the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

regulating consumer financial products evidence from credit cards we analyze the effectiveness of consumer financial regulation by considering the 2009 credit card accountability responsibility and disclosure card act we use a panel data set covering 160 million credit card accounts and a difference in differences research design that compares changes in outcomes over time for consumer credit cards which were subject to the regulations to changes for small business credit cards which the law did not cover we estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1 6 of average daily balances with a decline of more than 5 3 for consumers with fico scores below 660 we find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit taken together we estimate that the card act saved consumers 11 9 billion a year we also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments we detect a small increase in the share of accounts making the 36 month payment value but no evidence of a change in overall payments jel codes d0 d14 g0 g02 g21 g28 l0 l13 l15

factor models and time varying parameter framework for forecasting exchange rates and inflation a survey a survey of models used for forecasting exchange rates and inflation reveals that the factor based and time varying parameter or state space models generate superior forecasts relative to all other models this survey also finds that models based on taylor rule and portfolio balance theory have moderate predictive power for forecasting exchange rates the evidence on the use of bayesian model averaging approach in forecasting exchange rates reveals limited predictive power but strong support for forecasting inflation overall the evidence overwhelmingly points to the context of the forecasts relevance of the historical data data transformation choice of the benchmark selected time horizons sample period and forecast evaluation methods as the crucial elements in selecting forecasting models for exchange rate and inflation

credit constraints and the international propagation of us financial shocks abstract this paper investigates whether credit constraints in the us economy amplify the international propagation of us financial shocks we model the dynamics of the us economy jointly with global macroeconomic and financial variables using a threshold vector autoregression this model captures regime specific dynamics conditional on the severity of credit constraints in the us economy we identify three main episodes of tight credit in us financial history over the past thirty years these occur in the late 1980s in the early 2000s and during the 2007 09 financial crisis we find that us financial shocks are associated with a significant contraction in global economic activity in times of tight credit by contrast there is little impact of us financial shocks on the global economy in normal times this asymmetry highlights an international dimension of the us financial accelerator mechanism

macroeconomic factors and microlevel bank behavior we analyze the link between banks and the macroeconomy using a model that extends a macroeconomic var for the u s with a set of factors summarizing conditions in about 1 500 commercial banks we investigate how macroeconomic shocks are transmitted to individual banks and obtain the following main findings backward looking risk of a representative bank declines and bank lending increases following expansionary shocks forward looking risk increases following an expansionary monetary policy shock there is however substantial heterogeneity in the transmission of macroeconomic shocks which is due to bank size capitalization liquidity risk and the exposure to real estate and consumer loans

the relation between the corporate bond yield spread and the real economy stable or time varying abstract in this paper we assess whether the relation between the corporate bond yield spread and the real economy has been stable over time using quarterly us data from 1953q1 to 2018q2 we estimate bayesian var models which allow for drifting parameters and or stochastic volatility and conduct formal model selection in a bayesian setting our results indicate that the relation between the variables has been stable we do however find strong support for stochastic volatility we conclude that the corporate bond yield spread s usefulness for predicting real economic activity has not changed to a relevant extent after the great recession

reading the fine print information disclosure in the brazilian credit card market consumer credit regulations usually require that lenders disclose interest rates however in the absence of specific prominence requirements lenders can conceal the interest rate in the fine print while still complying with the law i examine the effect of such a strategy using a field experiment in brazil in which a credit card company offered their clients payment plans to pay off their balances using randomized contract interest rates and the degree of rate disclosure i show that most clients are rate sensitive whether or not rates are prominently disclosed the elasticity of payment plan enrollment with respect to the interest rate ranges from 0 711 to 0 880 high risk clients are an exception these clients are rate sensitive only when disclosure is prominent i also show that clients are influenced by nudges that favor longer term contracts conditional on enrollment the proportion of clients who choose a longer term contract is 40 percentage points higher when a longer term contract is feat

the transmission of us systemic financial stress evidence for emerging market economies abstract we provide empirical evidence that us systemic financial stress shocks us sfsss are an important driver of economic dynamics and fluctuations in emes applying a structural vector autoregression we analyze the international transmission of us sfsss to eight emes using monthly data from 1999 to 2012 us sfsss are identified as unexpected changes in the financial conditions index of the federal reserve bank of chicago findings indicate that a typical emerging market real economy experiences similar negative effects to those seen in the us real economy in response to us sfsss for international transmission our results emphasize that financial interconnectedness with the us is important relative to trade relations the analyzed cases of latin american economies suggest that indirect linkages are also important for transmitting the negative effects of us sfsss in general us sfsss act as a crucial driver of volatility in the emerging world also at business cycle frequencies

global banks financial shocks and international business cycles evidence from an estimated model this paper estimates a two country model with a global bank using us and euro area ea data and bayesian methods the estimated model matches key us and ea business cycle statistics empirically a model version with a bank capital requirement outperforms a structure without such a constraint a loan loss originating in one country triggers a global output reduction banking shocks matter more for ea macro variables than for us real activity during the great recession 2007 09 banking shocks accounted for about 20 of the fall in us and ea gdp and for more than half of the fall in ea investment and employment

dynamic effects of credit shocks in a data rich environment we examine the dynamic effects of credit shocks using a large dataset of u s economic and financial indicators in a structural factor model an identified credit shock resulting in an unanticipate

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

business cycle transmission from the us to germany a structural factor approach abstract this paper investigates the transmission of us macroeconomic shocks to germany using a large dimensional structural dynamic factor model this framework allows us to investigate many transmission channels simultaneously including new channels such as stock markets foreign direct investment bank lending and the confidence channel we find that us shocks affect the us and germany largely symmetrically trade seems to be the most relevant transmission channel monetary policy reactions to strong price movements seem to play a role as well no clear conclusion can be drawn yet on the role of financial markets and the confidence channel negative domestic influences apparently more than offset positive us influences in the german economy between 1995 and 2000 but the us recession in 2001 appeared to be the main culprit in the german slump

credit elasticities in less developed economies implications for microfinance policymakers often prescribe that microfinance institutions increase interest rates to eliminate their reliance on subsidies this strategy makes sense if the poor are rate insensitive then microlenders increase profitability or achieve sustainability without reducing the poor s access to credit we test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in south africa the demand curves are downward sloping and steeper for price increases relative to the lender s standard rates we also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates which is consistent with binding liquidity constraints

how do us credit supply shocks propagate internationally a gvar approach abstract we study how us credit supply shocks are transmitted to other economies we use the recently developed gvar approach to model financial variables jointly with macroeconomic variables in 33 countries for the period 1983 2009 we experiment with inter country links based on bilateral trade portfolio investment foreign direct investment and banking exposures capturing both bilateral trade and financial exposures in a gvar fits the data better than using trade weights only we use sign restrictions on the short run impulse responses in the us model to identify the credit supply shocks we find that negative credit supply shocks have strong negative effects on us and foreign gdp credit and equity markets in several countries respond clearly to the shocks exchange rate responses are consistent with a flight to quality to the us dollar the credit supply shocks explain about a fifth of one year ahead output forecast error variance in the us and about a tenth in the euro area and the uk but considerably less elsewhere

liquidity shocks and real gdp growth evidence from a bayesian time varying parameter var we examine the dynamic impact of liquidity shocks resonating in stock and housing markets on real gdp growth we fit a bayesian time varying parameter var model with stochastic volatility to us data from 1970 to 2014 gdp becomes highly sensitive to house market liquidity shocks as disruptions in the sector start to emerge yet more resilient to stock market liquidity shocks throughout time we provide substantial evidence in favour of asymmetric responses of gdp growth both across the business cycle and among business cycle troughs stock and house market liquidity shocks explain on average 17 and 35 of the variation in gdp during the great recession respectively

the impact of conventional and unconventional monetary policy on expectations and sentiment abstract this paper offers evidence on the effect of ecb s conventional and unconventional monetary policy on economic expectations in euro area countries during the us and eu crisis we employ a range of research methodologies in a sample of nine eurozone countries and combine expectations sentiment indicators with a set of macroeconomic and financial variables we find that ecb s conventional monetary policy and fed s monetary policy stance has a positive and significant effect on economic expectations for core eurozone countries and a weak effect on peripheral eurozone countries ecb s unconventional policy measures however have a negative short term effect on core countries economic expectations this result is robust to different methodologies pvar qvar favar and different datasets overall our findings highlight the importance of monetary policy in the determination of economic expectations

drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions abstract this paper discusses the problems associated with using information about the signs of certain magnitudes as a basis for drawing structural conclusions in vector autoregressions we also review available tools to solve these problems for illustration we use dahlhaus and vasishtha s 2019 study of the effects of a u s monetary contraction on capital flows to emerging markets we explain why sign restrictions alone are not enough to allow us to answer the question and suggest alternative approaches that could be used

evaluating international financial integration under leverage constraints abstract the global financial crisis has undermined many economists views about the benefits of open financial markets anecdotal evidence seems to indicate that financial linkages may propagate shocks during crises this paper develops a simple two country model in which financial liberalisation across countries takes place in the presence of credit market distortions within countries countries may be subject to macro risk coming from productivity shocks and direct shocks to the credit system financial shocks three different degrees of financial linkages between countries are examined it is shown that the type of financial integration is critical for both macroeconomic outcomes and welfare in particular financial integration in bond markets alone may increase aggregate consumption volatility and reduce welfare financial integration in both bond and equity markets generates high positive co movement across countries but is welfare improving

international risk sharing and financial shocks abstract a canonical two country real business cycle model with complete international asset markets fails to replicate the correlation between relative consumptions and real exchange rates i e the consumption real exchange rate anomaly or backus smith puzzle i show that when preferences are non separable between consumption and leisure the same two country model augmented by domestic financial frictions and shocks can account for this correlation positive financial shocks create important fluctuations in the labor wedge inducing firms to demand more labor these procyclical movements in hours worked significantly affect the marginal utility of consumption and help to explain the correlation between relative consumptions and real exchange rates

self fulfilling risk panics abstract recent crises have seen large spikes in asset price risk we propose an explanation for such panics based on self fulfilling shifts in beliefs about risk a negative link between the curre

do liquidity constraints and interest rates matter for consumer behavior evidence from credit card data this paper utilizes a unique new dataset of credit card accounts to analyze how people respond to changes in credit supply the data consist of a panel of thousands of individual credit card accounts from several different card issuers with associated credit bureau data we estimate both marginal propensities to consume mpcs out of liquidity and interest rate elasticities we also evaluate the ability of different models of consumption to rationalize our results distinguishing the permanent income hypothesis pih liquidity constraints precautionary saving and behavioral models we find that increases in credit limits generate an immediate and significant rise in debt counter to the pih the average mpc out of liquidity ddebt dlimit ranges between 10 14 the mpc is much larger for people starting near their limits consistent with binding liquidity constraints however the mpc is significant even for people starting well below their limit we show this response is consistent with buffer stock models of precautionary saving nonetheless there are other results that conventional models cannot easily explain e g why so many people are borrowing on their credit cards and simultaneously holding low yielding assets unlike most other studies we also find strong effects from changes in account specific interest rates the long run elasticity of debt to the interest rate is approximately 1 3 less than half of this elasticity represents balance shifting across cards with most reflecting net changes in total borrowing the elasticity is larger for decreases in interest rates than for increases which can explain the widespread use of temporary promotional rates the elasticity is smaller for people starting near their credit limits again consistent with liquidity constraints

the transmission of international shocks a factor augmented var approach the empirical literature on the transmission of international shocks is based on small scale vars in this paper we use a large panel of data for 17 industrialized countries to investigate the international transmission mechanism and revisit the anomalies that arise in the empirical literature we propose a factor augmented var favar that extends the model in bernanke boivin and eliasz 2003 to the open economy the main results can be summarized as follows first the dynamic effects on the uk economy of an unanticipated fall of short term interest rates in the rest of the world are real house price inflation investment gdp and consumption growth peak after one year wages peak after two years cpi and gdp deflator inflation peak during the third year second a positive international supply shock makes the distribution of the components of the uk consumption deflator negatively skewed third in response to a domestic monetary shock we find no evidence of the exchange rate and liquidity puzzles and little evidence of the forward discount and price anomalies

price and control elasticities of demand for savings assumptions about individual demand for savings underlie workhorse models of macroeconomics intertemporal choice and intra household bargaining and policy interventions in a randomized experiment a philippine bank tested sensitivity to interest rates and account ownership requirements in 10 000 door to door solicitations for a commitment savings account the price elasticity is not significantly different than zero for both the full sample and subgroups of plausibly marginal savers and it has an upper bound that implies an elasticity of intertemporal substitution below the 0 7 emphasized by attanasio and weber 2010 nor do we find sensitivity to ownership requirements in the full sample or sub groups

the changing international transmission of financial shocks evidence from a classical time varying favar we study the changing international transmission of financial shocks over the period 1971 2012 global financial shocks are measured as unexpected changes of a u s financial conditions index fci developed by hatzius et al 2010 we model the fci jointly with a large international data set through a time varying parameter factor augmented var and find that financial shocks have a considerable impact on growth in the nine countries considered moreover financial shocks during the global financial crisis are found to be large by historical standards they explain approximately 20 of gdp growth variation on average over 2008 9 compared to an average of 5 prior to the crisis

exponential growth bias and household finance exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively we show that exponential growth bias can explain two stylized facts in household finance the tendency to underestimate an interest rate given other loan terms and the tendency to underestimate a future value given other investment terms bias matters empirically more biased households borrow more save less favor shorter maturities and use and benefit more from financial advice conditional on a rich set of household characteristics there is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication what drives household financial decisions the canonical economic model assumes that consumers choose to consume borrow or save based on their preferences their expectations and the costs and benefits of borrowing and saving a growing body of work applies insights from psychology to enrich specifications of three of the model s key pieces preferences expectations and problem solving conditional on parameter values 1 in this paper we bring psychological evidence to bear on a fourth specification issue how consumers perceive the costs and benefits of borrowing and saving we begin by tying together existing and new evidence on these cost perceptions to show that most consumers err systematically when given information commonly available in the market on the saving side consumers display future value bias a systematic tendency to underestimate a future value given

design choices in privatized social security systems learning from the swedish experience in the 2000 u s presidential campaign george w bush advocated a partial privatization of the social security system according to his plan a portion of the payroll tax would be designated for individual savings accounts at the same time as this issue was being debated in the united states sweden was in the process of launching a system that is very similar to president bush s proposal although bush s plan did not get much attention in the early years of his administration the proposal may resurface either in the united states or in other countries if so important lessons can be learned from the swedish experience in particular the swedish plan adopted an interesting mix of design choices that can now be evaluated based on three years of post implementation experience although there is a large literature in economics on the design of social security systems most of that literature is concerned with macroeconomic considerations such as funding in contrast there has been much less attention devoted to the details of how plans might be designed in part because these details do not seem important from a standard economic perspective in this paper we reverse this usual pattern and focus our attention on the design aspects of the swedish plan we find that although most of the design choices are those that might be approved by most economists in some cases these choices produced undesirable consequences

time variation in macro financial linkages summary we analyze the contribution of credit spread house and stock price shocks to the us economy based on a time varying parameter vector autoregressive model we find that the contribution of financial shocks to gross domestic product growth fluctuates from about 20 in normal times to more than 50 during the great recession the great recession and the subsequent weak recovery can largely be traced back to negative housing shocks housing shocks have become more important for the real economy since the early 2000s and negative housing shocks are more important than positive ones unexpected increases in credit spreads have not been deflationary recently copyright 2016 john wiley sons ltd

the great recession us dynamics and spillovers to the world economy abstract this paper provides an empirical investigation of both the within us and international channels of transmission of macroeconomic and financial shocks by means of a 50 country macroeconometric model estimated over the 1980 2009 period including measures of excess liquidity and financial fragility specifically designed in order to evaluate the relevance of the boom bust credit cycle view put forward as an interpretation of the recent great recession episode we find that such a view is consistent with the empirical evidence moreover concerning the real effects of financial shocks within the us we detect stronger evidence of an asset prices channel rather than a liquidity channel concerning the spillovers to the world economy we find that while financial disturbances are transmitted to foreign countries through us house and stock price dynamics as well as excess liquidity creation the trade channel is the key trasmission mechanism of real shocks

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

commodity prices and fiscal policy design procyclical despite a rule recent studies offer evidence of reduced fiscal procyclicality to commodity price changes in resource rich countries a feature commonly attributed to the adoption of fiscal policy rules we revisit this issue and find that by controlling for global activity shocks while allowing for time varying changes in both fiscal policy and the volatility of shocks this finding does not hold to show this we develop a time varying dynamic factor model allowing for a multiple of shocks stochastic volatility and time varying parameters and estimate it on data for norway whose handling of resource wealth is often cited as exemplary

the transmission mechanism in a changing world this paper aims at improving the understanding of the transmission of shocks across countries and how this transmission may have changed over time by employing a model that allows for parameter changes across regimes we show that transmission of shocks from the us to european countries may depend on the values of transition variables such as financial prices exchange rates international capital flows trade links and monetary policy instruments we also show that transmission mechanisms estimated with the proposed models have good performance in describing the 2001 downturn in some european countries as an effect of a us shock more generally the models have a good forecasting performance over short horizons

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

gender bias in power relationships evidence from police traffic stops we test for the existence of gender bias in power relationships specifically we examine whether police officers are less likely to issue traffic tickets to men or to women during traffic stops whereas the conventional wisdom which we document with surveys is that women are less likely to receive tickets our analysis shows otherwise examination of a pooled sample of traffic stops from five locations reveals no gender bias but does show significant regional variation in the likelihood of citations analysis by location shows that women are more likely to receive citations in three of the five locations men are more likely to receive citations in the other two locations to our knowledge this study is the first to test for gender bias in traffic stops and clearly refutes the conventional wisdom that police are more lenient towards women