2018 NBER Summer Institute Methods Lectures:
Dealing with the ‘Weak Instruments’ Problem
The technique of instrumental variables is one of the most widely used tools in empirical economic research. When the source of exogenous variation in the explanatory variables accounts for only a small share of the variation in these variables — the so-called "weak instruments" problem — standard IV methods can yield biased results in small samples and can result in incorrect inferences about underlying parameter values. Isaiah Andrews (left, above) and James Stock of Harvard University and the NBER explain how to diagnose the weak instruments problem, and how to conduct inference in this setting.
New Volumes in NBER Book Series Feature Studies
of Macroeconomics, and Tax Policy and the Economy
Volume 32 of the NBER Macroeconomics Annual, edited by Martin Eichenbaum and Jonathan A. Parker, features six theoretical and empirical studies in contemporary macroeconomics, and a keynote address by former IMF chief economist Olivier Blanchard on which distortions are central to understanding short-run macroeconomic fluctuations. In one study, SeHyoun Ahn, Greg Kaplan, Benjamin Moll, Thomas Winberry, and Christian Wolf examine the dynamics of consumption expenditures in non-representative-agent macroeconomic models. In another, John Cochrane asks which macro models most naturally explain the coexistence of low and nonvolatile inflation rates, near-zero short-term interest rates, and an explosion in monetary aggregates in the post-financial-crisis macroeconomic environment. Manuel Adelino, Antoinette Schoar, and Felipe Severino examine the causes of the lending boom that precipitated the recent U.S. financial crisis and Great Recession. Steven Durlauf and Ananth Seshadri investigate whether increases in income inequality cause lower levels of economic mobility and opportunity. Charles Manski explores the formation of expectations, considering the efficacy of directly measuring beliefs through surveys as an alternative to making the assumption of rational expectations. In the final research paper, Efraim Benmelech and Nittai Bergman analyze the sharp declines in debt issuance and the evaporation of market liquidity that coincide with most financial crises.
The six research studies in Volume 32 of Tax Policy and the Economy, edited by Robert A. Moffitt, analyze the U.S. tax and transfer system's effects on revenues, expenditures, and economic behavior. James Andreoni weighs the effects of tax-free charitable funds on donations against their tax costs. Caroline Hoxby analyzes the use of tax credits by students enrolled in online post-secondary education. Alex Rees-Jones and Dmitry Taubinsky explore taxpayers' psychological biases that lead to incorrect perceptions and understanding of tax incentives. Jeffrey Clemens and Benedic Ippolito investigate the implications of block grant reforms of Medicaid for receipt of federal support by different states. Andrew Samwick examines means-testing of Medicare and federal health benefits under the Affordable Care Act. Bruce Meyer and Wallace Mok study the incidence and effects of disability among U.S. women from 1968 to 2015, examining the impacts of disability on income, consumption, and public transfers.
Robin Burgess, Francisco J.M. Costa, and Benjamin A. Olken show that after Brazil introduced policies to reduce illegal deforestation, the rate of deforestation, which had previously been higher than that in neighboring countries, declined to a comparable level.
In a study of how individuals with private health insurance choose providers for lower-limb MRI scans, Michael Chernew, Zack Cooper, Eugene Larsen-Hallock, and Fiona Scott Morton find that, on average, individuals bypassed six lower-priced providers between their home and the location where they received their scan, and that referring physicians heavily influenced where their patients received care.
The growth of non-compete and no-poaching agreements may suppress competition for workers and could help explain why, with unemployment at a 16-year low and job openings at an all-time high, wage growth has remained sluggish, Alan B. Krueger and Orley Ashenfelter suggest.
Is the Growing Concentration of Corporate Power
Confounding the Economic Efforts of Central Banks?
The New York Times reported on Sunday that many of the world's most powerful economic policy makers are taking seriously the possibility that dominance of some industries by a few extraordinarily successful companies may be a cause of slow wage growth, low inflation, and anemic overall economic growth. NBER affiliates have been deeply involved in researching the topic and making it a mainstream discussion.
The salary premium for union workers, compared to workers with comparable skills and demographics who are not unionized, has remained relatively steady over the last 80 years, a study featured in the new edition of The NBER Digest finds, but as union membership has declined so has the capacity of unionization to reduce income inequality. Also in the September issue of the Digest: a look at debt markets' bias toward home country currencies, an analysis of market anticipation of "unexpected" monetary policy announcements, an examination of the effect of more affordable travel on scientific collaborations, an investigation of the relationship between car prices and financing terms, and a measurement of gains from a localized spurt in productivity.
Implicit taxes on work at older ages can be remarkably large as a result of the way Social Security retirement and disability programs and Medicare are set up, researchers write in the current edition of The NBER Reporter, and alternative policies could have a large impact on labor supply. Other articles in the quarterly Reporter include an analysis of the rapidly shrinking number of firms listed on U.S. stock exchanges, a report on the effects of gender imbalance on saving behaviors within families and in the broader economy, an examination of firm behaviors in reaction to changes in the competitive environment, and a summary of asset pricing research in the aftermath of the Great Recession.
Growing emergency department (ED) wait times are increasingly a focus of public concern. Research summarized in the current edition of the NBER's Bulletin on Aging and Health studies the effects of a policy in England requiring that 95 percent of ED patients be discharged, admitted as an inpatient, or transferred to another hospital within four hours of arrival. The study finds a modest increase in ED costs due to the policy, and a reduction in the 30-day patient mortality rate of an estimated 14 percent.
