the productivity puzzle abstract the productivity puzzle is the unexplained drop in productivity growth rates that began circa 1970 when standard productivity measures are adjusted for employer incentives for labor hoarding approximately 10 of this drop is explained

on the effectiveness of exchange rate interventions in emerging markets we analyze the effectiveness of exchange rate interventions for a panel of 18 emerging market economies during the period 2003 2011 using an error correction model approach we find that on average intervention is effective in moving the real exchange rate in the desired direction controlling for deviations from the equilibrium and short term changes in fundamentals and global financial variables our results are robust to different samples and estimation methods we find little evidence of asymmetries in the effect of sales and purchases but some evidence of more effective interventions for large deviations from the equilibrium we also explore differences across countries according to the possible transmission channels and nature of some global shocks

exchange rate undervaluation and economic growth diaz alejandro 1965 revisited abstract to understand the growth effects of currency undervaluation we estimate its impact on the different components of gdp we find that for developing countries undervaluation does not affect the tradable sector but does lead to greater domestic savings and investment as well as employment

external shocks financial volatility and reserve requirements in an open economy abstract the performance of a simple countercyclical reserve requirement rule is studied in a dynamic stochastic model of a small open economy with financial frictions imperfect capital mobility a managed float regime and sterilized foreign exchange market intervention bank funding sources domestic and foreign are imperfect substitutes the model is calibrated and used to study the effects of a temporary drop in the world risk free interest rate consistent with stylized facts the shock triggers an expansion in domestic credit and activity asset price pressures and a real appreciation an optimal credit based reserve requirement rule based on minimizing a composite loss function helps to mitigate both macroeconomic and financial volatility with the latter defined both in terms of a narrow measure based on the credit to output ratio the ratio of capital flows to output and interest rate spreads and a broader measure that includes real asset prices as well greater reliance on sterilization implies a less aggressive optimal reserve requirements rule implying that the two instruments are partial substitutes

the determinants of earnings a behavioral approach we survey the determinants of earnings and propose a framework for understanding labor market success we suggest that the advantages of the children of successful parents go considerably beyond the benefits of superior education the inheritance of wealth or the genetic inheritance of cognitive ability we suggest that noncognitive personality variables such as attitudes towards risk ability to adapt to new economic conditions hard work and the rate of time preference affect both earning and the transmission of economic status across generations

returns to skills around the world evidence from piaac abstract existing estimates of the labor market returns to human capital give a distorted picture of the role of skills across different economies international comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital and evidence incorporating direct measures of cognitive skills is mostly restricted to early career workers in the united states analysis of the new piaac survey of adult skills over the full lifecycle in 23 countries shows that the focus on early career earnings leads to underestimating the lifetime returns to skills by about one quarter on average a one standard deviation increase in numeracy skills is associated with an 18 percent wage increase among prime age workers but this masks considerable heterogeneity across countries eight countries including all nordic countries have returns between 12 and 15 percent while six are above 21 percent with the largest return being 28 percent in the united states estimates are remarkably robust to different earnings and skill measures additional controls and various subgroups instrumental variable models that use skill variation stemming from school attainment parental education or compulsory schooling laws provide even higher estimates intriguingly returns to skills are systematically lower in countries with higher union density stricter employment protection and larger public sector shares

effective sterilized foreign exchange intervention evidence from a rule based policy abstract this paper investigates the effectiveness of sterilized foreign exchange interventions by exploiting a discontinuous policy rule used by the central bank of colombia we use a unique data set that comprises tick by tick intervention and order book data daily capital in and outflows and balance sheet information of financial institutions we apply regression discontinuity methods to identify the surprise component of rule based interventions and use this variation to measure how they affect exchange rates and capital flows our findings indicate that interventions had significant effects on the exchange rate albeit short lived 2 3 weeks moreover capital controls amplify the effect of intervention though some effect remains even in the presence of free capital flows a methodological contribution of the paper is to extend regression discontinuity designs to a time series environment and to show how these techniques can be used to identify and estimate local non linear impulse response functions a clearly defined policy rule and high frequency data are crucial in exploiting local variation around the policy cutoff

student abilities during the expansion of us education abstract the us experienced two dramatic changes in the structure of education in a 50 year period the first was a large expansion of educational attainment the second an increase in test score gaps between college bound and non college bound students this paper documents the impact of these two trends on the composition of school groups by ability and the importance of these composition effects for wages the main finding is that there is a growing gap between the abilities of high school and college educated workers that accounts for one half of the college wage premium for recent cohorts and for the entire rise of the college wage premium between the 1910 and 1960 birth cohorts

the economics of teacher quality abstract concern is often voiced about the quality of american schoolteachers this paper suggests that while the relative quality of teachers is declining this decline may be the result of technological changes that have raised the price of skilled workers outside teaching without affecting the productivity of skilled teachers growth in the price of skilled workers can cause schools to lower the relative quality of teachers and raise teacher quantity instead evidence from the national longitudinal survey of youth demonstrates that wage and schooling are good measures of teacher quality analysis of u s census microdata then reveals that the relative schooling and experience adjusted relative wages of u s schoolteachers have fallen significantly from 1940 to 1990 moreover class sizes have also fallen substantially the declines in class size and in relative quality seem correlated over time and space with growth in the relative price of skilled workers

efficient utilization of resources in public schools a case study of new jersey the academic performance of public schools in the united states has been declining for more than two decades now and this is a hotly debated topic since this deterioration in performance has important implications on the quality of labour and on the productivity growth of the nation bishop 1989 moreover the performance among school districts in states varies significantly raising questions about the factors contributing to the large variability in performance one area where the current debate has been focused is the ability and quality of the school management to use the available resources efficiently giving rise to the issues of a voucher system and the private management of the public schools this study measures the efficiency of public schools for the state of new jersey using the data envelopment analysis dea method it also examines the effect of certain socio economic factors on efficiency we find that the average efficiency for all schools is 81 the wealthiest districts have an effi

iq in the production function evidence from immigrant earnings the cross country growth literature especially sala i martin 1997 sala i martin doppelhofer and miller 2004 has found that traditional education measures rarely have a robust relationship with growth and productivity elementary education being a rare exception by contrast a new empirical growth literature jones and schneider 2006 lynn and vanhanen 2002 ram 2007 weede 2004 weede and kampf 2002 has shown that a nation s average iq has a remarkably robust relationship with its productivity figure 1 that a test designed by psychologists should have such a robust relationship with economic variables is a puzzle that demands explanation for instance jones and schneider showed that national average iq was more robust than other human capital variables and was statistically significant at the 1 level in all 455 growth regressions that controlled for all 18 factors that passed sala i martin doppelhofer and miller s 2004 robustness tests of course as with all the growth regression literature a key difficulty is disentangling cause and effect thus in this article we run no growth regressions whatsoever instead we perform a simple calibration of the iq productivity relationship based on widely agreed upon microeconomic parameters that means we can directly estimate one causal channel running from cognitive ability to productivity in the process we learn the following 1 if one knows the average iq of a nation s citizens as estimated by lynn and vanhanen 2002 2006 one can predict the average wages that immigrants from that country will earn upon their arrival in the united states whether or not one controls for immigrant education and even if the test is completely visual rather than verbal in other words national average iq predicts part of what hendricks 2002 calls unmeasured worker skill 2 we find that a 1 point increase in national average iq predicts 1 higher immigrant wages precisely the value found repeatedly in microeconometric studies note that by construction 1 iq point approximately equal to 1 15th of a standard deviation within any large national population together points 1 and 2 provide further evidence that cross country iq tests are valid predictors of worker productivity 3 when iq is added to the production function in the form implied by traditional externality free human capital theory differences in national average iq are quantitatively significant in explaining cross country income differences that said our productivity accounting exercise does not resolve the puzzle of why high iq countries are 15 times richer than low iq countries in a related vein hanushek and kimko 2000 use national math and science test scores to verify that cognitive skills appear to matter more for groups than for individuals like us they use immigrants to the united states as a way to test whether immigrants bring their home country productivity levels along with them when they immigrate to the united states when they interpret their results within a solow type framework they conclude that the cross country growth equation results are much larger than the corresponding results for individual earnings in sum our article rigorously explores the quantitative magnitude of the puzzle uncovered by hanushek and kimko 2000 and hanushek and woessman 2007 but by using iq tests rather than other widely used math and science test scores we can often double our sample size while simultaneously using the most widely analyzed best understood form of cognitive test we begin with an overview of the recent psychological literature on the validity of iq tests and then proceed to our discussion of the link between iq and immigrant wages the discussion of iq and immigrant wages yields a key parameter gamma the iq semi elasticity of wages which we use in our development accounting exercise we then discuss the questions of reverse causality and trends in the iq productivity relationship over the past 40 yr and conclude by discussing how our results fit into the growth literature

the long run volatility puzzle of the real exchange rate abstract this paper documents large cross country differences in the long run volatility of the real exchange rate it shows that the real exchange rate of developing countries is approximately three times more volatile than the real exchange rate in industrial countries the paper shows that this difference in volatility cannot be explained by the fact that developing countries face larger shocks both real and nominal recurrent currency crises or by different elasticities to these shocks arch estimations find a much higher persistence of deviations of the variance of the rer from its long run value when the economy suffers shocks of various kinds

the failure of input based schooling policies in an effort to improve the quality of schools governments around the world have dramatically increased the resources devoted to them by concentrating on inputs and ignoring the incentives within schools the resources have yielded little in the way of general improvement in student achievement this paper provides a review of the us and international evidence on the effectiveness of such input policies it then contrasts the impact of resources with that of variations in teacher quality that are not systematically related to school resources finally alternative performance incentive policies are described

is the test score decline responsible for the productivity growth decline the test score decline between 1967 and 1980 was large about 1 25 grade level equivalents and historically unprecedented new estimates of the trends in academic achievement of the effect of academic achievement on productivity and of trends in the quality of the work force are developed the test score decline did not cause the post 1965 productivity growth slowdown but it did contribute to its perpetuation if test scores had continued to grow after 1967 at the rate prevailing in the previous quarter century labor force quality would have been 2 9 percent 86 billion greater in 1987 5 5 percent greater in 2000 and 6 7 percent greater in 2010 copyright 1989 by american economic association

do exchange rate shocks have asymmetric effects on reserve accumulation evidence from emerging markets it is generally argued that central banks in emerging market countries motivated by a desire to defend export competitiveness tend to intervene in foreign exchange markets to limit currency appreciations rather than depreciations using panel data from 13 emerging market countries for the period 1998 m1 to 2016 m12 we find that exchange rate shocks play an important role in determining the accumulation of international reserves moreover we find evidence that central banks in emerging markets tend to follow a leaning against the depreciation wind policy rather than the appreciation wind i e we provide evidence of a fear of depreciation

trends in quality adjusted skill premia in the united states 1960 2000 this paper presents new evidence that increases in college enrollment lead to a decline in the average quality of college graduates between 1960 and 2000 resulting in a decrease of 8 percentage points in the college premium the standard demand and supply framework katz and murphy 1992 card and lemieux 2001 can qualitatively account for the trend in the college and age premia over this period but the quantitative adjustments that need to be made to account for changes in quality are substantial furthermore the standard interpretation of the supply effect can be misleading if the quality of college workers is not controlled for to illustrate the importance of these adjustments we reanalyze the problem studied in card and lemieux 2001 who observe that the rise in the college premium in the 1980s occurred mainly for young workers and attribute this to the differential behavior of the supply of skill between the young and the old our results show that changes in quality are as important as changes in prices to explain the phenomenon they document

an analysis of the composition of r d spending research and development encompasses a myriad of activities generally research is the primary search for technical or scientific advancement and development is the translation of such advancement into product of process innovations the national science foundation has fostered an even finer breakdown basic research applied research and development in practice however r d is more heterogeneous than these labels imply the research fields associated with basic research include areas in both the physical and biological sciences applied research and development projects relate to product groups as diverse as all the activities in the industrial sector nevertheless most previous empirical studies of the microeconomic aspects of r d have treated r d spending as a single homogeneous activity consequently a generally acceptable set of variables has developed for explaining inter firm levels of r d spending but virtually nothing is known about the determinants of the inter firm composition of r d

fear of appreciation abstract in recent years the term fear of floating has been used to describe exchange rate regimes that while officially flexible in practice intervene heavily to avoid sudden or large depreciations however the data reveals that in most cases and increasingly so in the 2000s intervention has been aimed at limiting appreciations rather than depreciations often motivated by the neo mercantilist view of a depreciated real exchange rate as protection for domestic industries as a first step to address the broader question of whether this view delivers on its promise we examine whether this fear of appreciation has a positive impact on growth performance in developing economies we show that depreciated exchange rates indeed lead to higher growth but that the effect rather than through import substitution or export booms as argued by the mercantilist view works largely through the deepening of domestic savings and capital accumulation

aid dutch disease and manufacturing growth abstract we examine the effects of aid on the growth of manufacturing using a methodology that exploits the variation within countries and across manufacturing sectors and corrects for possible reverse causality we find that aid inflows have systematic adverse effects on a country s competitiveness as reflected in the lower relative growth rate of exportable industries we provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows we conjecture that this may explain in part why it is hard to find robust evidence that foreign aid helps countries grow

omitted ability bias and the increase in the return to schooling over the 1980s there were sharp increases in the return to schooling estimated with conventional wage regressions we explore whether the relationship between ability and schooling changed over this period in ways that would have increased the schooling coefficient in these regressions our empirical results reject the hypothesis that an increase in the bias of the schooling coefficient due to a change in the relationship between ability and schooling has contributed to observed increases in the return to schooling we also find that the increase in the schooling return has occurred for workers with relatively high levels of academic ability