The Unassuming Economist

From a new NBER paper by Philip J. Glandon, Kenneth Kuttner, Sandeep Mazumder & Caleb Stroup:

“How is macroeconomic research conducted and what is it trying to accomplish? We explore these questions using information gleaned from 1,894 articles published in ten leading journals. We find that over the past 40 years there has been a growing emphasis on increasingly sophisticated quantitative theory, such as DSGE modeling, and papers employing these methods now account for the majority of articles in macro journals. The shift towards quantitative theory is mirrored by a decline in the use of econometric methods to test economic hypotheses. Econometric techniques borrowed from applied microeconomics have to a large extent displaced time series methods, and empirical papers increasingly rely on micro and proprietary data sources. Market imperfections are pervasive, and the amount of research involving financial frictions has increased significantly in the past ten years. The frequency with which non-macro JEL codes appear in macro articles indicates a great deal of overlap between macroeconomics and other fields.”

Source: Journal of Political Economy

“Do elites capture foreign aid? This paper documents that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management but not in other financial centers. The estimates are not confounded by contemporaneous shocks—such as civil conflicts, natural disasters, and financial crises—and are robust to instrumenting using predetermined aid commitments. The implied leakage rate is around 7.5% at the sample mean and tends to increase with the ratio of aid to GDP. The findings are consistent with aid capture in the most aid-dependent countries.”

Click here to read the full paper and here to join the discussion on it.

A new paper studies mortgage loan approval rates for white and blacks. “In the first seven days of the month, Black applicants have 20 percentage point lower approval rates than white applicants. The approval gap declines to just 10 percentage points on the last day the month,” as shown in the figure below. Why? The authors examine the hypothesis that this occurs because loan officers have monthly volume quotas, which gives “them less scope to apply subjective preferences” at the end of the month. They calculate “an upper bound for the costs of discrimination”: “if the Black approval gap on each day of the month was as small as it was on the last day, approximately 1.4 million more Black applicants would have been approved between 1994 and 2018,” corresponding to over $200 billion in total loan volume.  

The figure reports approval rates, which we define as the fraction of loans that are originated out of the total number of applications (excluding withdrawn applications). We present the difference between the Black approval rate and the white approval rate on each day.

Link to Alvin Rabushka’s page.

In a new IMF blog (2022), Tobias Adrian et al write about the effectiveness and risks of counter-cyclical monetary policy measures taken by central banks in emerging markets, specifically asset purchases.

‘Targeted asset purchases helped emerging markets manage financial distress during the COVID-19 crisis without noticeable capital outflow and exchange rate pressures but also pose significant risks, including the risk to central banks’ own balance sheets and governments pressuring central banks to act in a certain way’. It then goes on to discuss some principles for asset purchases and direct financing that may help central banks override this problem.

Click here to read the full blog.