Environmental Justice and Coasian Bargaining: The Role of Race and Income in Lease Negotiations for Shale Gas -- by Christopher Timmins, Ashley Vissing

Using a unique combination of datasets and estimation techniques, we test whether private lease negotiations to extract oil and natural gas exhibit features of Coasian efficiency. We demonstrate that measures of wealth (including income, house square footage, and land acreage), typically determinants of willingness to pay for environmental quality, do affect bargaining outcomes. However, race, ethnicity, and language also play important roles after conditioning upon these variables, suggesting an environmental injustice and a breakdown of efficient Coasian bargaining. We further demonstrate that failure to negotiate protections in leases leads to increased risk of future drilling violations,..

NBER > Working Papers

Imported or Home Grown? The 1992-3 EMS Crisis -- by Barry Eichengreen, Alain Naef

Using newly assembled data on foreign exchange market intervention, we construct a daily index of exchange market pressure during the 1992-3 crisis in the European Monetary System, allowing us to pinpoint when and where the crisis was most severe. Our analysis focuses on a neglected factor in the crisis: the role of the weak dollar in intra-EMS tensions. We provide new evidence of the contribution of a falling dollar-Deutschmark exchange rate to pressure on EMS currencies.

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Central Bank Digital Currencies and The Emerging Markets: The Currency Substitution Challenge -- by Sebastian Edwards

In this paper, I discuss the implications for emerging countries of the adoption of central bank digital currencies (CBDCs) in advanced jurisdictions, such as the United States, the United Kingdom, and the Euro Zone. The analysis identifies benefits as well as costs. Among the former, one of the most important is lower costs for migrants’ remittances. Some of the costs of global CBDCs are associated with currency substitution, sudden currency depreciations, and lower seigniorage. At the global level, a smooth rollout of CBDCs in center countries requires international coordination. In addition, emerging countries will benefit from the implementation of stronger macroprudential regulations

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Empirical Investigation of a Sufficient Statistic for Monetary Shocks -- by Fernando E. Alvarez, Andrea Ferrara, Erwan Gautier, Hervé Le Bihan, Francesco Lippi

In a broad class of sticky price models the non-neutrality of nominal shocks is encoded by a simple sufficient statistic: the ratio of the kurtosis of the size-distribution of price changes over the frequency of price changes. We test this theoretical prediction using data for a large number of firms representative of the French economy. We use the micro data to measure the cross sectional moments, including kurtosis and frequency, for about 120 PPI industries and 220 CPI categories. We use a Factor Augmented VAR to measure the sectoral responses to a monetary shock, as summarized by the cumulative impulse response of sectoral prices (CIRP ), under three alternative identification schemes. T..

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Ambulance Taxis: The Impact of Regulation and Litigation on Health Care Fraud -- by Paul J. Eliason, Riley J. League, Jetson Leder-Luis, Ryan C. McDevitt, James W. Roberts

We study the relative effectiveness of administrative regulations, criminal enforcement, and civil lawsuits for combatting health care fraud. Between 2003 and 2017, Medicare spent $7.7 billion on 37.5 million regularly scheduled, non-emergency ambulance rides for patients traveling to and from dialysis facilities, with dozens of lawsuits alleging that Medicare reimbursed rides for patients who did not meet the requirements for receiving one. Using a novel data set and an identification strategy based on the staggered timing of regulations and lawsuits across the United States, we find that a regulation requiring prior authorization for ambulance reimbursements reduced spending much more than..

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The Responsiveness of Medicaid Spending to the Federal Subsidy -- by M. Kate Bundorf, Daniel P. Kessler

Although economic theory suggests that the federal government can influence spending by states through subsidies to programs that states operate, no recent work has quantified the magnitude of this effect for Medicaid, the largest program of this type in the U.S. We find that Medicaid spending per enrollee responds to the magnitude of the federal subsidy. The Affordable Care Act (ACA) and its subsequent interpretation by the Supreme Court gave states the option to expand eligibility for their Medicaid programs in exchange for increases in the generosity of the federal subsidy. States that exercised this option increased Medicaid spending per enrollee on enrollees who were eligible even befor..

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A Second Chance at Success? Effects of College Grade Forgiveness Policies on Student Outcomes -- by Xuan Jiang, Kelly Chen, Zeynep K. Hansen, Scott Lowe

The increased popularity of college Grade Forgiveness policies, which allow students to retake classes and substitute the new grades for the previous grades in their GPA calculations, is controversial yet understudied. Our paper is the first to ask whether such policies benefit students and how. To answer these questions, we use student-level admissions and transcript data from a four-year public institution in the U.S. that underwent two major changes in its GPA policy. We find that Grade Forgiveness significantly incentivizes students, especially students with the strongest academic preparation, to take STEM courses and challenging courses and to enroll in more credits. The increased varia..

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Collateral Damage: The Impact of Shale Gas on Mortgage Lending -- by Yanyou Chen, James W. Roberts, Christopher D. Timmins, Ashley Vissing

We analyze mortgage lenders’ behavior with respect to shale gas risk during the period of the U.S. shale gas boom, which coincided with fluctuations in the U.S. housing market and increased scrutiny in the lending industry. Shale gas operations have the potential to place affected houses into technical default such that government sponsored enterprises like Fannie Mae and Freddie Mac are unable to maintain them in their portfolios. We find that lenders changed from being willing to pay $814 on average to avoid one unit of shale risk before the financial distress of 2008 and subsequent increased scrutiny, to $3,137, or 1.6% of profit earned on an average mortgage, afterwards. Our approach p..

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Learning About the Long Run -- by Leland Farmer, Emi Nakamura, Jón Steinsson

Forecasts of professional forecasters are anomalous: they are biased, forecast errors are autocorrelated, and forecast revisions predict forecast errors. Sticky or noisy information models seem like unlikely explanations for these anomalies: professional forecasters pay attention constantly and have precise knowledge of the data in question. We propose that these anomalies arise because professional forecasters don’t know the model that generates the data. We show that Bayesian agents learning about hard-to-learn features of the data generating process (low frequency behavior) can generate all the prominent aggregate anomalies emphasized in the literature. We show this for two applications..

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Zero Lower Bound on Inflation Expectations -- by Yuriy Gorodnichenko, Dmitriy Sergeyev

We document a new fact: in U.S., European and Japanese surveys, households do not expect deflation, even in environments where persistent deflation is a strong possibility. This fact stands in contrast to the standard macroeconomic models with rational expectations. We extend a standard New Keynesian model with a zero-lower bound on inflation expectations. Unconventional monetary policies, such as forward guidance, are weaker. In liquidity traps, the government spending output multiplier is finite, and adverse aggregate supply shocks are not expansionary. The possibility of confidence-driven liquidity traps is attenuated.

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Pandemic Schooling Mode and Student Test Scores: Evidence from US States -- by Clare Halloran, Rebecca Jack, James C. Okun, Emily Oster

We estimate the impact of district-level schooling mode (in-person versus hybrid or distance learning) on test scores. We combine Spring 2021 state standardized test score data with comprehensive data on schooling in the 2020-21 school year across 12 states. We find that pass rates declined compared to prior years and that these declines were larger in districts with less in-person instruction. Passing rates in math declined by 14.2 percentage points on average; we estimate this decline was 10.1 percentage points smaller for districts fully in-person. Changes in English language arts scores were smaller, but were significantly larger in districts with larger populations of students who are B..

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International Evidence on Vaccines and the Mortality to Infections Ratio -- by Joshua Aizenman, Alex Cukierman, Yothin Jinjarak, Weining Xin

Recent observations on countries like the UK that have accumulated a large fraction of inoculated individuals suggest that, although initially, vaccines have little effect on new infections they strongly reduce the share of mortality out of a given pool of infections. This paper examines the extent to which this phenomenon is more general by testing the hypothesis that the ratio of current mortality to lagged infections is decreasing in the total number of vaccines per one hundred individuals. This is done in a pooled time-series, cross-section sample with weekly observations for up to 208 countries. The main conclusion from the statistical analysis is that, passed a certain threshold, vacci..

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Skewness and Time-Varying Second Moments in a Nonlinear Production Network: Theory and Evidence -- by Ian Dew-Becker, Alireza Tahbaz-Salehi, Andrea Vedolin

This paper studies asymmetry in economic activity over the business cycle. It develops a tractable multisector model of the economy in which complementarity across inputs causes aggregate activity to be left skewed with countercyclical volatility. We then examine implications of the model regarding the time-series skewness of activity at the sector level, cyclicality of dispersion and skewness across sectors, and the conditional covariances of sector growth rates, finding support for each in the data. The empirical skewness of employment growth, industrial production growth, and stock returns increases with the level of aggregation, which is consistent with the model's implication that it is..

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Globalization and the Ladder of Development: Pushed to the Top or Held at the Bottom? -- by David Atkin, Arnaud Costinot, Masao Fukui

We study the relationship between international trade and development in a model where countries differ in their capability, goods differ in their complexity, and capability growth is a function of a country’s pattern of specialization. Theoretically, we show that it is possible for international trade to increase capability growth in all countries and, in turn, to push all countries up the development ladder. This occurs because: (i) the average complexity of a country’s industry mix raises its capability growth, and (ii) foreign competition is tougher in less complex sectors for all countries. Empirically, we provide causal evidence consistent with (i) using the entry of countries into..

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Sovereign Risk and Financial Risk -- by Simon Gilchrist, Bin Wei, Vivian Z. Yue, Egon Zakrajšek

In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by over 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium – a measure of the risk-bearing capacity of..

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Buyouts: A Primer -- by Tim Jenkinson, Hyeik Kim, Michael S. Weisbach

This paper provides an introduction to buyouts and the academic literature about them. Buyouts are initiated by “buyout funds”, which are limited partnerships raised from mostly institutional investors. The funds earn returns for their investors by improving the operations of the firms they acquire and exiting them for a profit. Buyout funds have grown substantially and currently raise more than $400 billion annually in capital commitments. We first discuss the institutional environment that developed to foster such buyouts and to provide incentives for general partners and firm managers to earn returns for the fund’s investors. We then describe various strategies that funds use to inc..

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Excess Deaths in the United States During the First Year of COVID-19 -- by Christopher J. Ruhm

Accurately determining the number of excess deaths caused by the COVID-19 pandemic is hard. The most important challenge is accurately estimating the counterfactual count of baseline deaths that would have occurred in its absence. This analysis used new methods to: estimate this baseline metric; calculate excess deaths during the first year of the U.S. COVID-19 pandemic; and examine plausibility of the excess death estimates obtained in this and prior analyses. Total, group-specific and cause-specific excess deaths in the U.S. from March 2020 through February 2021 were calculated using publicly available data covering all deaths from March 2009 through December 2019 and provisional data from..

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Technological Obsolescence -- by Song Ma

This paper proposes a new measure of technological obsolescence using detailed patent data. Using this measure, we present two sets of results. First, firms' technological obsolescence foreshadows substantially lower growth, productivity, and reallocation of capital. This finding applies mainly for obsolescence of core innovation and embodied innovation, and it is stronger in competitive product markets. Second, in stock markets, high-obsolescence firms under-perform low-obsolescence firms by 7 percent annually. Using analyst forecast data, we show this is due to a systematic overestimation of future profits of obsolescent firms. The measure contains incremental information about firm innova..

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Unemployment Insurance in Macroeconomic Stabilization -- by Rohan Kekre

I study unemployment insurance (UI) in general equilibrium with incomplete markets, search frictions, and nominal rigidities. An increase in generosity raises the aggregate demand for consumption if the unemployed have a higher marginal propensity to consume (MPC) than the employed or if agents precautionary save in light of future income risk. This raises output and employment unless monetary policy raises the nominal interest rate. In an analysis of the U.S. economy over 2008-2014, UI benefit extensions had a contemporaneous output multiplier around 1 or higher. The unemployment rate would have been as much as 0.4pp higher absent these extensions.

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The Other Great Migration: Southern Whites and the New Right -- by Samuel Bazzi, Andreas Ferrara, Martin Fiszbein, Thomas P. Pearson, Patrick A. Testa

This paper provides a novel perspective on the Great Migration out of the U.S. South. Using a shift-share identification strategy, we show how millions of Southern white migrants transformed the cultural and political landscape across America. Counties with a larger Southern white share by 1940 exhibited growing support for right-wing politics throughout the 20th century and beyond. Racial animus, religious conservatism, and localist attitudes among the Southern white diaspora hastened partisan realignment as the Republican Party found fresh support for the Southern strategy outside the South. Their congressional representatives were more likely to oppose politically liberal legislation, suc..

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A Primer on Trade and Inequality -- by Dani Rodrik

In the public imagination globalization’s adverse effects have loomed large, contributing significantly to the backlash against the political mainstream and the rise of far-right populism. The literature on trade and inequality is in fact exceptionally rich, with important theoretical insights as well as extensive empirical findings that sheds light on this recent experience. Some of the key results of this literature, discussed here, are as follows: Redistribution is the flip side of the gains from trade, and it becomes larger relative to net gains from trade in the advanced stages of globalization. Compensation is difficult for both economic and political reasons. International trade oft..

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Organizational Structure and Pricing: Evidence from a Large U.S. Airline -- by Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams

We study how organizational boundaries affect pricing decisions using comprehensive data from a large U.S. airline. We document that the firm's advanced pricing algorithm, utilizing inputs from different organizational teams, is subject to multiple biases. To quantify the impacts of these biases, we estimate a structural demand model using sales and search data. We recover the demand curves the firm believes it faces using forecasting data. In counterfactuals, we show that correcting biases introduced by organizational teams individually have little impact on market outcomes, but coordinating organizational outcomes leads to higher prices/revenues and increased dead-weight loss in the market..

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Headstrong Girls and Dependent Boys: Gender Differences in the Labor Market Returns to Child Behavior -- by Robert Kaestner, Ofer Malamud

The authors use data from the Children of the National Longitudinal Survey of Youth (C-NLSY79) to examine gender differences in the associations between child behavioral problems and early adult earnings. They find large and significant earnings penalties for women who exhibited more headstrong behavior and for men who exhibited more dependent behavior as children. In contrast, there are no penalties for men who were headstrong or for women who were dependent. While other child behavioral problems are also associated with labor market earnings, their associations are not significantly different by gender. The gender differences in headstrong and dependent behavior are not explained by educat..

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Electricity Price Distributions in Future Renewables-Dominant Power Grids and Policy Implications -- by Dharik S. Mallapragada, Cristian Junge, Cathy Xun Wang, Johannes Pfeifenberger, Paul L. Joskow, Richard Schmalensee

Future electricity systems with tight constraints on carbon emissions will rely much more on wind and solar generation, with zero marginal cost, than today. We use capacity expansion modelling of Texas in 2050 to illustrate wholesale price distributions in future energy-only, carbon-constrained grids without price caps under a range of technology/system assumptions. Tightening carbon emissions constraints dramatically increases the frequency of very low prices. The frequency of high prices also increases, and all resources earn the bulk of their energy market revenues in relatively few hours. The presence of demand response, long-duration energy storage, dispatchable low-carbon generation, o..

NBER > Working Papers

Were Federal COVID Relief Funds for Schools Enough? -- by Nora E. Gordon, Sarah J. Reber

Congress responded to the COVID pandemic’s disruptions to instruction with unprecedented federal aid for school districts. While this relief has been widely characterized as a major windfall for K-12 education, per-pupil amounts vary considerably across districts, as will the costs districts face for COVID mitigation and recovery. In this paper, we conduct simulations to understand the potential distribution of net effects of the pandemic and federal aid on the finances of local school districts in the next several years. In our baseline scenario, we assume one-time adjustment costs of $500 per pupil plus additional costs of $1,000 per student in poverty and $500 per student not in poverty..

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The Impact of Provider Payments on Health Care Utilization: Evidence from Medicare and Medicaid -- by Marika Cabral, Colleen Carey, Sarah Miller

Provider payments are the key determinant of insurance generosity within many health insurance programs covering low-income populations. This paper analyzes the effects of a large, federally-mandated provider payment increase for primary care services provided to low-income elderly and disabled individuals. Drawing upon comprehensive administrative payment and utilization data, we leverage variation across beneficiaries and across providers in the policy-induced payment increase in difference-in-differences and triple differences research designs. The estimates indicate that the provider payment reform led to a 6.3% increase in the targeted services provided to eligible beneficiaries, indica..

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"When Anything Can Happen”: Anticipated Adversity and Postsecondary Decision-Making -- by Stefanie DeLuca, Nicholas W. Papageorge, Joseph L. Boselovic, Seth Gershenson, Andrew Gray, Kiara M. Nerenberg, Jasmine Sausedo, Allison Young

We examine how disadvantaged students make postsecondary education decisions, focusing on why they often opt for short, flexible programs that tend to have low returns in the labor market. Prior literature emphasizes information deficits and financial constraints. We draw upon qualitative data collected via open-ended interviews conducted with a sample of economically disadvantaged Black youth in Baltimore. We use these data to develop and explore a complementary narrative: students who have faced instability or hardship in the form of disruptive events, or “adverse shocks” (e.g., violence, eviction or incarceration of a family member), anticipate future shocks that could derail their..

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Optimal Bank Reserve Remuneration and Capital Control Policy -- by Chun-Che Chi, Stephanie Schmitt-Grohé, Martín Uribe

This paper studies optimal capital-control and bank-reserve remuneration policy in an open economy with a banking channel and a collateral constraint that limits household debt by a fraction of income. It finds that the unregulated economy borrows too little relative to what is optimal (underborrowing). This finding contrasts with the standard overborrowing result obtained in the absence of a banking channel. Under optimal policy, the central bank injects bank reserves during recessions. In this way, the monetary authority is able to uncouple household deleveraging from economy-wide deleveraging, thereby ameliorating the severity of the financial crisis. The paper documents that in emerging ..

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Economic Interests, Worldviews, and Identities: Theory and Evidence on Ideational Politics -- by Elliott Ash, Sharun Mukand, Dani Rodrik

We distinguish between ideational and interest-based appeals to voters on the supply side of politics, and integrate the Keynes-Hayek perspective on the importance of ideas with the Stigler-Becker approach emphasizing vested interests. In our model, political entrepreneurs discover identity and worldview “memes” (narratives, cues, frames) that shift beliefs about voters’ identities or their views of how the world works. We identify a complementarity between worldview politics and identity politics and illustrate how they may reinforce each other. Furthermore, we show how adverse economic shocks may result in a greater incidence of ideational politics. We use these results to analyze da..

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Modeling to Inform Economy-Wide Pandemic Policy: Bringing Epidemiologists and Economists Together -- by Michael E. Darden, David Dowdy, Lauren Gardner, Barton Hamilton, Karen Kopecky, Melissa Marx, Nicholas W. Papageorge, Daniel Polsky, Kimberly Powers, Elizabeth Stuart, Matthew Zahn

Facing unprecedented uncertainty and drastic trade-offs between public health and other forms of human well-being, policy makers during the Covid-19 pandemic have sought the guidance of epidemiologists and economists. Unfortunately, while both groups of scientists use many of the same basic mathematical tools, the models they develop to inform policy tend to rely on different sets of assumptions and, thus, often lead to different policy conclusions. This divergence in policy recommendations can lead to uncertainty and confusion, opening the door to disinformation, distrust of institutions, and politicization of scientific facts. Unfortunately, to date, there have not been widespread efforts ..

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