Percentage Point Rise Research Articles

Does the interest rate for business loans respond asymmetrically to changes in the cash rate?

This article examines the dynamic relationship between the Reserve Bank of Australia's (RBA's) cash rate and the variable interest rate for lending to small businesses. The relationship is evaluated via an asymmetric GARCH model using monthly data spanning from August 1990 to October 2012. Our results show that a 1 percentage point increase in the cash rate results in an instantaneous 1.086 percentage point rise in the variable rate for small businesses, whereas an equivalent 1 percentage point cut only leads to a 0.862 percentage point fall with a delay of up to 2 months. This outcome has obvious implications for the RBA's monetary policy transmission mechanism and the effectiveness of the expansionary policy versus contractionary policy.

Cost of Borrowing Shocks and Fiscal Adjustment

Do capital markets impose fiscal discipline on governments? We investigate the responses of fiscal variables to a change in the interest rate paid by governments on their debt in a panel of 14 European countries over four decades. To this end, we estimate a panel vector autoregressive (PVAR) model, using sign restrictions via the penalty function method of Mountford and Uhlig (2009) to identify structural cost of borrowing shocks. Our baseline estimation shows that a 1 percentage point rise in the cost of borrowing leads to a cumulative improvement of the primary balance-to-GDP ratio of approximately 2 percentage points over 10 years, with the fiscal response becoming significantly evident only two years after the shock. We also find that the bulk of fiscal adjustment takes place via a rise in government revenue rather than a cut in primary expenditure. The size of the total fiscal adjustment, however, is insufficient to avoid the gross government debt-to-GDP ratio from rising as a consequence of the shock. Sub-dividing our sample, we also find that for countries participating in Economic and Monetary Union (EMU) the primary balance response to a cost of borrowing shock was stronger in the period after 1992 (the year in which the Maastricht Treaty was signed) than prior to 1992.

Effects of Lodging at Different Filling Stages on Rice Yield and Grain Quality

The effects of lodging of rice plants from 20 d after full heading to maturity on yield and grain quality were investigated with a hybrid rice combination Liangyoupeijiu and a japonica rice cultivar CY-6. The results showed that, except for brown rice rate, almost all parameters for yield and grain quality including ratio of grain length to grain width, gelatinization temperature and gel consistency, were significantly influenced by lodging and thus deteriorated. Regression analysis suggested that, lodging one day earlier at the grain-filling stage could cause 2.66% to 2.71% of yield loss, 1.8 to 2.6 percentage points decrease of seed-setting rate, 0.26 to 0.32 g reduction of 1000-grain weight, 0.097 to 0.155 percentage point decline of milled rice rate, as well as 0.13 to 0.27 percentage point increase of chalky grain rate, and 0.021 to 0.024 percentage point rise of protein content, and subsequently lower the eating quality.

The Economic Impact of Social Ties: Evidence from German Reunification

We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for non-economic reasons can be an important determinant of regional economic growth. We show that West German households who have social ties to East Germany in 1989 experience a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns to entrepreneurial activity, the share of households who become entrepreneurs, and the likelihood that firms based within a given West German region invest in East Germany. As a result, West German regions which (for idiosyncratic reasons) have a high concentration of households with social ties to the East exhibit substantially higher growth in income per capita in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 is associated with a 4.6 percentage point rise in income per capita over six years. We interpret our findings as evidence of a causal link between social ties and regional economic development.

Booms, Busts, and Divorce.

For almost a century, anecdotes have suggested that divorce rates decline during recessions. However, until very recently there has been surprisingly little formal empirical evidence on whether such a link exists, let alone its magnitude if it does. Moreover, the anticipated direction of the effect is ambiguous theoretically. Although previous studies have concluded that individual job loss destabilizes marriages, macroeconomic conditions may affect divorce probabilities even for those not directly experiencing a job shock. We add to the few existing contemporaneous studies of the effects of macroeconomic shocks on divorce by conducting an empirical analysis of the relationship between state-level unemployment rates and state-level divorce rates using vital statistics data on divorces in the United States from 1976-2009. We find a significant and robust negative relationship between the unemployment and divorce rates, whereby a one percentage point rise in the unemployment rate is associated with a decrease of 0.043 divorces per one thousand people, or about a one percent fall in the divorce rate. The result that divorce is pro-cyclical is robust to a host of alternative empirical specifications, to disaggregating by state characteristics and time period, to expanding the unemployment series back to 1970, and to using alternative measures of local economic conditions.

Do Rising Top Incomes Lift All Boats?

Abstract Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile’s income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent. However, our estimates imply that it would take 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.

The Economic Impact of Social Ties: Evidence from German Reunification

We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for non-economic reasons can be an important determinant of regional economic growth. We show that West German households who have social ties to East Germany in 1989 experience a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns to entrepreneurial activity, the share of households who become entrepreneurs, and the likelihood that firms based within a given West German region invest in East Germany. As a result, West German regions which (for idiosyncratic reasons) have a high concentration of households with social ties to the East exhibit substantially higher growth in income per capita in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 is associated with a 4.7 percentage point rise in income per capita over six years. We interpret our findings as evidence of a causal link between social ties and regional economic development.

Houses and/or Jobs: Ownership and the Labour Market in Belgian Districts

In a number of papers A.J. Oswald (1996, 1997) argues that high rates of home ownership may imply inferior labour market outcomes. This paper tests the Oswald hypothesis in a panel of 42 Belgian districts since the 1970s. The use of data going back to 1970 allows us to embed the Oswald hypothesis in a broader model including other key determinants of employment like labour costs and productivity, the skill level of the population, and demography. Considering that ownership may be endogenous to (shocks in) employment, we use IV estimation methods. Overall, we find evidence in favour of the Oswald hypothesis. We observe that a 1 percentage point rise in the rate of home ownership in a district implies a statistically significant fall in the employment rate by about 0.3 percentage points. Our results underscore the importance of including other determinants of employment, of controlling for unobserved fixed regional and time effects, and of appropriately dealing with endogeneity. Disregarding these issues, as is often done in the macro labour literature, may imply very different estimation results. Additional estimation reveals that the size of the Oswald effect falls in the fraction of high skilled in a district.

Impact of asset price fluctuation on China’s monetary policy: An empirical analysis based on quarterly data, 1994–2006

The strenuous fluctuation in global asset price in recent years has had a profound impact on the economic and social development of every country. An empirical analysis indicates that asset prices (the stock price index and real estate prices) are important endogenous variables affecting the interest rate reaction function of central bank monetary policy. With expected inflation as a given, each one percentage point rise in output gap will cause a 0.79 percentage point reduction in interest rates by the central bank and each one percentage point rise in real estate price will result in a 2.2 percentage point rise in interest rates. The stock price index does have an influence on the trends in monetary policy, but it is less salient than the impact of housing prices. We also show that monetary policy that employs asset price as an endogenous variable increases the central bank’s control in seeking to attain its objectives. Therefore we suggest that the central bank should make asset price fluctuation an endogenous variable and incorporate it into its forward-looking interest rate rule, in order to facilitate the healthy development of China’s markets for real estate, stocks and derivatives, energy and bulk commodities and maintain rapid, smooth, sustainable and harmonious economic development.

In School or at Work? Evidence from a Crisis

This paper examines the effect of labor market opportunities on schooling-employment decisions in 12 urban areas in Argentina over 12 years, emphasizing the recession/crisis years 1998-2002. The effects of macroeconomic swings on schooling decisions are examined with a focus on whether the income or substitution effect dominates as macroeconomic conditions change. I demonstrate that over typical years deteriorating job rates (or wages) increase the probability of attending school and decrease the probability of combining work and school, particularly for boys. After controlling for household and individual characteristics I find that the probability of being in school for secondary school youth was about 6 percentage points higher in 2002 than in 1998 (before the recession started). In fact, a 10 percent decrease in the job rate alone has been responsible for a 5.4 percentage point rise in the probability of school attendance since 2000. This effect is attenuated during the 2002 crisis when household expectations change in response to shocks. These estimates allow for the fact that a new Federal Education Law (FEL) in 1996 extended mandatory education to 10 years and might have affected schooling outcomes.

Economic Satisfaction and Income Rank in Small Neighbourhoods

We contribute to the literature on well-being and comparisons by appealing to new Danish data dividing the country up into around 9,000 small neighbourhoods. Administrative data provides us with the income of every person in each of these neighbourhoods. This income information is matched to demographic and economic satisfaction variables from eight years of Danish ECHP data. Panel regression analysis shows that, conditional on own household income, respondents report higher satisfaction levels when their neighbours are richer. However, individuals are rank-sensitive: Conditional on one's own income and neighbourhood median income, respondents are more satisfied as their percentile neighbourhood ranking improves. A ten percentage point rise in rank (i.e., from 40th to 20th position in a 200-household cell) is worth 0.11 on a 1–6 scale, which is a large marginal effect in satisfaction terms. (JEL: C23, C25, D84, J28, J31)

How Much Does Immigration Boost Innovation?

We measure the extent to which skilled immigrants increase innovation in the United States by exploring individual patenting behavior as well as state-level determinants of patenting. The 2003 National Survey of College Graduates shows that immigrants patent at double the native rate, and that this is entirely accounted for by their disproportionately holding degrees in science and engineering. These data imply that a one percentage point rise in the share of immigrant college graduates in the population increases patents per capita by 6%. This could be an overestimate of immigration's benefit if immigrant inventors crowd out native inventors, or an underestimate if immigrants have positive spill-overs on inventors. Using a 1940-2000 state panel, we show that immigrants do have positive spill-overs, resulting in an increase in patents per capita of 9-18% in response to a one percentage point increase in immigrant college graduates. We isolate the causal effect by instrumenting the change in the share of skilled immigrants in a state with the state's predicted increase in the share of skilled immigrants. We base the latter on the 1940 distribution across states of immigrants from various source regions and the subsequent national increase in skilled immigrants from these regions.

Economic Satisfaction and Income Rank in Small Neighbourhoods

We contribute to the literature on well-being and comparisons by appealing to new Danish data dividing the country up into around 9,000 small neighbourhoods. Administrative data provides us with the income of every person in each of these neighbourhoods. This income information is matched to demographic and economic satisfaction variables from eight years of Danish ECHP data. Panel regression analysis shows that, conditional on own household income, respondents report higher satisfaction levels when their neighbours are richer. However, individuals are rank-sensitive: conditional on own income and neighbourhood median income, respondents are more satisfied as their percentile neighbourhood ranking improves. A ten percentage point rise in rank (i.e. from 40th to 20th position in a 200-household cell) is worth 0.11 on a one to six scale, which is a large marginal effect in satisfaction terms.

Do Rising Top Incomes Lift All Boats?

Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed for between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile's income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent. However, our estimates imply that it would take 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.

The importance of being informed: Experimental evidence on demand for environmental quality

To what extent does information affect the demand for environmental quality? A randomly selected group of households in an Indian city were informed whether or not their drinking water had tested positive for fecal contamination using a simple, inexpensive test kit. Households initially not purifying their water and told that their drinking water was possibly contaminated, were 11 percentage points more likely to begin some form of home purification in the next eight weeks than households that received no information. They spent $7.24 (at PPP) more on purification than control households. By way of comparison, an additional year of schooling of the most educated male in the household is associated with a 3 percentage-point rise in the probability of initial purification, while a standard-deviation increase in the wealth index is associated with a 12 percentage-point rise in this probability and an $11.75 rise in expenditure. Initially purifying households that received a “no contamination” result did not react by reducing purification. These results suggest that estimates of the demand for environment quality that assume full information may significantly under-estimate it.

Beyond the Classroom: Using Title IX to Measure the Return to High School Sports

Between 1972 and 1978 U.S. high schools rapidly increased their female athletic participation rates - to approximately the same level as their male athletic participation rates - in order to comply with Title IX, a policy change that provides a unique quasi-experiment in female athletic participation. This paper examines the causal implications of this expansion in female sports participation by using variation in the level of boys’ athletic participation across states before Title IX to instrument for the change in girls’ athletic participation. Analysis of differences in outcomes across states in changes between pre- and post-cohorts reveals that a 10-percentage point rise in state-level female sports participation generates a 1 percentage point increase in female college attendance and a 1 to 2 percentage point rise in female labor force participation. Furthermore, greater opportunities to play sports leads to greater female participation in previously male-dominated occupations, particularly in high-skill occupations.

Beyond the Classroom: Using Title IX to Measure the Return to High School Sports

Abstract Between 1972 and 1978 U.S. high schools rapidly increased their female athletic participation rates in order to comply with Title IX. This paper examines the causal implications of this expansion by using variation in the level of boys' athletic participation across states before Title IX to instrument for change in girls' athletic participation. Analysis of differences in outcomes across states in changes between pre- and postcohorts reveals that a 10 percentage point rise in state-level female sports participation generates a 1 percentage point increase in female college attendance and a 1 to 2 percentage point rise in female labor force participation.

Beyond the Classroom: Using Title IX to Measure the Return to High School Sports

Previous research has found that male high school athletes experience better outcomes than non-athletes, including higher educational attainment, more employment, and higher wages. Students self-select into athletics, however, so these may be selection effects rather than causal effects. To address this issue, I examine Title IX which provides a unique quasiexperiment in female athletic participation. Between 1972 and 1978, U.S. high schools rapidly increased their female athletic participation rates (to approximately the same level as their male athletic participation rates) in order to comply with Title IX. This paper uses variation in the level of boys' athletic participation across states before Title IX as an instrument for the change in girls' athletic participation over the 1970s. Analyzing differences in outcomes for both the pre- and post-Title IX cohorts across states, I find that a 10 percentage point rise in state-level female sports participation generates a 1 percentage point increase in female college attendance and a 1 to 2 percentage point rise in female labor force participation. Furthermore, greater opportunities to play sports leads to greater female participation in previously male-dominated occupations, particularly for high-skill occupations.

Beyond the Classroom: Using Title IX to Measure the Return to High School Sports

Previous research has found that male high school athletes experience better outcomes than non-athletes, including higher educational attainment, more employment, and higher wages. Students self-select into athletics, however, so these may be selection effects rather than causal effects. To address this issue, I examine Title IX which provides a unique quasiexperiment in female athletic participation. Between 1972 and 1978, U.S. high schools rapidly increased their female athletic participation rates (to approximately the same level as their male athletic participation rates) in order to comply with Title IX. This paper uses variation in the level of boys' athletic participation across states before Title IX as an instrument for the change in girls' athletic participation over the 1970s. Analyzing differences in outcomes for both the pre- and post-Title IX cohorts across states, I find that a 10 percentage point rise in state-level female sports participation generates a 1 percentage point increase in female college attendance and a 1 to 2 percentage point rise in female labor force participation. Furthermore, greater opportunities to play sports leads to greater female participation in previously male-dominated occupations, particularly for high-skill occupations.

Does leverage influence banks' non-performing loans? Evidence from India

The study examines the association between corporate leverage and banks’ non-performing loans. Using data on Indian manufacturing sector in India for 1993–2004, the findings indicate lagged leverage to be an important determinant of bad loans of banks. In terms of magnitudes, a 10 percentage point rise in the corporate leverage is, on average, associated with 1.3 percentage point rise in sticky loans relative to loans, after a one period lag. In terms of policy implications, the analysis suggests that the leverage ratio can serve as a useful signpost of asset quality and second, the analysis points to the need to improve the collection of data from the corporate sector.