28 December 2012

Quiet Bubbles

The credit bubble of 2003-7 is often equated with earlier episodes, like the Internet boom. But while credits were over priced in this period, like Internet stocks a decade earlier, Harrison Hong and David Sraer show that the two periods were quite different. Equity bubbles are "loud" -- meaning that price and volume move together -- because investors speculate on the capital gains they will achieve from reselling to more optimistic investors. As for debt, the resale option is limited, so debt bubbles require that investors be optimistic -- that optimism leads to less speculative trading, because investors view debt as safe and having only a limited upside. Therefore, debt bubbles are "quiet": high price comes with low volume.

27 December 2012

Mismeasurement of Pensions Before and After Retirement

Alan Gustman, Thomas Steinmeier, and Nahid Tabatabai demonstrate that Current Population Survey (CPS) data on pension incomes received in retirement understate the full contribution of pensions to the support of retirees. One reason is that the CPS ignores irregular payments from pensions. Another is that some pension wealth that was accumulated prior to retirement, and would be measured in pre-retirement surveys, “disappears” at retirement. Sixteen percent of pension wealth is transformed into some other form at the time of disposition and thus not counted in the CPS, and for those with defined benefit pensions, 12 percent of the benefit is transformed in such a way that it is not counted as pension income after retirement.

26 December 2012

Arbitrage Opportunities in the Foreign Exchange Markets

Takatoshi Ito, Kenta Yamada, Misako Takayasu, and Hideki Takayasu ask whether and how often “free lunch opportunities” – defined as situations when the bid price exceeds the ask price -- arise in the foreign exchange market, and how quickly they disappear. They analyze data from the major inter-bank trading platform for spot exchange rates, the EBS electronic broking services, and find that with computerized trading (as opposed to human keystrokes) it has become easy for banks to search for and take advantage of every profit opportunity within seconds. However, “free lunch opportunities” do not last long: the probability of disappearance within one second was less than 50 percent in 1999 but increased to about 90 percent by 2009. The researchers show that these changes were the result of heavier use of algorithmic (program) trading and direct connection of banks’ computers to the trading platform, as well as to wide-spread usage of Primary Customer system, in which less-credit-worthy banks, by paying a fee, can borrow the name of high-credit-worthy banks that have better trading opportunities with tighter bid-ask spread.

24 December 2012

Vulnerable Banks

Robin Greenwood, Augustin Landier, and David Thesmar study data on the sovereign bond exposures of a large set of European banks during the 2010-11 sovereign debt crisis. They use these exposures to estimate the potential spillovers that could occur during bank deleveraging precipitated by sovereign downgrades or defaults, and they document a correlation between their estimates of bank vulnerability and the equity drawdowns experienced by European banks in 2010 and 2011. They further find that size caps, or forced mergers among the most exposed banks, do not reduce systemic risk very much. On the other hand, modest equity injections, if distributed appropriately between the most systemic banks, can cut the vulnerability of the banking sector to deleveraging by more than half.

21 December 2012

The Long-Run Impacts of Childhood Access to the Safety Net

Hilary Hoynes, Diane Whitmore Schanzenbach, and Douglas Almond analyze data from the Panel Study of Income Dynamics on family background and county of residence in early childhood, and on later adult health and economic outcomes. They find that access to the U.S. Food Stamp Program, which was rolled out across U.S. counties at various times between 1961 and 1975, was correlated with outcome measures decades later. They conclude that access to food stamps in childhood leads to a significant reduction in the incidence of obesity, high blood pressure, and diabetes. Women whose families received food stamps are also more economically self sufficient as adults than women of similar background whose families did not receive them.

20 December 2012

The Spatial Diffusion of Technology

Diego Comin, Mikhail Dmitriev, and Esteban Rossi-Hansberg study the diffusion over time and space of 20 major technologies in a sample of 161 countries over the last 140 years. They are specifically interested in the presence of cross-country correlations in the adoption of technology. They find that technology diffuses more slowly to locations that are farther away from leaders in the adoption of technology, especially when the countries in question are rich, and when the distance between them is measured along the south-north dimension. The researchers conclude that geography plays a significant role in determining technology diffusion across countries.

19 December 2012

Higher Education, Merit-Based Scholarships, and Post-Baccalaureate Migration

Maria Fitzpatrick and Damon Jones analyze data on broad-based merit aid scholarship programs introduced in 15 U.S. states along with census data on all 24-to-32 year olds in the United States from 1990 to 2010. They find that eligibility for merit aid programs slightly increases the propensity of state natives to live in-state, and that it raises in-state enrollment in public colleges among those in their late twenties. However, the effects of merit aid are small, which suggests that most of the spending on these programs is received by individuals who do not change their educational or migration behavior.

18 December 2012

The Impact of the Golden Quadrilateral Project for the Location and Performance of Indian Manufacturing

The Golden Quadrilateral (GQ) highway project upgraded the quality and width of 5,846 km of roads in India and sought to improve the connection of four major cities: Delhi, Mumbai, Chennai, and Kolkata. Ejaz Ghani, Arti Goswami, and Bill Kerr find that manufacturing firms located 0-10 km from GQ experienced increases in plant productivity, which was not the case for plants located 10-50 km from the road. They also show that the GQ project led to a stronger sorting of land-intensive industries from nodal districts to non-nodal districts located on the GQ network, and that it helped to spread economic activity to moderate-density districts and intermediate cities.

17 December 2012

The Rise of West German Wage Inequality

Over the past 25 years the structure of wages in West Germany has become more unequal. David Card, Jörg Heining, and Patrick Kline ask whether this change is attributable to greater variation in the "portable" person-specific component of wages, or to greater variation in the wage component that is associated with the firm for which a particular employee works. Their data reveal that both components have contributed to growing inequality: the gap between consistently high- and low-wage workers has grown, but the gap between good and bad jobs has also grown.

14 December 2012

The Employment-Population Reversal in the 2000s

Robert Moffitt finds that the employment-to-population ratio among those aged 16-64 declined from 74 percent in 2000 to less than 72 percent in 2007, an historic reversal from its upward trend over the prior 30 years. The decline was greater among younger and less educated men and women, and was especially pronounced among unmarried and childless women. Moffitt finds that about half of the change for men can be explained by declining wage rates and changes in non-labor income and family structure, but the decline among women is more difficult to explain.
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us