer all the questions if you do not want to, and you may withdraw from the study at any point. 

Your data

The information provided by you in the survey will be held anonymously, so it will be impossible to trace this information back to you individually. The anonymous data itself will be held indefinitely and may be used to produce reports, presentations, and academic publications. If you have any questions or concerns about this research please feel free to contact any of the researchers involved in the project, using the contact details below. 

Take the survey here

The survey can be answered in 16 different languages. So, don’t hesitate to forward this email to all your international friends!

See this website for more info on the objectives of this project.

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Stefanie J. Huber ’10 is Assistant Professor at the University of Amsterdam. She is an alum of the Barcelona GSE Master’s in Economics and GPEFM PhD Program (UPF and Barcelona GSE).

LinkedIn | Website

Interest rates, mandates, and old age: CaixBank research roundup

Spring 2020 roundup of CaixaBank Research by Barcelona GSE alumni

Some of the latest working papers and reports prepared by Barcelona GSE Alumni who are now Economists and Senior Economists at CaixaBank Research.

(If you’re a Barcelona GSE alum and you’re also writing about Economics, Finance, or Data Science, let us know where we can find your stuff!)

IN ENGLISH

The financial cycle and the era of low interest rates: a change of narrative?

Gabriel L. Ramos ’19 (Finance) and Adrià Morron ’12 (Economics) et al.

The financial cycle plays a key role in the functioning of the economy, as we have seen in the previous articles of this Dossier. But what are the specific consequences of the relationship between the financial and business cycle? Below we analyse its implications for one of the key macrofinancial relationships: the one that exists between the financial cycle and equilibrium interest rates.

The ECB and the Fed: two mandates, one target

Adrià Morron ’12 (Economics) and Ricard Murillo ’17 (International Trade, Finance and Development)

The ECB and the Fed have initiated a process to review their strategy, the results of which will be published during the course of 2020. This review has been driven by certain structural changes in advanced economies, such as the decline in the equilibrium interest rate and the flattening of the Phillips curve.

While we do not anticipate disruptive changes, it is likely that the Fed will reinforce the symmetry of its inflation target and that the ECB will adopt a similar model in order to shore up inflation expectations.

IN SPANISH

El envejecimiento en España y Portugal y su impacto en el crecimiento económico: un enfoque regional

Eduard Llorens ’18 (Economics) et al.

El envejecimiento poblacional será uno de los factores clave que, junto con la revolución tecnológica y el cambio climático, redefinirán nuestras sociedades en las próximas décadas. Una población más envejecida cambiará forzosamente no solo la configuración de nuestras sociedades sino también la de nuestras economías, pues el envejecimiento poblacional tiene un impacto significativo sobre el crecimiento económico. Esta es la cuestión que abordaremos en este y en los siguientes artículos del Dossier, poniendo el foco en las economías española y portuguesa.

Source: CaixaBank Research

Dollar funding costs during the Covid-19 crisis through the lens of the FX swap market

BIS Bulletin by Egemen Eren ’09 (Economics) et al

In this new publication for the Bank for International Settlements, Egemen Eren ’09 and co-authors Stefan Avdjiev and Patrick McGuire review recent events in FX swap markets in the context of the longer-term trends in the demand for dollars from institutional investors.

Key takeaways

  • Since the start of the Covid-19 pandemic, indicators of dollar funding costs in foreign exchange markets have risen sharply, reflecting both demand and supply factors.
  • The demand for dollar funding has grown in recent years, reflecting the currency hedging needs of corporates and portfolio investors outside the United States.
  • Against this backdrop, the financial turbulence of recent weeks has crimped the supply of dollar funding from financial intermediaries, sharply lifting indicators of dollar funding costs.
  • These costs have narrowed after central banks deployed dollar swap lines, but broader policy challenges remain in ensuring that dollar funding markets remain resilient and that central bank liquidity is channelled beyond the banking system.
Read the full BIS Bulletin

Egemen Eren ’09 is an Economist at the Bank for International Settlements. He holds a PhD in Economics from the University of Zurich and is an alum of the Barcelona GSE Master’s in Economics.

LinkedIn | BIS Publications

Pay out emergency benefits or subsidize wages?

Opinion piece by Francesco Amodio ’10 (Economics) on Canada’s response to COVID-19 crisis

In a piece published on March 31 in the Montreal Gazette, Francesco Amodio ’10 (Economics) looks at measures taken by the Canadian government in response to the coronavirus pandemic.

Here’s an excerpt:

The measures taken by the Canadian government are in line with those taken in other countries, where governments are adopting either one or the combination of the following two approaches. In the first one, the government lets firms lay off workers, then pays out employment insurance benefits or other kind of income support transfers. The second approach focuses instead on “saving jobs,” with the government subsidizing wages in order to avoid layoffs.

Each approach has its pros and cons. In the short run, the size of wage subsidies and number of potential layoffs will determine which one is costlier. Perhaps more importantly, the two approaches differ in their medium- to long-run impacts.

Read the full piece on Montreal Gazette

Francesco Amodio ’10 is a graduate of the Barcelona GSE Master’s Program in Economics and the GPEFM PhD Program (UPF and Barcelona GSE). He is currently Assistant Professor of Economics at McGill University in Montreal, Canada. Follow him on Twitter or visit his website