The Unassuming Economist

From a NBER paper by Marco Leonardi & Enrico Moretti:

“In many cities, restaurants and retail establishments are spatially concentrated. Economists have long recognized the presence of demand externalities that arise from spatial agglomeration as a possible explanation, but empirically identifying this type of spillovers has proven difficult. We test for the presence of agglomeration spillovers in Milan’s restaurant sector using the abolition of a unique regulation that until recently restricted where new restaurants could locate. Before 2005, Milan mandated a minimum distance between restaurants that kept the spatial distribution of restaurants artificially uniform. As a consequence, restaurants were evenly distributed across neighborhoods. The regulation was abolished in 2005 by a nationwide reform that allowed new restaurants to locate anywhere in the city. Using administrative data on the universe of restaurants and retail establishments in Milan between 2000 and 2012, we study how the spatial distribution of restaurants changed after the reform. Consistent with the existence of significant agglomeration externalities, we find that after 2005, the geographical concentration of restaurants increased sharply. By 2012, 7 years after the liberalization of restaurant entry, the city’s restaurants had agglomerated in some neighborhoods and deserted others. By contrast, not much happened to the spatial concentration of retail establishments or even retail establishments that sell food, which were never covered by the minimum distance regulations and therefore were not directly affected by its reform. We also find that in neighborhoods where the number of restaurants grew the most after the reform, restaurants reacted to the increased competition by becoming more differentiated based on price, quality and type of cuisine.”

From Conversable Economist:

“The Federal Reserve Bank of New York puts out a monthly publication called “U.S. Economy in a Snapshot,” a compilation of figures and short notes about the most recently available major macroeconomic statistics. As we take a deep breath and head into 2022, it seemed a useful time to consult pass along some these figures as as a way of showing the path of the US economy since the two-month pandemic recession of March and April 2020.

Here’s the path of GDP growth. It has clearly bounced back from the worse of the recession, but it still remains about 2% below the trend-line from before the recession occurred.

Part of the reason why GDP has not rebounded more fully lies in what is being called the “Great Resignation”–that is, people who left the workforce during the pandemic and have not returned. Just to be clear, to be counted as officially “unemployed” you need to be both out of a job and actively looking for a job. If you are out of a job but not looking, then you are “out of the labor force.” Thus, you can see that while the unemployment rate based on those out of a job and actively looking for work is back down to pre-pandemic levels, the labor force participation rate–which combines those who have job and the unemployed who are looking–has not fully rebounded. A smaller share of the labor force working will typically translate into a smaller GDP. When or if these potential workers return to the workforce will have a big effect on the future evolution of the economy and public policy.”

As described by the tagline of this blog post, it dives deeper into CPI figures for the USA for December 2021 and then discusses their implications. CPI rose by 7 percent year on year in December and 0.5 percent since November 2021, although the rise in demand causing it wasn’t all uniform. The pattern of uneven growth of consumer expenditure on manufactured goods and durables rather than services has been discussed in greater detail, besides issues like inhouse oil production in the US which also exert some influence on the general price level.

Looking ahead, it elaborates upon visible signs that signal a quickly abating inflation using measures like wage growth, prevailing inflation expectations in the market, and the state of aggregate spending in the economy.

Click here to read the full blog.

Source: NBER Working Paper (2022)

Abstract– “Need fluctuates over the business cycle. We conduct a survey revealing a desire for nonprofit activities to countercyclically expand during downturns. We then demonstrate, using comprehensive US nonprofit data drawn from millions of tax returns, that the public’s hopes are disappointed. Nonprofit expenditure, revenue, and balance sheets fluctuate procyclically: contracting during national and local downturns. This finding is evident even for a narrow group of nonprofits the public most wishes would expand during downturns, e.g., those providing critical needs like food or housing. Our new facts contribute to the charitable giving, nonprofit, and business cycle literatures (sic).”

Source: Econbrowser

“Fama (JME, 1984), and Tryon (1979) demonstrated that changes in the exchange rate do not equal the forward premium, in what came to be known as the forward premium puzzle. Since the forward premium equals the interest differential in the absence of current and incipient capital controls and in the absence of default risk — this finding is equivalent to the result that interest rates, after accounting for exchange rate changes, are not equalized on average. In other words, if the yield on the US default-risk-free bond is 2% and the yield on a UK default-risk-free bond is 5%, then the US dollar does not on an average appreciate by 3% against the pound in order to equalize returns.“

While this puzzle has largely persisted for a long time, it disappeared during and after the global financial crisis, until reappearing recently. In this blog, the authors have propounded explanations for the same. Read on to know more.