The United States have interest rates close to zero, and it will stay like this of a few more years according to the Federal Reserve. This has also been the case in Japan for more than a decade. When the interest rate is not informative, it because very difficult to establish when the central bank policy is tight or loose. A Taylor rule may tell you that it should have negative interest rates, but because they cannot be negative, we cannot measure the impact of the unconventional tools the central bank may have used.
Leo Krippner finds a way to tease the monetary stance out of the yield curve. The issue is that the interest rates cannot go negative no matter what the central bank does because there is always the option to hold cash instead of bonds. This gives Krippner two ideas. First, one can then decompose a bond into an option to hold cash and another security, which may have a negative return (a shadow interest rate). The return of this security measures the monetary stance. The second is that the yield curve can help in pricing the option. For example, if long yields are very low the option has a lot more value than if the yield curve is steep.
This decomposition is then executed for the United States. The results are quite fascinating. For example, over the past five years, the shadow interest rate is at -5%, meaning that the Fed is doing a lot to help the economy. Whether this is enough is another question, but it does not look like it is just doing nothing effective. Also, one can easily match movements of the shadow interest rate with actions of the Fed. Sadly, these actions seems to have rather short-lived impacts, beyond keeping the shadow interest rate at roughly -5%.
31 Ekim 2012 Çarşamba
30 Ekim 2012 Salı
Economic growth with egoistic dictators
Western nations, and especially the United States, put a lot of effort into nation-building and democratization in developing economies. The premise is that democratic countries are more peaceful, and they grow richer thus opening new markets. The problem is that if there is a correlation between democracy and the wealth of nations, the causation actually goes the other way: wealth brings democracy. Then if we could pick dictators to promote growth, which should they be? The benevolent dictator may be an elegant theoretical construct, he is difficult to find in reality.
Giacomo de Luca, Anastasia Litina and Petros Sekeris look at high unequal societies and find that in some circumstances autocratic dictators actually generate more growth than democracy (where the median voter is the dictator). The key is that dictator needs to be very rich, so much so that his interests overlap significantly with those of the country, and thus also the interests of other capital owners, as long as capital-ownership is highly concentrated. A wealthy median voter, though, prefers democracy. The logic is that redistribution lowers growth, thus rich capital owners always prefer dictators. With a lot of inequality, the median voter is poor and wants redistribution, this yields low growth. But if the median voter is relatively rich, she wants little redistribution and we have more growth, even more than with the dictator (who still has kleptomaniac tendencies, after all).
Giacomo de Luca, Anastasia Litina and Petros Sekeris look at high unequal societies and find that in some circumstances autocratic dictators actually generate more growth than democracy (where the median voter is the dictator). The key is that dictator needs to be very rich, so much so that his interests overlap significantly with those of the country, and thus also the interests of other capital owners, as long as capital-ownership is highly concentrated. A wealthy median voter, though, prefers democracy. The logic is that redistribution lowers growth, thus rich capital owners always prefer dictators. With a lot of inequality, the median voter is poor and wants redistribution, this yields low growth. But if the median voter is relatively rich, she wants little redistribution and we have more growth, even more than with the dictator (who still has kleptomaniac tendencies, after all).
29 Ekim 2012 Pazartesi
How to infer the value of time from gasoline prices
How much do people value time? One way to look a this is to consider how much they need to be compensated to work. But this masks the disutility of effort, boredom, future payoffs, etc. And the value of time changes through the day (do not tell me lawyers reason all day in billable minutes). In other words, the value of time varies through time and from person to person. Hence it is important to get many estimates.
Hendrik Wolff finds a subtle way to estimate it. Looking at fluctuations in gasoline prices and the speeding behavior of car drivers, using speed data from an uncongested flat portions of highway in rural Washington State. The elasticity of -0.01 is very low, but from calculating the time gained through speeding, one can value time at about half gross wage. That is lower than previous estimates that were using congested highways, and frustration may have been priced in those. The Wolff estimates are cleaner, and they provide a logical negative relation between gas prices and speeds, a relation that was positive in studies tainted by congestion or other external factors.
Hendrik Wolff finds a subtle way to estimate it. Looking at fluctuations in gasoline prices and the speeding behavior of car drivers, using speed data from an uncongested flat portions of highway in rural Washington State. The elasticity of -0.01 is very low, but from calculating the time gained through speeding, one can value time at about half gross wage. That is lower than previous estimates that were using congested highways, and frustration may have been priced in those. The Wolff estimates are cleaner, and they provide a logical negative relation between gas prices and speeds, a relation that was positive in studies tainted by congestion or other external factors.
28 Ekim 2012 Pazar
Tax Expenditure Fact of the Day
The NY Times reports:
[T]he people who tend to derive the greatest dollar benefit from the mortgage interest deduction are households earning $100,000 to $500,000 a year.
“About two-thirds of the total benefit go to that group in the 80th through the 99th income percentiles,” Mr. Rosenberg said.
For those households, by the center’s calculations, the tax benefit of the deduction amounts to about 1.5 percent of after-tax income. By way of comparison, the value to households earning $40,000 to $50,000 is closer to 0.3 percent of after-tax income; for households earning $50,000 and $75,000, it is 0.7 percent.These numbers compare the status quo to a system without any mortgage deduction at all. If instead we lowered the size of the mortgage eligible for this deduction from the current $1 million to, say, $250,000, the base broadening would have an even smaller effect on middle-income housholds.
27 Ekim 2012 Cumartesi
Kaydol:
Kayıtlar (Atom)
31 Ekim 2012 Çarşamba
How to measure the monetary stance when the interest rate is zero
The United States have interest rates close to zero, and it will stay like this of a few more years according to the Federal Reserve. This has also been the case in Japan for more than a decade. When the interest rate is not informative, it because very difficult to establish when the central bank policy is tight or loose. A Taylor rule may tell you that it should have negative interest rates, but because they cannot be negative, we cannot measure the impact of the unconventional tools the central bank may have used.
Leo Krippner finds a way to tease the monetary stance out of the yield curve. The issue is that the interest rates cannot go negative no matter what the central bank does because there is always the option to hold cash instead of bonds. This gives Krippner two ideas. First, one can then decompose a bond into an option to hold cash and another security, which may have a negative return (a shadow interest rate). The return of this security measures the monetary stance. The second is that the yield curve can help in pricing the option. For example, if long yields are very low the option has a lot more value than if the yield curve is steep.
This decomposition is then executed for the United States. The results are quite fascinating. For example, over the past five years, the shadow interest rate is at -5%, meaning that the Fed is doing a lot to help the economy. Whether this is enough is another question, but it does not look like it is just doing nothing effective. Also, one can easily match movements of the shadow interest rate with actions of the Fed. Sadly, these actions seems to have rather short-lived impacts, beyond keeping the shadow interest rate at roughly -5%.
Leo Krippner finds a way to tease the monetary stance out of the yield curve. The issue is that the interest rates cannot go negative no matter what the central bank does because there is always the option to hold cash instead of bonds. This gives Krippner two ideas. First, one can then decompose a bond into an option to hold cash and another security, which may have a negative return (a shadow interest rate). The return of this security measures the monetary stance. The second is that the yield curve can help in pricing the option. For example, if long yields are very low the option has a lot more value than if the yield curve is steep.
This decomposition is then executed for the United States. The results are quite fascinating. For example, over the past five years, the shadow interest rate is at -5%, meaning that the Fed is doing a lot to help the economy. Whether this is enough is another question, but it does not look like it is just doing nothing effective. Also, one can easily match movements of the shadow interest rate with actions of the Fed. Sadly, these actions seems to have rather short-lived impacts, beyond keeping the shadow interest rate at roughly -5%.
30 Ekim 2012 Salı
Economic growth with egoistic dictators
Western nations, and especially the United States, put a lot of effort into nation-building and democratization in developing economies. The premise is that democratic countries are more peaceful, and they grow richer thus opening new markets. The problem is that if there is a correlation between democracy and the wealth of nations, the causation actually goes the other way: wealth brings democracy. Then if we could pick dictators to promote growth, which should they be? The benevolent dictator may be an elegant theoretical construct, he is difficult to find in reality.
Giacomo de Luca, Anastasia Litina and Petros Sekeris look at high unequal societies and find that in some circumstances autocratic dictators actually generate more growth than democracy (where the median voter is the dictator). The key is that dictator needs to be very rich, so much so that his interests overlap significantly with those of the country, and thus also the interests of other capital owners, as long as capital-ownership is highly concentrated. A wealthy median voter, though, prefers democracy. The logic is that redistribution lowers growth, thus rich capital owners always prefer dictators. With a lot of inequality, the median voter is poor and wants redistribution, this yields low growth. But if the median voter is relatively rich, she wants little redistribution and we have more growth, even more than with the dictator (who still has kleptomaniac tendencies, after all).
Giacomo de Luca, Anastasia Litina and Petros Sekeris look at high unequal societies and find that in some circumstances autocratic dictators actually generate more growth than democracy (where the median voter is the dictator). The key is that dictator needs to be very rich, so much so that his interests overlap significantly with those of the country, and thus also the interests of other capital owners, as long as capital-ownership is highly concentrated. A wealthy median voter, though, prefers democracy. The logic is that redistribution lowers growth, thus rich capital owners always prefer dictators. With a lot of inequality, the median voter is poor and wants redistribution, this yields low growth. But if the median voter is relatively rich, she wants little redistribution and we have more growth, even more than with the dictator (who still has kleptomaniac tendencies, after all).
29 Ekim 2012 Pazartesi
How to infer the value of time from gasoline prices
How much do people value time? One way to look a this is to consider how much they need to be compensated to work. But this masks the disutility of effort, boredom, future payoffs, etc. And the value of time changes through the day (do not tell me lawyers reason all day in billable minutes). In other words, the value of time varies through time and from person to person. Hence it is important to get many estimates.
Hendrik Wolff finds a subtle way to estimate it. Looking at fluctuations in gasoline prices and the speeding behavior of car drivers, using speed data from an uncongested flat portions of highway in rural Washington State. The elasticity of -0.01 is very low, but from calculating the time gained through speeding, one can value time at about half gross wage. That is lower than previous estimates that were using congested highways, and frustration may have been priced in those. The Wolff estimates are cleaner, and they provide a logical negative relation between gas prices and speeds, a relation that was positive in studies tainted by congestion or other external factors.
Hendrik Wolff finds a subtle way to estimate it. Looking at fluctuations in gasoline prices and the speeding behavior of car drivers, using speed data from an uncongested flat portions of highway in rural Washington State. The elasticity of -0.01 is very low, but from calculating the time gained through speeding, one can value time at about half gross wage. That is lower than previous estimates that were using congested highways, and frustration may have been priced in those. The Wolff estimates are cleaner, and they provide a logical negative relation between gas prices and speeds, a relation that was positive in studies tainted by congestion or other external factors.
28 Ekim 2012 Pazar
Tax Expenditure Fact of the Day
The NY Times reports:
[T]he people who tend to derive the greatest dollar benefit from the mortgage interest deduction are households earning $100,000 to $500,000 a year.
“About two-thirds of the total benefit go to that group in the 80th through the 99th income percentiles,” Mr. Rosenberg said.
For those households, by the center’s calculations, the tax benefit of the deduction amounts to about 1.5 percent of after-tax income. By way of comparison, the value to households earning $40,000 to $50,000 is closer to 0.3 percent of after-tax income; for households earning $50,000 and $75,000, it is 0.7 percent.These numbers compare the status quo to a system without any mortgage deduction at all. If instead we lowered the size of the mortgage eligible for this deduction from the current $1 million to, say, $250,000, the base broadening would have an even smaller effect on middle-income housholds.
27 Ekim 2012 Cumartesi
Kaydol:
Kayıtlar (Atom)