The Unassuming Economist

From a new IMF working paper by Manoj Atolia, Prakash Loungani, Helmut Maurer, and Willi Semmler:

“The Integrated Assessment Model (IAM) has extensively treated the adverse effects of climate change and the appropriate mitigation policy. We extend such a model to include optimal policies for mitigation, adaptation and infrastructure investment studying the dynamics of the transition to a low fossil-fuel economy. We focus on the adverse effects of increase in atmospheric CO2 concentration on households. Formally, the model gives rise to an optimal control problem of finite horizon consisting of a dynamic system with five-dimensional state vector consisting of stocks of private capital, green capital, public capital, stock of brown energy in the ground, and emissions. Given the numerous challenges to climate change policies the control vector is also five-dimensional. Our solutions are characterized by turnpike property and the optimal policy that accomplishes the objective of keeping the CO2 levels within bound is characterized by a significant proportion of investment in public capital going to mitigation in the initial periods. When initial levels of CO2 are high, adaptation efforts also start immediately, but during the initial period, they account for a smaller proportion of government’s public investment.”

From a new IMF working paper:

“I regress real GDP growth rates on the IMF’s growth forecasts and find that IMF forecasts behave similarly to those generated by overfitted models, placing too much weight on observable predictors and underestimating the forces of mean reversion. I identify several such variables that explain forecasts well but are not predictors of actual growth. I show that, at long horizons, IMF forecasts are little better than a forecasting rule that uses no information other than the historical global sample average growth rate (i.e., a constant). Given the large noise component in forecasts, particularly at longer horizons, the paper calls into question the usefulness of judgment-based medium and long-run forecasts for policy analysis, including for debt sustainability assessments, and points to statistical methods to improve forecast accuracy by taking into account the risk of overfitting.”

From a new VOX post:

“The impact of trade shocks on labour market shifts is usually studied in the context of re-training and social welfare frictions. Using evidence from Denmark, this column shows how workers can experience long-run reductions in earnings no matter how easy it is to change sector. A sudden and obligatory shift toward a new sector may, by its nature, generate some worker dissatisfaction.”

“Figure 1 shows the import competition-induced sectoral change. Each marker shows the causal effect of import competition in the corresponding year on employment at the respective job/sector indicated in the legend, as captured by the difference-in-difference specification with individual fixed effects.”

“The challenges faced by manufacturing workers, who once exemplified the middle class, have important implications for the whole society. My findings show that adjustment problems do not end once manufacturing workers find full-time jobs in the growing service sector. And the Danish labour market institutions, despite being successful in keeping the workers within the labour market and ensuring fast inter-sectoral movement as well as largely covering the earnings losses of workers with transfers, were not fully successful in relieving the pain of the people whose human capital is not relevant for service sector jobs. In the end one feels better when earning a living rather than getting a transfer, and when enjoying and taking pride in work rather than changing from one job to another due to skill mis-match. Thus, it may be unavoidable that a sudden and obligatory shift toward a new sector demanding new skills leads to dissatisfaction. Although, the social system in Denmark may be a factor in keeping the dissatisfaction within limits and preventing unwanted political consequences.”

From a new working paper:

“Economic forecasts are often disseminated via a survey of professionals (i.e. “Consensus”). In this paper we compare and contrast the Consensus with a crowdsourced alternative wherein anyone may submit a forecast. We focus on U.S. Nonfarm Payrolls and find that, on average, Consensus is more accurate, but the best crowdsourced forecasters are superior to the best Consensus forecasters. We also find that information plays a key role. When the Consensus is uncertain and herds together, the crowdsourced forecasts appear to be more. Our findings provide evidence that crowdsourcing might provide a valuable supplement to traditional macroeconomic forecasts.”

On cross-country:

• The state of the housing market in the euro area – European Central Bank
• We let kids design our city — here’s what happened | Mara Mintzer – TEDxMileHigh
• Inflation measures should add house prices to prevent bubbles – Financial Times
• Q3 2018: World’s housing markets poised to slow, but strong house price rises continue in Europe and parts of Asia – Global Property Guide
• Blueprint for Better Housing: New Urban Agenda – The American Institute of Architects

On the US:

• The housing market is having a wobble – Economist
• Non-bank firms are now big players in America’s mortgage market – Economist
• How Many Young Homebuyers Get Support from Their Parents and How Much of a Difference Does It Make? – Harvard Joint Center for Housing Studies
• Amazon’s Northern Virginia headquarters could exacerbate existing economic disparities – Brookings
• Are Housing Price Cycles Asymmetric? Evidence from the US States and Metropolitan Areas – IDEAS
• The Major Challenge of Inadequate U.S. Housing Supply – FreddieMac
• Should California subsidize housing with ‘rent stamps’? – San Francisco Chronicle

On other countries:

• [France] The Costs of Agglomeration: House and Land Prices in French Cities – Review of Economic Studies
• [Germany] Germany’s house price rises continue – Global Property Guide
• [Hong Kong] Hong Kong’s red-hot property market – Global Property Guide
• [Ireland] Review of residential mortgage lending requirements – Central Bank of Ireland

Photo by Aliis Sinisalu