on the optimal design of place based policies a structural evaluation of eu regional transfers we quantify general equilibrium effects of place based policies in a multi region framework with population mobility trade and agglomeration economies using detailed data on eu transfers we infer the local effects of different transfer types on productivity income and transportation cost based on these estimates and the general equilibrium model we derive the spatial distribution of economic activity and the resulting aggregate welfare effects if i no transfers were paid and taxes set to zero ii transfers were distributed uniformly iii transfers were welfare optimally distributed characterizing the optimal distributions we reveal complementarities between transfer types and between transfers and local endowments

do long term interest rates drive gdp and inflation in small open economies evidence from poland this article investigates the impact of long term interest rates on macroeconomic variables in a small open economy it shows that the time varying term premium stabilizes gdp without affecting sig

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

macroeconomics and the term structure this paper provides an overview of the analysis of the term structure of interest rates with a special emphasis on recent developments at the intersection of macroeconomics and finance the topic is important to investors and also to policymakers who wish to extract macroeconomic expectations from longer term interest rates and take actions to influence those rates the simplest model of the term structure is the expectations hypothesis which posits that long term interest rates are expectations of future aver age short term rates in this paper we show that many features of the configuration of interest rates are puzzling from the perspective of the expectations hypothesis we review models that explain these anomalies using time varying risk premia although the quest for the fundamental macroeconomic explanations of these risk premia is ongoing inflation uncertainty seems to play a large role finally while modern finance theory prices bonds and other assets in a single unified framework we also consider an earlier approach based on segmented markets market segmentation seems important to understand the term structure of interest rates during the recent financial crisis jel e31 e43 e52 e58

transportation costs agricultural productivity and cross country income differences i document large difierences in domestic transport costs and transportation infrastructure across nations the richest countries have 5 times lower transport costs and 32 times more infrastructure per capita than the poorest countries of the world are these difierences a source of aggregate labor productivity difierences across nations using a three sector two region general equilibrium model i show that high transport costs can distort the allocation of resources not only across geographically dispersed production units within sectors but also between agriculture and non agriculture taking as given the observed difierences in transportation costs and transportation infrastructure per capita i quantify the role of transportation for cross country income difierences the calibrated model produces an income disparity of 7 5 between the 5 rich and 5 poor countries this corresponds to an improvement of 50 relative to the disparity predicted by a two sector model of agriculture and non agriculture furthermore the efiects of advancements in transportation are non linear the elasticity of aggregate labor productivity with respect to transport labor productivity in the poorest nations is 6 times higher than in the richest ones the efiects of transport frictions are even more pronounced when restrictions to regional migration are introduced

commuting migration and local employment elasticities many changes in the economic environment are local including policy changes and infrastructure investments the effect of these changes depends crucially on the ability of factors to move in response therefore a key object of interest for policy evaluation and design is the elasticity of local employment to these changes in the economic environment we develop a quantitative general equilibrium model that incorporates spatial linkages between locations in goods markets trade and factor markets commuting and migration we find substantial heterogeneity across locations in local employment elasticities we show that this heterogeneity can be well explained with theoretically motivated measures of commuting flows without taking into account this dependence estimates of the local employment elasticity for one location are not generalizable to other locations we also find that commuting flows and their importance cannot be accounted for with standard measures of size or wages at the county or commuting zone levels

an expenditure based estimate of britain s black economy abstract we estimate the size of britain s black economy defined narrowly as unreported taxable income by using income and expenditure data drawn from the 1982 family expenditure survey our working assumptions are that all income groups report expenditure on food correctly employees in employment report income correctly and that the self employed under report their income we estimate food exependiture equations for all groups and then invert them to arrive at the conclusion that on average true self employment income is 1 55 times as much as reported self employment income this implies that the size of the black economy is about 5 5 percent of gdp

the making of the modern metropolis evidence from london modern metropolitan areas involve large concentrations of economic activity and the transport of millions of people each day between their residence and workplace we use the revolution in transport technology from the invention of steam railways newly constructed spatially disaggregated data for london from 1801 1921 and a quantitative urban model to provide evidence on the role of these commuting flows in supporting such concentrations of economic activity steam railways dramatically reduced travel times and permitted the first large scale separation of workplace and residence we show that our model is able to account for the observed changes in the organization of economic activity both qualitatively and quantitatively in counterfactuals we find that removing the entire railway network reduces the population and the value of land and buildings in greater london by 20 percent or more and brings down commuting into the city of london from more than 370 000 to less than 60 000 workers

how important are dual economy effects for aggregate productivity this paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity tfp development accounting research has shown that much of the variation in income across countries can be attributed to differences in tfp the dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture data show large differences in marginal products of similar factors within many developing countries offering prima facie evidence of this misallocation using a simple two sector decomposition of the economy this article estimates the role of these misallocations in accounting for the cross country income distribution a key contribution is the ability to bring sector specific data on human and physical capital stocks to the analysis variation across countries in the degree of misallocation is shown to account for 30 40 of the variation in income per capita and up to 80 of the variation in aggregate tfp

inequality the urban rural gap and migration using population and product consumption data from the demographic and health surveys i construct comparable measures of inequality and migration for 65 countries including some of the poorest countries in the world i find that the urban rural gap accounts for 40 of mean country inequality and much of its cross country variation one out of every four or five individuals raised in rural areas moves to urban areas as a young adult where they earn much higher incomes than nonmigrant rural permanent residents equally one out of every four or five individuals raised in urban areas moves to rural areas as a young adult where they earn much lower incomes than their nonmigrant urban cousins these flows and relative incomes are suggestive of a world where the population sorts itself geographically on the basis of its human capital and skill i show that a simple model of this sort explains the urban rural gap in living standards

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

a spatial perspective on european integration heterogeneous welfare and migration effects from the single market and the brexit we use a quantitative model to study the implications of european integration for welfare and net migration flows across 1 280 european regions the model suggests that an increase of trade barriers to the level of 1957 reduces welfare by about 5 8 on average depending on the presumed trade elasticity however remote regions may face initial welfare losses of up to 10 these heterogeneous welfare effects cause estimated net migration of 1 9 of the population to the european geographic center implying that the dismantling of trade barriers in europe has led to a more homogeneous spatial distribution of economic activity with regard to the brexit we find moderate welfare losses for the united kingdom of 1 05 in the most pessimistic scenario while continental europe s welfare declines by 0 41 jel f15 r12 r13 r23

who wins who loses understanding the spatially differentiated effects of the belt and road initiative this paper examines how cities and regions within countries are likely to adjust to trade openness and improved connectivity driven by large transport investments from china s belt and road initiative the paper presents a quantitative economic geography model alongside spatially detailed information on the location of people economic activity and transport costs to international gateways in central asia to identify which places are likely to gain and which places are likely to lose the findings are that urban hubs near border crossings will disproportionately gain while farther out regions with little comparative advantage will be relative losers complementary investments in domestic transport networks and trade facilitation are complementary policies and can help in spatially spreading the benefits however barriers to domestic labor mobility exacerbate spatial inequalities whilst dampening overall welfare

the agricultural productivity gap in europe for fifteen european countries over the 1970 2004 period we establish that there is a large and persistent agricultural productivity gap the ratio of labor productivity in non agriculture to that in agriculture correcting for under reporting of selfemployment income in both agriculture and non agriculture significantly reduces the measured agricultural productivity gap for countries with information on years of school and experience at the sector level we also find substantially higher human capital in non agriculture than in agriculture our findings suggest that measured labor productivity differences between agriculture and non agriculture in european countries are not an indicator of resource misallocation but possibly an artifact of mismeasurement of value added and sectoral differences in human capital

the business cycle implications of the euro adoption in poland this article analyses the macroeconomic impact of the loss of autonomous monetary policy after the euro adoption in poland using a two country dynamic stochastic general equilibrium dsge model with sticky prices and wages we find that the euro adoption will have a noticeable impact on the magnitude of economic fluctuations in particular the volatility of output interest rate consumption and employment is expected to increase while the volatility of inflation should decrease also in order to quantify the effect of the euro adoption we compute the welfare effect of this monetary policy change our findings suggest that the welfare cost is not large

us agricultural exports and labor market adjustments this study empirically investigates the impact of us agricultural exports on farm and nonfarm employment and tests how individuals adjust to agricultural export shocks based on the data from 1991 to 2017 and a bartik style instrument that exploits cross regional variation in agricultural export exposure stemming from initial differences in agricultural specialization and temporal variation in predicted us exports from exogenous tariff reductions we find that a 1 increase in agricultural exports increases farm employment by 0 302 and has no statistically significant impact on nonfarm employment the individual level analysis shows that in response to positive agricultural export demand shocks natives with a college degree are more likely to become self employed and start farm activities and while non natives without a college degree are more likely to become hired farmworkers a back of the envelope calculation based on the estimates of agricultural trade elasticities of employment shows that on balance job gains due to us agricultural exports are slightly larger than job loss due to agricultural imports resulting in a net gain of around 0 24 million farm jobs over 1991 2017

structural change accounting with labor market distortions abstract this paper quantifies the relative importance of sectoral productivity and labor market distortions for structural change in the u s india mexico and brazil between 1960 and 2005 i use census data to compute human capital by sector and infer labor market distortions as sectoral gaps in wage per unit of human capital i incorporate these distortions into a model of structural change and calibrate the model to reproduce the time paths of sectoral shares of labor and value added for each country counterfactuals reveal that 1 tfp growth in agriculture drives most of the decline in its share of labor 2 the role of labor market distortions is limited

the aggregate productivity effects of internal migration evidence from indonesia we estimate the aggregate productivity gains from reducing barriers to internal labor migration in indonesia accounting for worker selection and spatial differences in human capital we distinguish between movement costs which mean workers will move only if they expect higher wages and amenity differences which mean some locations must pay more to attract workers we find modest but important aggregate impacts we estimate a 22 percent increase in labor productivity from removing all barriers reducing migration costs to the us level a high mobility benchmark leads to a 7 1 percent productivity boost these figures hide substantial heterogeneity the origin population that benefits most sees a 104 percent increase in average earnings from a complete barrier removal or a 25 percent gain from moving to the us benchmark

structural change in a multisector model of growth we study a multi sector model of growth with differences in tfp growth rates across sectors and derive sufficient conditions for the coexistence of structural change characterized by sectoral labour reallocation and constant aggregate growth path the conditions are weak restrictions on the utility and production functions commonly applied by macroeconomists we present evidence from us two digit industries that is consistent with our predictions about structural change and successfully calibrate the historical shift from agriculture to manufacturing and services we show quantitatively that reasonable deviations from our conditions do not have a big impact on the properties of the model

international spillovers of quantitative easing abstract this paper develops a two country model with asset market segmentation to investigate the effects of quantitative easing implemented by the major central banks on a typical small open economy that follows independent monetary policy the model is able to replicate the key empirical facts on emerging countries response to large scale asset purchases conducted abroad including inflow of capital to local sovereign bond markets an increase in international comovement of term premia and change in the responsiveness of the exchange rate to interest rate differentials according to our simulations quantitative easing abroad boosts domestic demand in the small economy but undermines its international competitiveness and depresses aggregate output at least in the short run this is in contrast to conventional monetary easing in the large economy which has positive spillovers to output in other countries we also find that limiting quantitative easing spillovers might require policies that affect directly international capital flows like purchasing assets by the small economy s central bank

economic growth lessons from two centuries of american agriculture this paper reviews the growth experience of u s agriculture over the past two centuries in consonance with the view that growth is determined by the economic environment which consists of the available technology incentives constraints and institutions within this framework the implemented technology is determined jointly with the resource allocation the review covers the role played by resource endowment resource flow technical change and its factor bias and product demand it highlights the importance of the income elasticity of demand and the labor augmentation of the technical change the total factor productivity tfp was almost nil at the beginning of the nineteenth century increasing gradually to the point where it exhausted output growth in the latter part of the twentieth century this pattern is consistent with the postulate emerging from this framework where the tfp is endogenous and determined jointly with growth rather than determining it the more recent performance of u s agriculture is placed within a global perspective in order to generalize the discussion

the determinants and welfare implications of us workers diverging location choices by skill 1980 2000 abstract from 1980 to 2000 the rise in the us college high school graduate wage gap coincided with increased geographic sorting as college graduates concentrated in high wage high rent cities this paper estimates a structural spatial equilibrium model to determine causes and welfare consequences of this increased skill sorting while local labor demand changes fundamentally caused the increased skill sorting it was further fueled by endogenous increases in amenities within higher skill cities changes in cities wages rents and endogenous amenities increased inequality between high school and college graduates by more than suggested by the increase in the college wage gap alone jel d31 i26 j24 j31 j61 r23

shift share designs theory and inference we study inference in shift share regression designs such as when a regional outcome is regressed on a weighted average of sectoral shocks using regional sector shares as weights we conduct a placebo exercise in which we estimate the effect of a shift share regressor constructed with randomly generated sectoral shocks on actual labor market outcomes across u s commuting zones tests based on commonly used standard errors with 5 nominal significance level reject the null of no effect in up to 55 of the placebo samples we use a stylized economic model to show that this overrejection problem arises because regression residuals are correlated across regions with similar sectoral shares independent of their geographic location we derive novel inference methods that are valid under arbitrary cross regional correlation in the regression residuals we show using popular applications of shift share designs that our methods may lead to substantially wider confidence intervals in practice