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Fiscal Stabilisation 2.0

We compare the effectiveness of common discretionary fiscal policies in stabilizing aggregate demand using a structural model of the U.S. economy with nominal rigidities, incomplete markets and labor-market frictions. Key to our results is the model’s ability to capture the lead-lag relationship of separations and job-finding that contribute about equally to unemployment fluctuations, and the observed degree of self-insurance against unemployment shocks. We find those policies most effective that i) transform much of expenditure into current demand and ii) curb countercyclical precautionary savings by reducing income risk from unemployment. Extensions of unemployment benefit duration, that “insure many through transfers to few”, achieve both and are thus most cost-effective, if limited in scale and sensitive to the degree of self- insurance. Hiring and job subsidies similarly achieve ii) and are thus highly effective. Least effective are government consumption (that achieves i), but not ii)) and universal public transfers (that achieve none).

Colocation and Knowledge Diffusion: Evidence from Million Dollar Plants

This paper uses the entry of large corporations into U.S. counties during the 1980s and 1990s to analyze the effect of plant opening on local innovation activity. We use a difference-indifferences identification strategy exploiting information on the revealed ranking of possible locations for large plants. Under the identifying assumption that locations not chosen (losers) are a counterfactual for the chosen location (winner), we have two main empirical findings. First, patents of these large corporations are 82% more likely to be cited in the winning counties relative to the losing counties after entry. The increase in citations is stronger for more recent patents whereas patent quality does not seem to play an important role. Second, patenting by incumbent inventors in the winning county increases after the entry announcement by 10% with respect to patenting by incumbents in losing counties. An additional effect on patent quality is present when these large entering corporations are have a history of intensive patenting activity. One can infer from these findings that geographical proximity increases knowledge diffusion and that local inventors benefit from the entry of top corporations into their county.

The Long Shadow of the Spanish Civil War

We study the long-lasting effects of the Spanish Civil War (1936-39), between Nationalists and Republicans, on social capital and political attitudes. To this end, we use geo-located data on historical mass graves, disaggregated modern-day survey data on trust and electoral results (1977-2019). For identification, we exploit deviations from the initial military plans of attack in an IV framework and a geographical RDD along the frontline of Aragon. Our cultural results reveal a significantly negative relationship between political violence and generalized trust. Politically, we find more support for right-wing parties during the democratic period in places where Nationalist (Francoist) repression was higher. In terms of mechanisms of persistence—using our own survey and data on street names—we find stronger anti-Franco attitudes and collective memory about the war in formerly Republican areas, as well as more Francoist street names in places that faced more repression historically.

Social networks and (political) assimilation


This paper investigates the causal pathways through which ethnic social networks influence individual naturalization. Using the complete-count Census of 1930, we digitize information on the exact residence of newly arrived immigrants in New York City. This allows us to define networks with a granularity detail that was not used before for historical data - the Census block - and therefore to overcome issues of spatial sorting. By matching individual observations with the complete-count Census of 1940, we estimate the impact that the exogenous fraction of naturalized co-ethnics in the network observed in 1930 has on the probability of immigrants to acquire citizenship a decade later. Our results indicate that the concentration of naturalized co-ethnics in the network positively affects individual naturalization and that this relationship operates through one main channel: information dissemination. Indeed, immigrants who live among naturalized co-ethnics are more likely to naturalize because they have greater access to critical information about the benefits and procedures of naturalization.

Followers or Ignorants? Inflation Expectations and Price Setting Behavior of Firms

Using a customized firm survey and randomized experiment, we investigate how firms’ inflation expectations shape their price setting. Consistent with Calvo pricing, we establish that firms fully pass through inflation expectations to prices in times of high inflation. When informed about central bank inflation forecasts, firms indicate plans to increase prices by 22% less than their untreated peers. In addition, treated firms pass through less of their pre-treatment inflation expectations than control-group firms. When receiving additional central bank forecasts on energy and labor cost developments, the updating of passthrough is even stronger. This suggests that inflation forecast communication shifts expectations and prices and can be an effective policy tool.

Special session: 16:15-17:45 p.m.

Lecture hall 104

Fiscal Austerity and Sovereign Debt Restructurings

Sovereigns implement fiscal austerity, i.e., expenditure consolidation around debt crises. We compile data on fiscal expenditure consolidation around sovereign debt restructurings with private external creditors in 1975–2020. We find that (i) expenditure consolidation precedes preemptive restructurings—“ex ante”—, while occurs upon defaults/post-default restructurings—“ex post”—; and (ii) public investment dynamics and restructuring duration differ between preemptive and post-default restructurings. We build sovereign debt model with endogenous choice of preemptive and post-default renegotiations and public capital accumulation. Our model quantitatively shows that high public capital allows the sovereign to implement ex ante fiscal expenditure consolidation, in turn, results in subsequent preemptive restructurings. Data support theoretical predictions.

On the Persistence of Intergenerational Persistence: The Role of Mobility Beliefs and Aspirations

Equal opportunity and a merit-based society are core liberal ideals. Policies to promote these ideals often aim to transform the landscape of opportunity. However, the ultimate success of such policies relies on individuals seizing these opportunities and their willingness and ambition to climb the social ladder. In this study, we investigate the role of social beliefs on intergenerational mobility in shaping mobility outcomes. In order to explore the role of mobility beliefs, we leverage data on second-generation immigrants who grew up in a common institutional framework but experienced varying levels of intergenerational mobility in their parents' host country. Using data from the United States and Europe, we show that lower intergenerational mobility in the parents’ host country is related to lower intergenerational mobility of the offspring. The diminished mobility of the offspring is primarily attributed to lower aspirations within households and poorer academic performance.

Social Contacts, Unemployment, and Experienced Well-being. Evidence from Time-Use Data  

We use the UK Time-Use Survey to analyze how differences in the frequency and intensity of social contacts contribute to the experienced well-being of employed and unemployed persons. We observe that people generally enjoy being with others more than being alone. The unemployed generally feel worse than the employed when engaging in the same kind of activities, partly because they are more often alone. The unemployed can replace lost work contacts only partially with private contacts. In terms of experienced well-being, however, the small increase in time spent with family and friends (which people enjoy a lot) offsets the loss of work contacts (which people generally enjoy only little). Hence, we do not find that the differences in the social-contact composition between the employed and the unemployed are associated with differences in their experienced well-being.  

Investment under Stormy Skies: The Case of Russian Firm during 2004-2016

In this study, we quantify the effects of uncertainty on investment decisions for the Russian economy. We employ an empirical specification where the dynamics of investment under uncertainty are captured by an error correction model of investment. We use a rich panel of Russian non-financial firms which is uniquely suited to studying investment in Russia over the period 2004-2016. We treat the sanctions regime instituted in 2014 against entities in Russia as a quasi-natural experiment. To control for the heterogeneous effects of the ruble devaluation and oil price decline that occurred concurrently with the sanctions regime, we exploit firm-level and sectoral variation in our micro level data set that covers both large firms and SMEs. We find significant negative effects of uncertainty on the response of investment to demand shocks due to the sanctions regime after isolating the effects of foreign exchange exposure that works through balance sheet channel of the ruble devaluation, the effects of the oil-cost dependence in production as well as of the indirect effects of trade linkages with sanctioning countries on the investment rate.