Creator: Schlegl, Matthias, Trebesch, Christoph, and Wright, Mark L. J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 759 Abstract:
Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that multilateral institutions like the IMF and World Bank are senior creditors.
Stichwort: Sovereign default, IMF, International financial architecture, Pecking order, Insolvency, Official debt, Sovereign bonds, Arrears, and Priority Fach: G10 - General Financial Markets: General (includes Measurement and Data), F30 - International Finance: General, F50 - International Relations, National Security, and International Political Economy: General, and F40 - Macroeconomic Aspects of International Trade and Finance: General
Creator: Luttmer, Erzo G. J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 748 Abstract:
Most firms begin very small, and large firms are the result of typically decades of persistent growth. This growth can be understood as the result of some form of capital accumulation-organization capital. In the US, the distribution of firm size k has a right tail only slightly thinner than 1/k. This means that most capital accumulation must be accounted for by incumbent fi rms. This paper describes a range of circumstances in which this implies aggregate convergence rates that are only about half of what they are in the standard Cass-Koopmans economy. Through the lens of the models described in this paper, the aftermath of the Great Recession of 2008 is unsurprising if the events of late 2008 and early 2009 are interpreted as a destruction of organization capital.
Stichwort: Firm size distribution, Slow recoveries, Zipf's law, and Business cycles Fach: E32 - Business Fluctuations; Cycles and L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Creator: Holmes, Thomas J. and Singer, Ethan Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 739 Abstract:
This paper develops and estimates a model of indivisibilities in shipping and economies of scale in consolidation. It uses highly detailed data on imports where it is possible to observe the contents of individual containers. In the model, ﬁrms are able to adapt to indivisibility constraints by using consolidation strategies and by making adjustments to shipment size. The ﬁrm determines the optimal number of domestic ports to use, taking into account that adding more ports lowers inland freight cost, at the expense of a higher indivisibility cost. The estimated model is able to roughly account for Walmart’s port choice behavior. The model estimates are used to evaluate how mergers or dissolutions of ﬁrms or countries, and changes in variety, affect indivisibility costs and inland freight costs.
Stichwort: Scale economies, Walmart, Technological change, and Indivisibilities Fach: L10 - Market Structure, Firm Strategy, and Market Performance: General, R40 - Transportation Economics: General, and F14 - Empirical Studies of Trade
Creator: Fitzgerald, Terry J. and Nicolini, Juan Pablo Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 713 Abstract:
This paper makes two straightforward points that we argue are central to understanding the literature and debate surrounding the stability of the Phillips curve. First, the endogeneity of monetary policy implies that aggregate data are largely uninformative as to the existence of a stable relationship between unemployment and future inflation. Second, if the NAIRU model is assumed to be true, regional data can be used to identify the structural relationship between unemployment and future inflation. We find that a 1 percentage point increase in the unemployment rate is associated with a roughly 0.3 percentage point decline in inflation over the next year.
Stichwort: Endogenous monetary policy and Stability of the Phillips curve Fach: E58 - Central Banks and Their Policies and E52 - Monetary Policy
Creator: Dinkelman, Taryn and Schulhofer-Wohl, Sam Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 700 Abstract:
The direct benefits of infrastructure in developing countries can be large, but if new infrastructure induces in-migration, congestion of other local publicly provided goods may offset the direct benefits. Using the example of rural household electrification in South Africa, we demonstrate the importance of accounting for migration when evaluating welfare gains of spatial programs. We also provide a practical approach to computing welfare gains that does not rely on land prices. We develop a location choice model that incorporates missing land markets and allows for congestion in local land. Using this model, we construct welfare bounds as a function of the income and population effects of the new electricity infrastructure. A novel prediction from the model is that migration elasticities and congestion effects are especially large when land markets are missing. We empirically estimate these welfare bounds for rural electrification in South Africa, and show that congestion externalities from program-induced migration reduced local welfare gains by about 40%.
Stichwort: Rural infrastructure, South Africa, Program evaluation, Congestion, Welfare, and Migration Fach: R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies, H54 - National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock, H23 - Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies, H43 - Project Evaluation; Social Discount Rate, O18 - Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure, and O15 - Economic Development: Human Resources; Human Development; Income Distribution; Migration
Creator: Kaplan, Greg and Schulhofer-Wohl, Sam Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 697 Abstract:
We analyze the secular decline in interstate migration in the United States between 1991 and 2011. Gross flows of people across states are about 10 times larger than net flows, yet have declined by around 50 percent over the past 20 years. We argue that the fall in migration is due to a decline in the geographic specificity of returns to occupations, together with an increase in workers’ ability to learn about other locations before moving there, through information technology and inexpensive travel. These explanations find support in micro data on the distribution of earnings and occupations across space and on rates of repeat migration. Other explanations, including compositional changes, regional changes, and the rise in real incomes, do not fit the data. We develop a model to formalize the geographic-specificity and information mechanisms and show that a calibrated version is consistent with cross-sectional and time-series patterns of migration, occupations, and incomes. Our mechanisms can explain at least one-third and possibly all of the decline in gross migration since 1991.
Stichwort: Gross flows, Learning, Labor mobility, Interstate migration, and Information technology Fach: J61 - Geographic Labor Mobility; Immigrant Workers, J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics, J11 - Demographic Trends, Macroeconomic Effects, and Forecasts, D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness, and R12 - Size and Spatial Distributions of Regional Economic Activity
Creator: Kehoe, Timothy Jerome, 1953- and Meza, Felipe Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 693 Abstract:
In 1950 Mexico entered an economic takeoff and grew rapidly for more than 30 years. Growth stopped during the crises of 1982–1995, despite major reforms, including liberalization of foreign trade and investment. Since then growth has been modest. We analyze the economic history of Mexico 1877–2010. We conclude that the growth 1950–1981 was driven by urbanization, industrialization, and education and that Mexico would have grown even more rapidly if trade and investment had been liberalized sooner. If Mexico is to resume rapid growth — so that it can approach U.S. levels of income — it needs further reforms.
Stichwort: Economic growth, Mexico, and Total factor productivity Fach: O11 - Macroeconomic Analyses of Economic Development, O54 - Economywide Country Studies: Latin America; Caribbean, and N16 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Latin America; Caribbean
Creator: Chiappori, Pierre-André, Samphantharak, Krislert, Schulhofer-Wohl, Sam, and Townsend, Robert M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 683 Abstract:
We show how to use panel data on household consumption to directly estimate households’ risk preferences. Specifically, we measure heterogeneity in risk aversion among households in Thai villages using a full risk-sharing model, which we then test allowing for this heterogeneity. There is substantial, statistically significant heterogeneity in estimated risk preferences. Full insurance cannot be rejected. As the risk sharing, as-if-complete-markets theory might predict, estimated risk preferences are unrelated to wealth or other characteristics. The heterogeneity matters for policy: Although the average household would benefit from eliminating village-level risk, less-risk-averse households who are paid to absorb that risk would be worse off by several percent of household consumption.
Stichwort: Complete markets, Heterogeneity, Risk preferences, and Insurance Fach: D12 - Consumer Economics: Empirical Analysis, G11 - Portfolio Choice; Investment Decisions, O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance, D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, D14 - Household Saving; Personal Finance, D81 - Criteria for Decision-Making under Risk and Uncertainty, and D53 - General Equilibrium and Disequilibrium: Financial Markets
Creator: Holmes, Thomas J. and Lee, Sanghoon Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 668 Abstract:
We estimate the factors determining specialization of crop choice at the level of individual fields, distinguishing between the role of natural advantage (soil characteristics) and economies of density (scale economies achieved when farmers plant neighboring fields with the same crop). Using rich geographic data from North Dakota, including new data on crop choice collected by satellite, we estimate the analog of a social interactions econometric model for the planting decisions on neighboring fields. We find that planting decisions on a field are heavily dependent on the soil characteristics of the neighboring fields. Through this relationship, we back out the structural parameters of economies of density. Setting an Ellison-Glaeser dartboard level of specialization as a benchmark, we find that of the actual level of specialization achieved beyond this benchmark, approximately two-thirds can be attributed to natural advantage and one-third to density economies.
Fach: R14 - Land Use Pattern, R12 - Size and Spatial Distributions of Regional Economic Activity, and Q10 - Agriculture: General
Creator: Yang, Fang Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 635 Abstract:
Micro data over the life cycle shows two different patterns of consumption of housing and non-housing goods: the consumption profile of non-housing goods is hump-shaped while the consumption profile for housing first increases monotonically and then flattens out. These patterns hold true at each consumption quartile. This paper develops a quantitative, dynamic general equilibrium model of life cycle behavior, which generates consumption profiles consistent with the observed data. Borrowing constraints are essential in explaining the accumulation of housing assets early in life, while transaction costs are crucial in generating the slow downsizing of the housing assets later in life. The bequest motives play a role in determining total life time wealth, but not the housing profile.
Stichwort: Life cycle, Housing, Consumption, and Distribution Fach: J14 - Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination, E21 - Macroeconomics: Consumption; Saving; Wealth, and R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand