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Does it Payoff to Research Economics? A Tale of Citation, Knowledge and Economic Growth in Transition Countries

Dejan Kovač, Boris Podobnik, Nikol Scrbec
Physica A: Statistical Mechanics and its Applications, September 2018
Abstract
There are many economic theories that promote human capital as a key driver of a country’s economic growth, but it is challenging to test this theory empirically on a country level and causally interpret the coefficients due to several identification problems. We tried to answer this particular question by using a quasi-natural experiment that happened quarter century ago – the fall of communist block in Eastern Europe. We use a shock to a particular scientific field – economics, to test whether the future investment into that particular field resulted in increased welfare and economic growth. The economics paradigm that was governing all of the communist block ceased to exist. Human capital depreciated over night and all communist countries had to transit from planned economy to a market economy. In the following years countries had to adapt to market economy through additional investment in human capital and research. We find that countries which lack both of the two fourth mentioned components had 25 years later a relatively lower economic growth and wealth. Unlike economics, other fields such as physics and medicine did not go through the same process so we use them as a placebo effect for our study. We find that the relative ratio of citations between economics and physics in post-communist countries is increasing only 15 years after the “paradigm” shock which gives a suggestive evidence that timing of investment into particular scientific field matters the most.
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Crises and Rescues: Liquidity Transmission Through Global Banks

Michael Koetter, Claudia M. Buch, C. T. Koch
International Journal of Central Banking, Nr. 4, 2018
Abstract
This paper shows that global banks transmit liquidity shocks via their network of foreign affiliates. We use the (unexpected) access of German banks' affiliates located in the United States to the Federal Reserve's Term Auction Facility. We condition on the parent banks' U.S. dollar funding needs in order to examine how affiliates located outside the United States adjusted their balance sheets when the U.S. affiliate of the same parent tapped into TAF liquidity. Our research has three main findings. First, affiliates tied to parents with higher U.S. dollar funding needs expanded their foreign assets during periods of active TAF borrowing. Second, the overall effects are driven by affiliates located in financial centers. Third, U.S.- dollar-denominated lending particularly increased in response to the TAF program.
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Auswirkungen des gesetzlichen Mindestlohns im Handwerk in Sachsen-Anhalt

Hans-Ulrich Brautzsch, Birgit Schultz
Zeitschrift für Wirtschaftspolitik, Nr. 2, 2018
Abstract
This paper examines the effects of the minimum wage introduction in Germany in 2015 on the skilled crafts sector in Saxony-Anhalt. Using novel survey data on the skilled crafts sector in Saxony-Anhalt, we examine three questions: (1) How many employees are affected by the minimum wage introduction in the skilled crafts sector in Saxony-Anhalt? (2) What are the effects of the minimum wage introduction? (3) How did firms react to wage increase? We find that about 8 % of all employees in the skilled crafts sector in Saxony-Anhalt are directly affected by the minimum wage introduction. A difference-in-difference estimation reveals no significant employment effects of the minimum wage introduction. We test for alternative adjustment strategies and observe a significant increase of output prices.
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Size of Training Firms – The Role of Firms, Luck, and Ability in Young Workers’ Careers

Steffen Müller, Renate Neubäumer
International Journal of Manpower, Nr. 5, 2018
Abstract
The purpose of this paper is to analyze how long-run unemployment of former apprentices depends on the size of their training firm and their ability.
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The Exchange Rate, Asymmetric Shocks and Asymmetric Distributions

Calin-Vlad Demian, Filippo di Mauro
International Economics, August 2018
Abstract
The elasticity of exports to exchange rate fluctuations has been the subject of a large body of literature without a clear consensus emerging. Using a novel sector-level dataset based on firm level information, we show that exchange rate elasticities double in size when country and sector specific firm productivity distributions are considered in the empirical estimations. In addition, exports appear to be sensitive to appreciation episodes, but rather unaffected by depreciations. Finally, only rather large changes in the exchange rate appear to matter. The paper intends to contribute to the debate on the effectiveness and impacts of exchange rate movements, which features highly in the policy agenda.
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On DSGE Models

Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt
Journal of Economic Perspectives, Nr. 3, 2018
Abstract
The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy. A central challenge facing policymakers is how to assess the relative strength of those forces. Economists have a range of tools that can be used to make such assessments. Dynamic stochastic general equilibrium (DSGE) models are the leading tool for making such assessments in an open and transparent manner. We review the state of mainstream DSGE models before the financial crisis and the Great Recession. We then describe how DSGE models are estimated and evaluated. We address the question of why DSGE modelers—like most other economists and policymakers—failed to predict the financial crisis and the Great Recession, and how DSGE modelers responded to the financial crisis and its aftermath. We discuss how current DSGE models are actually used by policymakers. We then provide a brief response to some criticisms of DSGE models, with special emphasis on criticism by Joseph Stiglitz, and offer some concluding remarks.
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Growth through Heterogeneous Innovations

Ufuk Akcigit, William R. Kerr
Journal of Political Economy, Nr. 4, 2018
Abstract
We build a tractable growth model in which multiproduct incumbents invest in internal innovations to improve their existing products, while new entrants and incumbents invest in external innovations to acquire new product lines. External and internal innovations generate heterogeneous innovation qualities, and firm size affects innovation incentives. We analyze how different types of innovation contribute to economic growth and the role of the firm size distribution. Our model aligns with many observed empirical regularities, and we quantify our framework with Census Bureau and patent data for US firms. Internal innovation scales moderately faster with firm size than external innovation.
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Market Power and Risk: Evidence from the U.S. Mortgage Market

Carola Müller, Felix Noth
Economics Letters, 2018
Abstract
We use mortgage loan application data of the Home Mortgage Disclosure Act (HMDA) to shed light on the role of banks’ market power on their presumably insufficient risk screening activities in the U.S. mortgage market in the pre-crisis era. We find that banks with higher market power protect their charter value. The effect is stronger for banks that have more information about local markets.
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Africa’s Skill Tragedy

Jan Bietenbeck, Marc Piopiunik, Simon Wiederhold
Journal of Human Resources, Nr. 3, 2018
Abstract

We study the importance of teacher subject knowledge for student performance in Sub-Saharan Africa using unique international assessment data for sixth-grade students and their teachers. To circumvent bias due to unobserved student heterogeneity, we exploit variation within students across math and reading. Teacher subject knowledge has a modest impact on student performance. Exploiting vast cross-country differences in economic development, we find that teacher knowledge is effective only in more developed African countries. Results are robust to adding teacher fixed effects and accounting for potential sorting based on subject-specific factors.

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The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries

Hans Degryse, Thomas Lambert, Armin Schwienbacher
Economic Journal, Nr. 611, 2018
Abstract
Voting rights were initially limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development, as this new electorate has lower financial holdings and benefits less from the riskiness and financial returns from stock markets. Our panel data evidence covering the years 1830–1999 shows that tighter restrictions on the voting franchise induce greater stock market development, whereas a broader voting franchise is more conducive to the banking sector, consistent with Perotti and von Thadden (2006). The results are robust to controlling for other institutional arrangements and endogeneity.
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