The Unassuming Economist

From a paper by Rasmus Bisgaard Larsen, Søren Hove Ravn, and Emiliano Santoro:

“We present aggregate and regional evidence showing that U.S. house prices increase persistently in response to positive shocks to fiscal spending. In sharp contrast to this, house prices decline in conventional dynamic general equilibrium models, where shocks that have short-lived effects on the shadow value of housing inevitably generate negative comovement between households’ marginal utility of consumption and house prices (see Barsky et al., 2007). In response to an increase in government spending, the negative wealth effect exerted by the simultaneous increase in the present-value tax burden increases the marginal utility of consumption. Even overcoming the consumption crowding-out puzzle is not sufficient to resolve this shortcoming. To tackle this problem, we extend an otherwise standard model embedding a lender-borrower relationship with alternative—yet, potentially complementary—propagation channels that leverage the expansion in total factor productivity stemming from a positive shock to fiscal spending, so as to contrast the negative wealth effect of higher taxes. This class of models succeeds in generating a persistent expansion in house prices, although the propagation required to match the data is stronger—in some cases significantly so—than what is typically found in the literature. The positive interplay between house prices and productivity finds support in both aggregate and regional data.”

From a paper by Remi Jedwab, Elena Ianchovichina, and Federico Haslop:

“Census data for 7000 cities – three fourth of the world’s urban population – reveal that cities of the same population size in countries with similar development levels differ substantially in terms of their employment composition, especially in the developing world. Using these data, we classify cities into production cities with high employment shares of urban tradables (e.g., manufacturing or business services), consumption cities with high employment shares of urban non-tradables (e.g., retail and personal services), or neutral cities with a balanced mix of urban tradables and non-tradables. After establishing stylized facts regarding the sectoral distribution of employment in our global sample of cities, we discuss the various paths by which developing nations may urbanize through production cities – via industrialization or tradable services – or consumption cities – via resource exports, agricultural exports, or deindustrialization. Country and city-level data corroborate our hypotheses. Results on the construction of very tall buildings also provide suggestive evidence on the relationship between resource exports and consumption cities. Importantly, consumption cities seem to present lower growth opportunities than production cities, diminishing the role of cities as “engines of growth.” Understanding how sectoral structure mediates the urbanization-growth relationship and how consumption cities become production cites is thus highly relevant for policy.”

From a paper by Patrice Ollivaud and Cyrille Schwellnus:

“Productivity growth in most advanced economies has slowed significantly over the past five decades. The negative impact on real wage growth has been amplified by declines in labour income shares, which have been particularly pronounced during the period 1983-2007. This chapter analyses labour share developments using a combination of country, industry and firm-level data. Technological change in the investment goods-producing sector and greater global value chain participation have tended to compress labour shares, but the effects have been significantly less pronounced in Japan and most European countries than in the United States. Firm-level evidence suggests that declines in labour shares reflect technological dynamism rather than anti-competitive forces. Policies that raise human capital through education and training play a crucial role to broaden the sharing of productivity gains by ensuring that workers can make the most of ongoing technological advances.”

From a paper by Theo Eicher, Reina Kawai Eskimez, and Monique Newiak:

“Crises often require economic consolidations that may unevenly affect different segments of the population. Some crisis countries enter financial arrangements with the IMF and adopt adjustment programs, and studies have associated program conditionality with negative impacts on gender inequality. Proper evaluations of the impacts of IMF-supported programs on gender inequality require, however, credible control groups that address the counterfactual: do post-crisis gender disparities evolve differently without an IMF-supported program? We examine over 150 IMF-supported programs (1994-2022) using custom-tailored control groups that match each IMF-supported program country’s gender and economic trends and find overwhelming evidence against systematic impacts of IMF-supported programs on gender equality.”

From a paper by Weizhuojia Peng, Weibai Liu, Yijia Li:

“This paper examines the impact of financial development on pollution reduction at the enterprise level using statistical data from 30 provinces in China from the period 2018 to 2022. The effect of financial development on pollution reduction is examined separately from the perspectives of scale effect and technology effect. Although there are significant regional differences in the impact of the increased use of financial instruments on pollution reduction in different provinces of China, on balance the greater use of financial tools decreases pollution, reflecting the technological effect of utilizing financial tools exceeds the scale effect. Heterogeneity analysis shows that the impact of financial development on pollution reduction of private enterprises is higher than that of state-owned enterprises. The paper also discusses the implications for China in achieving carbon peak and carbon neutrality and promoting high-quality economic development and an economic green transformation. Since improvement in the financial system is a key to improving the environment, the increased efficiency of financial tools enhances this improvement.”