Exploiting Variation In Timing Research Articles

The Role of Households’ Borrowing Constraints in the Transmission of Monetary Policy

This paper investigates how the transmission of monetary policy to the real economy depends on the distribution of household debt. Using an original loan-level dataset covering the universe of UK mortgages, we assess the effect of monetary shocks on aggregate consumption by exploiting time variation in a measure of the proportion of households close to their borrowing constraint. We find that monetary policy is most potent when there is a large share of constrained households. In contrast, we find no evidence that the average level of borrowing relative-to-income of the household sector affects the transmission of monetary policy.

Centralized Admission and the Student-College Match

Decentralized assignments in the education market have been increasingly replaced by centralized ones. However, empirical evidence on these transitions is scarce. This paper examines the adoption of centralized admissions in the Brazilian higher education market. Using rich administrative data, we exploit time variation in the adoption of a clearinghouse across institutions to investigate the impacts on student sorting, migration, and enrollment. We find that institutions under the centralized assignment are able to attract students with substantially higher test scores and that geographical mobility of admitted students increases. While there are no sizable effects on final enrollment rates, the higher turnover rate of seats indicates the search is intensified. Overall, our findings indicate positive impacts of centralization on the college market.

Does Institutional Change Spread Across Countries? Explaining Spatial Patterns in Human Rights

AbstractIf a country improves its human rights record, will neighbouring countries benefit? Beneficial spillovers could justify intervention by the UN or one of the many other organisations that internationally fight human rights violations. We document that countries’ human rights performances often resemble the human rights situation of their neighbours. However, exploiting time variation in a spatial panel, we find that much of that resemblance is simply determined by the shared geographical location. Changes in neighbouring countries have little influence on local human rights, suggesting that contemporaneous spillovers and interactions are limited.

The Economics of the Democratic Deficit: The Effect of IMF Programs on Inequality

This study investigates the distributional effects of international organizations within their member countries. It addresses the issue empirically by examining the causal effect of International Monetary Fund (IMF) programs on income inequality. Introducing a new instrumental variable for IMF programs, I exploit time variation in the IMF’s liquidity and cross-sectional variation in a country’s probability of having a lending arrangement with the IMF. Using panel data for 155 countries over the 1973–2013 period, the results show that IMF programs substantially increase income inequality in democracies, while having no such effect in non-democracies. The size of this effect on democracies is smaller the more democratized the IMF’s decision-making processes are. These results are consistent with the theory that powerful, ‘democratically deficient’ international organizations that interfere in domestic politics are capable of restricting the responsiveness of democratic governments to the preferences of their citizens.

Aid on Demand: African Leaders and the Geography of China's Foreign Assistance

This article investigates whether China's foreign aid is particularly prone to capture by political leaders of aid-receiving countries. We examine whether more Chinese aid is allocated to the birth regions of political leaders and regions populated by the ethnic groups to which leaders belong, controlling for indicators of need and various fixed effects. We have collected data on 117 African leaders' birthplaces and ethnic groups and have geocoded 1,650 Chinese development finance projects across 3,097 physical locations that were committed to Africa over the 2000{2012 period. Our econometric results show that when leaders hold power their birth regions receive substantially more funding from China than other subnational regions. We also find -less robust- evidence that African leaders direct more Chinese aid to areas populated by individuals who share their ethnicity. However, when we replicate the analysis for the World Bank, our regressions show no evidence of favoritism. We also evaluate the impact of Chinese aid on regional development, exploiting time variation in the amount of Chinese aid that results from China's production of steel and geographical variation in the probability that a subnational region will receive such aid. We find that Chinese aid improves local development outcomes, as measured by per-capita nighttime light emissions at the first and second subnational administrative level. We therefore conclude that China's foreign aid program has both distributional and developmental consequences for Africa.

An Out-of-Sample Evaluation of Dynamic Portfolio Strategies

This article evaluates out-of-sample portfolio performance for a real-time investor who can exploit time variation in the conditional mean and volatility of stock returns in optimizing a multiperiod portfolio choice problem. With the presence of parameter uncertainty, our out-of-sample analysis shows that ignoring time variation in the first two return moments leads to significant utility costs of at least 1.97% of annualized certainty equivalent return. Accounting for the time-varying risk premium plays a more important role than considering time-varying volatility in improving portfolio performance. Interestingly, behaving myopically or ignoring the hedge against changes in future investment opportunities can lead to small out-of-sample utility losses or even utility gains.

Airports and Urban Growth: Evidence from a Quasi-Natural Policy Experiment

While significant work has been done to examine the determinants of regional development, there is little evidence on the contribution of air services toward this outcome. This paper exploits the unexpected market changes induced by the 1978 Airline Deregulation Act to bring new evidence on the link between airline traffic and local economic growth. Using data for almost 300 Metropolitan Statistical Areas (MSAs) over a two decade time period centered around the policy change, we exploit time variation in long-run growth rates to identify the effects of airline traffic on population, income and employment growth. Our results suggest that air service has a significant positive effect on regional growth, with the magnitude of the effects differing by MSA size and industrial specialization.

Credit within the Firm

We exploit time variation in the degree of development of local credit markets and matched employer-employee data to assess the role of the firm as an internal credit market. In less developed local credit markets firms can offer a flatter wage-tenure profile than firms in more developed credit markets to lend implicitly to their workers or offer a steeper profile to implicitly borrow from their workers. We find that firms located in less financially developed markets offer wages that are lower at the beginning of tenure and grow faster than those offered by firms in more financially developed markets, helping firms finance their operations by raising funds from workers. Because we control for local market effects and only exploit time variation in the degree of local financial development induced by an exogenous liberalization, the effect we find is unlikely to reflect unobserved local factors that systematically affect wage tenure profiles. The size of implicit loans is larger for firms with more problematic access to bank credit and workers less likely to face credit constraints. The amount of credit generated by implicit lending within the firm is economically important and can be as large as 30% of bank lending. Consistent with credit market imperfections opening up trade opportunities within the firm, we find that the internal rate of return of implicit loans lies between the rate at which workers savings are remunerated in the market and the rate firms pay on their loans from banks.

A CONSISTENT ESTIMATE FOR THE IMPACT OF SINGAPORE'S EXCHANGE RATE ON COMPETITIVENESS

Services form a larger part of the Singapore economy. However, it is difficult to analyze the exchange rate impact on services due to the lack of price data. Regression of output or export on exchange rate, while highly intuitive, is likely to suffer from the endogeneity problem since Singapore's exchange rate is used as a counter-cyclical policy tool. This results in inconsistent estimates. I propose a novel approach to overcome these limitations by using Hong Kong as a control for Singapore's economy to implement a pseudo "difference-in-difference" method, exploiting time variation in output, to achieve consistent estimates.

The Economic Value of Exploiting Time-Varying Return Moments

This paper studies the economic value of exploiting time variation in risk premia and in the volatility of stock returns for a real-time investor in a dynamic setting. I find that ignoring time variation in these return moments leads to economically and statistically significant utility costs. Time-varying risk premia play a more important role than time-varying volatility in forming portfolio weights and in improving portfolio performance for the real-time investor who can rebalance portfolios quarterly. In addition, dynamic policies are more susceptible to parameter uncertainty than myopic policies. This effect further reduces the utility costs of myopic behavior. This study also indicates that conducting an out-of-sample evaluation is necessary to assess the value of a dynamic portfolio policy because in-sample analysis can be misleading.