Policy Conclusions Research Articles

Theories of Learning and Economic Policy

L’hypothèse de référence, celle des anticipations rationnelles, suppose, d’une part, un degré irréaliste de rationalité des agents économiques, et d’autre part élude la question de savoir comment les agents parviennent à se coordonner sur une position d’équilibre. Cet article examine comment les théories de l’apprentissage, et plus particulièrement de l’apprentissage adaptatif, traitent ces questions et peuvent conduire à des conclusions en termes de politique économique distinctes de celles obtenues avec anticipations rationnelles. Des exemples sont discutés, ils incluent la politique monétaire au sein de modèles de la nouvelle économie keynésienne, la vision néo-Fisherienne de la politique économique, les objectifs d’inflation, les modèles d’hyperinflation et les politiques macroéconomiques visant à éviter la stagnation au taux plancher zéro.

Standard Synthetic Control Methods: The Case Of Using All Preintervention Outcomes Together With Covariates

It is becoming increasingly popular in applications of standard synthetic control methods to include the entire pretreatment path of the outcome variable as economic predictors. We demonstrate both theoretically and empirically that using all outcome lags as separate predictors renders all other covariates irrelevant in such settings. This finding holds irrespective of how important these covariates are for accurately predicting posttreatment values of the outcome, threatening the estimator’s unbiasedness. We show that estimation results and corresponding policy conclusions can change considerably when the usage of outcome lags as predictors is restricted, resulting in other covariates obtaining positive weights. Monte Carlo studies examine potential bias.

Monitoring COVID-19 contagion growth.

We present a statistical model that can be employed to monitor the time evolution of the COVID‐19 contagion curve and the associated reproduction rate. The model is a Poisson autoregression of the daily new observed cases and dynamically adapt its estimates to explain the evolution of contagion in terms of a short‐term and long‐term dependence of case counts, allowing for a comparative evaluation of health policy measures. We have applied the model to 2020 data from the countries most hit by the virus. Our empirical findings show that the proposed model describes the evolution of contagion dynamics and determines whether contagion growth can be affected by health policies. Based on our findings, we can draw two health policy conclusions that can be useful for all countries in the world. First, policy measures aimed at reducing contagion are very useful when contagion is at its peak to reduce the reproduction rate. Second, the contagion curve should be accurately monitored over time to apply policy measures that are cost‐effective.

Marginal changes, marginal impacts: The limits of changes to WIC and their ability to influence breastfeeding rates

We use restricted South Carolina natality data to investigate whether the 2009 revisions to the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) food packages had a positive effect on breastfeeding initiation rates, a stated goal of the revisions. Usingadifference-in-difference methodologythat controls for separate trends in breastfeeding initiation rates between mothers who participate in WIC while pregnant with those who do not participate while pregnant, we estimate that the revisions had no statistically significant impacts on breastfeeding initiation. Although theseresults arenot consistent with much prior work, we also present estimates suggesting that these inconsistencies relative to the literature are the result of controlling for group specific trends and are not a unique artifact of our study setting or methodology.Our results suggest that the decision to breastfeed is relatively unresponsive with respect to marginal changes to existing programs, and that careful consideration of the appropriate empirical approach is paramount when evaluating program changes and drawing policy conclusions from research.

The lack of robust evidence for the effects of alcohol on false memory

We comment on Kloft et al.’s (2021) review of the effects of alcohol and other drugs on false memory reporting. Across studies, problems of internal and external validity and methodological consistency preclude any blanket conclusions and recommendations regarding alcohol’s effects on false memory reporting and suggestibility in witnesses. We argue that any policy and practice conclusions drawn from this limited literature are premature and would be unfairly prejudicial to witnesses and confusing to triers of fact at this time.

Innovation and Economic Growth: Does Internet Matter?

We analyze the relationship between economic growth and innovation taking into consideration the importance of the internet. To do so, we use a panel ARDL model, with data on a sample of 76 developed and developing countries in different geographic regions for the 1995–2016 period. Our findings provide empirical evidence of the positive role of innovation and internet in economic growth and the positive role of economic growth and internet in innovation. From these results, we derive several basic policy conclusions.

Transmise měnové politiky a spodní efektivní hranice měnověpolitické úrokové sazby

The central banks of developed countries and those in the region of Central Europe responded to the global financial crisis of 2008 and subsequent economic recession by considerably easing monetary conditions and using new monetary policy tools. One of those tools was the entry into the so far uncharted territory of negative interest rates. The passage of some years after the inception of these new tools has allowed the emergence of new empirical literature, which addresses their effects and effectiveness. The primary objective of this paper is to examine and summarize the empirical literature that deals with the effective lower limit of interest rates, especially in relation to the banking sector and bank interest margins. We then use empirical findings from other countries and apply them to the Czech Republic and draw conclusions for the future monetary policy of the CNB. Our results confirm that the CNB has got enough manoeuvring room even in the area of negative interest rates, which it can take advantage of either for the purpose of price stability, or for more effective management of FX operations.

A replication of Pindyck\u2019s willingness to pay: on the efforts required to obtain results

We replicate and use more recent data to re-estimate the paper “Uncertain outcomes and climate change policy”, Pindyck, J. Environ. Econ. Manag., 2012. In several cases, verification analysis confirms the results and the associated economic interpretation. However, those results cannot be replicated in one out of five cases. The replication is, therefore, only partially successful: the numerical results for some sets of parameter values turn out to be overly sensitive to a variety of technical computational settings. This suggests that great caution is needed with regard to estimates and policy conclusions based on this model. A re-estimation of the model using more recent climate data, which suggests that temperature increase is now higher on average but less widely dispersed, does not lead to significant economic differences in the results.

RETRACTED: Economic value of agricultural water use for Arizona

This paper aims to estimate the economic value of agricultural water use in Arizona based on an improved economic value estimation model (EVIW model). In this research, EVIW method is optimized for the economic value estimation of agricultural water use from the perspective of crops. Crop Price per unit for crop production, crop yield per acre and irrigation area are used to calculate gross profit. Crop variable costs per acre (labor costs, chemical costs, machinery fuel and repair costs, etc.) and corresponding irrigation areas are used to calculate variable costs. Gross revenues and variable costs are used to calculate the net returns generated by irrigation water. Arizona agricultural water use for crops are estimated based on meteorological data and Cropland Data Layers. Finally, economic values of agricultural water are determined by the net returns of irrigated crops and agricultural water use. The results show that the economic values of agricultural water are positive and negative with great variations. The models applied in the research bring forward practical conclusions for further water allocations, transfer, and policies.

Planning and Settlement Conditions for the Development of Renewable Energy Sources in Poland: Conclusions for Local and Regional Policy

The article presents an analysis of geographical-settlement and legal-planning conditions for the development of Poland’s distributed generation. The choice of this country is important and interesting due to the highly dispersed settlement, which may be a factor stimulating the development of this type of energy systems. For this reason, the analysis can be a model for other countries and regions, indicating ways to analyze and evaluate settlement and planning conditions for the development of renewable and distributed energy. At the same time, Poland is struggling with a severe crisis of spatial planning. By analysing these opportunities and threats, empirical analyses try to indicate regularities in this respect in Poland’s regions in a detailed approach to communes and detailed legal and planning conditions. The conclusions emphasise the usefulness of distributed generation development for peripheral and sparsely populated areas of Europe and other parts of the world and appropriate directions of changes in spatial development law.

State-owned enterprises and economic growth: Evidence from the post-Lehman period

This paper investigates the effect of state-owned enterprises (SOEs) on economic growth in 30 European countries in the period between 2010 and 2016. We build a unique dataset on the economic weight of SOEs based on the data of more than 130,000 large nonfinancial companies. In our regression analysis, we condition the growth effect of SOEs on different measures of institutional quality. According to our results, SOEs are not positive or negative for growth per se. Their impact hinges crucially upon the country’s institutions: with good (bad) institutions the effect of SOEs is more beneficial (detrimental), turning into significantly positive (negative) in the right-tail (left-tail) of the sample distribution of institutional quality. This result holds through a wide array of robustness checks. The policy conclusion is that with good institutions the positive external effects of SOEs may outweigh the loss in economic growth caused by SOEs’ possible inefficiencies.

Police Performance Rankings Depend on the Functional Form of the Index: A Comment on Bearfield, Maranto, and Wolf

Bearfield, Maranto, and Wolf advise policy-makers to measure policing outcomes using a metric that includes rates of homicide, police-related civilian deaths (PRCD), and poverty. They present such an index, which they call the Police Performance Index (PPI). But alternative functional forms that are equally plausible can lead to different rankings of police departments, and therefore different policy conclusions.

Draft: A Tale of Two Formalisms: How Law and Economics Mirrors Originalism and Textualism

Two leading schools of thought among U.S. conservative legal elites — Law and Economics (L&E) and Originalism and Textualism (O&T) — both purport to use their formalist structures to guide analysis in ways that are objective, substantially determinate, and apolitical. Because they rest on very different theoretical underpinnings, L&E and O&T should only randomly reach similar policy or legal conclusions. After all, L&E implements neoclassical economics, a theory of utility maximization, whereas O&T is a theory of semantics. Yet as practiced, L&E and O&T rarely result in conflict. What explains the missing intra-conservative clash? Despite their respective pretenses to objectivity, determinacy, and political neutrality, neither theory delivers on its promises. Economic efficiency, the lynchpin of L&E, is incoherent because it relies on typically hidden but ultimately normative assumptions about preferences that would exist in an impossible world without law. O&T as it has been refined in response to devastating criticisms of earlier versions is indistinguishable from ostensibly less determinate rivals like Living Constitutionalism and purposivism. Accordingly, conservatives use L&E and O&T to obscure the role of normative priors, perhaps even from themselves. Liberals could use the same techniques for different results but heretofore generally have not, instead mostly settling for counterpunching against charges of result-orientation.

The African Human Security Index: From ‘Think’ To ‘Do’

There is no universally accepted scientific method for computing composite indexes. Every step of the construction process involves choices which are dependent on the problem at hand, the modeller, the data constraints and the desired outcome. In this study, using the framework proposed by UNECA (2020) as a guideline, we construct a prototype of the African Human Security Index for 10 countries (Rwanda, Ethiopia, Sudan, Zambia, Ghana, Mali, Angola, Cameroun, Niger and Kenya) from 2008 to 2019. Since weights can have a significant effect on the overall composite index, we present a comparative analysis where we contrast the statistical-based weighting approaches (e.g., Unobserved Component and Factor Analysis) with model-free methods (e.g., Equal and Geometric weighting). While all weighting schemes have their pros and cons, we show that, due to the multi-dimensional nature of the African Human Security Index, it is essential to adopt a non-compensatory logic (such as Factor Analysis) in defining optimal weights because this approach takes into account the overlapping information across indicators and correct for potential correlation and compensability issues by investigating the underlying structure of the data. Furthermore, unlike the Unobserved Component Method which imposes an identification condition of, at least, three indicators per dimension, the factorial approach is flexible and could summarize multi-dimensional realities with as little as one indicator per dimension. This argument is important to consider in the African context where relevant data could be scarce and cross-country comparison limited. Last but not the least, it is crucial to point out that model-free approaches are by definition statistically unbiased but care must be taken in their usage as they may both disguise serious failings in some dimensions and invite simplistic policy conclusions due the compensability issues they suffer from.

Modeling myths: OnDICEand dynamic realism in integrated assessment models of climate change mitigation

AbstractWe analyze how stylized Integrated Assessment Models (IAMs), and specifically the widely‐used Dynamic Integrated Climate‐Economy model (DICE), represent the cost of emissions abatement. Many assume temporal independence—that abatement costs in one period are not affected by prior abatement. We contrast this with three dimensions of dynamic realism in emitting systems: (i) inertia, (ii) induced innovation, and (iii) path dependence. We review key evidence from the last quarter century on each of these three components. Studies of stock lifetime, dynamics of diffusion and past transitions suggest typical transition timescales of at least 20–40 years for the bulk emitting systems. The evidence that substantial innovation is induced by both prices and market deployment is unambiguous. Finally, both data and a rapidly growing literature demonstrate substantial path dependence in general, and specifically “carbon lock‐in and lock‐out.” Some stylized models in the past decade have incorporated technology learning, and others have considered inertia, but the combination of these factors is important and not yet evident. More complex hybrid IAMs with technology‐rich energy‐system models incorporate these factors, but their complexity has limited the wider understanding and influence of their underlying insights. Few if any global models fully represent path dependence. We conclude with likely implications drawing upon the empirical and modeling evidence accumulated, including results from extending DICE with a highly stylized representation of such dynamic factors. This suggests that dynamicinterdependencies could multiply several‐fold the optimal level of initial abatement expenditure. This is because early abatement then also directly facilitates subsequent emission savings. The diversity of dynamic linkages across sectors and technologies also implies more nuanced policy than a single global carbon price. Thus, the issues explored in this review can radically change the general policy conclusions drawn from models, which, like DICE, neglect dynamic realism.This article is categorized under:Climate Economics > Aggregation Techniques for Impacts and Mitigation Costs

Fuel Poverty: Potentially Inconsistent Indicators and Where Next?

The measurement of fuel poverty is critical for judgements about the significance of the problem and the design of policies to address it. Reducing fuel poverty has been a government objective in the UK for many years, and is generally seen through the lens of the government’s official fuel poverty statistics . We compare the households identified as fuel poor according to three metrics: (i) the 10% indicator; (ii) the Low Income High Consumption indicator; and (iii) whether households self-report an inability to afford to keep their home warm, using data from the British Household Panel Survey. We find substantial differences in the households identified according to each of these indicators; this highlights a lack of clarity about which households might be considered truly fuel poor. In particular, a surprisingly low proportion of those identified by the 10% and LIHC indicators report an inability to afford to keep their home warm. While this could raise concerns that current fuel poverty policies in the UK are misdirected, instead we emphasize the difficulties of drawing policy conclusions from the differences between the indicators, unless it can be combined with information on households’ heating preferences and the in-home temperatures achieved.

Economics in Search of a Moral Philosophy

The purpose of this essay is to review the state of economics as a discipline in light of how and to what extent ethical considerations and the precepts of moral philosophy affect the theory and application of economics. In its pursuit for purely ‘objective’ analyses and, thereby, attain the status of a science, modern neo-classical economics is constrained by self-imposed limitations in making value judgments about justice and fairness in a market economy. Adam Smith’s idea of “invisible hand” of the market driven by self-interested behaviour has sometimes been interpreted, wrongly, as a kind of market fundamentalism that ignores many failures and brutalities of the modern-day capitalism. While many ethical elements do go into economic policy analyses, these are still constrained by the discipline’s neglect of non-market activities and its tendency to undervalue the aspects of well-being which cannot be easily measured in monetary terms. This essay argues that economists may do better by improving their understanding of the complexity of human behaviour and the functioning of market institutions by embracing new ideas developed in other disciplines, such as neuroscience, experimental psychology and political sociology; they also need to allow more scope for ethical judgments in their choice of topics for inquiry, in their methodological approaches and in drawing policy conclusions. Without losing the analytical rigour, which is the hallmark of the discipline, economics needs to be broader in order to be better.

Consumers and citizens: Identity salience in choice settings focusing on local wind turbines

We explore and illustrate the potential consequences of identity salience on stated choice valuation outcomes. The dual role of individuals as citizens and as consumers is brought to the foreground when considering investments in wind energy. To this end, we use two different settings in a stated choice experiment to elicit household preferences: one based on the decision to buy a home with particular characteristics in the neighbourhood of a wind farm and one based on the decision to support a policy to locate a wind farm in the respondent's municipality. By including a shared set of attributes to describe the wind farm in both settings, we are able to analyse the impact of identity salience on stated preferences. In the home setting, identity salience has no significant effect. In the policy setting, the consumer framing mitigates (when positive) or reinforces (when negative) the identity effect of the setting for the preferences regarding the number of wind turbines, the visibility of the wind turbines and the noise levels associated with the wind park. This finding suggests that it may be easier to shift a respondent's focus from public to private than vice versa. Our results illustrate that valuation exercises triggering a different role at the individual level will likely result in different valuation outcomes. By doing so, we issue a warning to researchers and policy makers to reflect about the objectives and set-up of valuation studies when using them for policy evaluation purposes. If the context of such a study is not adequately taken into account, potentially misleading messages and policy conclusions can emerge.

The Gender Gap in Income and the Covid-19 Pandemic

The gender income gap is large and well documented for many countries. Recent research shows that it is mainly driven by differences in working patterns between men and women, but also by wage differences. The tax-benefit system cushions the gender income gap by redistributing between men and women. The Covid-19 pandemic has resulted in unprecedented levels of unemployment in 2020 in many countries, with some suggestion that men and women have been differently affected. This research investigates the effect of the Covid-19 pandemic on the gender gap in income in Ireland. Using nowcasting techniques and microsimulation, we model the effect of pandemic induced employment and wage changes on market and disposable income. We show how the pandemic and the associated tax-benefit support can be expected to change the income gap between men and women. Policy conclusions are drawn about future redistribution between men and women.

Macroprudential Policy: a Blessing or a Curse?

After the destructive impact of the global financial crisis of 2008, many believe that pre-crisis financial market regulation did not take the “big picture” of the system sufficiently into account and, subsequently, financial supervision mainly “missed the forest for the trees”. As a result, the need for macroprudential aspects of regulation emerged, which has recently become the focal point of many policy debates. This has also led to intense discussion on the contours of monetary policy after the post-crisis “new normal”. Here, I review recent progress in empirical and theoretical research on the effectiveness of macroprudential tools, as well as the current state of the debate, in order to extract common policy conclusions. The work highlights that, despite the achievements in the literature, the current experience and knowledge of how macroprudential instruments work, their calibration, and the mechanisms through which they interact with each other and with monetary policy are rather limited and conflicting. Moreover, I critically survey and note the current challenges faced by macroprudential regulation in creating stable, yet efficient financial systems. At the same time, emphasize the importance of accepting that many risks may remain, requiring that we proceed prudently and develop better plans for future crises.