The Unassuming Economist

As 2018 draws to a close, below is our list of the top ten blogs of the year.

1. RIP Herman Stekler, A Forecasting Giant
2. RIP Deena Khatkhate, far-sighted IMF and RBI economist
3. How Well Do Economists Forecast Recessions? A Groundhog Day Update
4. Economic Growth from Octavian to Obama
5. Affordable Housing: Views from Albert Saiz
6. The Distribution of Gains from Globalization
7. Housing View – January 5, 2018 [2018 AEA Annual Meeting Special Edition]
8. Household Credit, Global Financial Cycle, and Macroprudential Policies: Credit Register Evidence from an Emerging Country
9. Understanding Singapore’s Housing Market
10. Growth and well-being: policy should not be based on GDP alone

Photo by Colton Duke

From Economic Policy Institute:

“Twelve charts that show how policy could reduce inequality—but is making it worse instead

With the unemployment rate at 4 percent or below for eight consecutive months, 2018 appears to be the year when the economy finally became healthy again. But while low unemployment is good news, it doesn’t tell the whole story of how typical families are faring in the current economy.

As the economy normalizes following a long, slow recovery from the Great Recession, we are quickly resuming our prerecession course of rising inequality. The fruits of economic growth are bypassing typical families and going straight into the hands of the already-rich.

Our current policy trajectory is doing nothing to reverse the trend of inequality. But it’s doing plenty to widen it. This year’s edition of Top Charts highlights how policy choices continue to exacerbate inequality and how we can achieve more broadly shared prosperity through better policy choices.

 

Continue reading here.

From a new IMF working paper by Longmei Zhang, Ray Brooks, Ding Ding, Haiyan Ding, Jing Lu, and Rui Mano:

“China’s high national savings rate—one of the highest in the world—is at the heart of its external/internal imbalances. High savings finance elevated investment when held domestically, or lead to large external imbalances when they flow abroad. Today, high savings mostly emanate from the household sector, resulting from demographic changes induced by the one-child policy and the transformation of the social safety net and job security that occured during the transition from planned to market economy. Housing reform and rising income inequality also contribute to higher savings. Moving forward, demographic changes will put downward pressure on savings. Policy efforts in strengthening the social safety net and reducing income inequality are also needed to reduce savings further and boost consumption.”

From a new IMF working paper by Samuel P. Fraiberger, ; Do Lee, Damien Puy, and Romain Ranciere:

“We assess the impact of media sentiment on international equity prices using more than 4.5 million Reuters articles published across the globe between 1991 and 2015. News sentiment robustly predicts daily returns in both advanced and emerging markets, even after controlling for known determinants of stock prices. But not all news-sentiment is alike. A local (country-specific) increase in news optimism (pessimism) predicts a small and transitory increase (decrease) in local returns. By contrast, changes in global news sentiment have a larger impact on equity returns around the world, which does not reverse in the short run. We also find evidence that news sentiment affects mainly foreign – rather than local – investors: although local news optimism attracts international equity flows for a few days, global news optimism generates a permanent foreign equity inflow. Our results confirm the value of media content in capturing investor sentiment.”

From the IMF’s Finance & Development magazine:

“Assaf Razin’s Israel and the World Economy shows that globalization can be a powerful force for economic progress in the case of a country with the institutions and policies to take advantage of the possibilities of an open economy. As depicted in this comprehensive and accessible book, Israel’s strong growth since its stabilization from high inflation in 1985 owes much to an international economy in which capital, labor, and ideas are mobile and in which trade and investment flow readily across far-flung international borders.

Razin explains that where other countries have experienced problems with globalization, Israel has found success. Large capital inflows are understandably viewed as dangerous in emerging markets living with memories of recent currency crises: in Israel foreign capital provided crucial funding for investment in the country’s showcase technology sector. Israel is now solidly established as a high-tech powerhouse—a place where budding venture capitalists from emerging market countries flock to learn how to develop an innovation ecosystem. But the domestic market alone is far too small and homegrown capital formation insufficient to foster that innovation. Globalization has been essential.

Similarly, immigration is a hot-button issue in the United States and in some countries in Europe but a source of growth in Israel. This is because a massive influx of skilled immigrants from the former Soviet Union starting in 1989 led to a surge in productivity, propelling Israel to medium- to high-income status, capped by membership in the Organisation for Economic Co-operation and Development in 2010. And Razin shows that this productivity boom translated into higher wages even for domestic workers who might otherwise have been harmed by the increased labor supply.

There is a sense in which this is three books in one. First, Razin explains the intuition and policy implications of a more globalized world across a range of topics, including migration, inequality, capital flows, currency crises, international trade, and more. The book then connects each topic to developments in the Israeli economy, portraying both successes and challenges in light of the underlying theory. Last, each chapter includes self-contained technical expositions of key models with which to analyze these economic phenomena, making this a text to be considered for a rigorous course on international economic policy.

It is not that Razin thinks Israel has done everything right—far from it. He covers rising inequality within Israeli society, the low participation rates and levels of skills among the fastest-growing segments of the population, the problem of brain drain as highly educated Israelis move abroad, and the costs associated with Israel’s security challenges, including a chapter on the “Rising Cost of Occupation.”

Still, even with Razin’s frankness about the potential pitfalls, his book is an ode to the potential benefits of good economic policy, to economic models through which to examine policy, and to Israel’s astonishing economic success.”