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Highly interconnected global supply chains make countries vulnerable to supply chain disruptions. The authors estimate the macroeconomic effects of global supply chain shocks for the euro area. Their empirical model combines business cycle variables with data from international container trade.
Using a novel identification scheme, they augment conventional sign restrictions on the impulse responses by narrative information about three episodes: the Tohoku earthquake in 2011, the Suez Canal obstruction in 2021, and the Shanghai backlog in 2022. They show that a global supply chain shock causes a drop in euro area real economic activity and a strong increase in consumer prices. Over a horizon of one year, the global supply chain shock explains about 30% of inflation dynamics. They also use regional data on supply chain pressure to isolate shocks originating in China.
Their results show that supply chain disruptions originating in China are an important driver for unexpected movements in industrial production, while disruptions originating outside China are an especially important driver for the dynamics of consumer prices.
A novel spatial autoregressive model for panel data is introduced, which incor-porates multilayer networks and accounts for time-varying relationships. Moreover, the proposed approach allows the structural variance to evolve smoothly over time and enables the analysis of shock propagation in terms of time-varying spillover effects.
The framework is applied to analyse the dynamics of international relationships among the G7 economies and their impact on stock market returns and volatilities. The findings underscore the substantial impact of cooperative interactions and highlight discernible disparities in network exposure across G7 nations, along with nuanced patterns in direct and indirect spillover effects.
In his speech at the conference „The SNB and its Watchers“, Otmar Issing, member of the ECB Governing Council from its start in 1998 until 2006, takes a look back at more than twenty years of the conference series „The ECB and Its Watchers“. In June 1999, Issing established this format together with Axel Weber, then Director of the Center for Financial Studies, to discuss the monetary policy strategy of the newly founded central bank with a broad circle of participants, that is academics, bank economists and members of the media on a „neutral ground“. At the annual conference, the ECB and its representatives would play an active role and engage in a lively exchange of view with the other participants. Over the years, Volker Wieland took over as organizer of the conference series, which also was adopted by other central banks. In his contribution at the second conference „The SNB and its Watchers“, Issing summarizes the experience gained from over twenty years of the ECB Watchers Conference.
Industry classification groups firms into finer partitions to help investments and empirical analysis. To overcome the well-documented limitations of existing industry definitions, like their stale nature and coarse categories for firms with multiple operations, we employ a clustering approach on 69 firm characteristics and allocate companies to novel economic sectors maximizing the within-group explained variation. Such sectors are dynamic yet stable, and represent a superior investment set compared to standard classification schemes for portfolio optimization and for trading strategies based on within-industry mean-reversion, which give rise to a latent risk factor significantly priced in the cross-section. We provide a new metric to quantify feature importance for clustering methods, finding that size drives differences across classical industries while book-to-market and financial liquidity variables matter for clustering-based sectors.
Shallow meritocracy
(2023)
Meritocracies aspire to reward hard work and promise not to judge individuals by the circumstances into which they were born. However, circumstances often shape the choice to work hard. I show that people's merit judgments are "shallow" and insensitive to this effect. They hold others responsible for their choices, even if these choices have been shaped by unequal circumstances. In an experiment, US participants judge how much money workers deserve for the effort they exert. Unequal circumstances disadvantage some workers and discourage them from working hard. Nonetheless, participants reward the effort of disadvantaged and advantaged workers identically, regardless of the circumstances under which choices are made. For some participants, this reflects their fundamental view regarding fair rewards. For others, the neglect results from the uncertain counterfactual. They understand that circumstances shape choices but do not correct for this because the counterfactual—what would have happened under equal circumstances—remains uncertain.
Investors' return expectations are pivotal in stock markets, but the reasoning behind these expectations remains a black box for economists. This paper sheds light on economic agents' mental models -- their subjective understanding -- of the stock market, drawing on surveys with the US general population, US retail investors, US financial professionals, and academic experts. Respondents make return forecasts in scenarios describing stale news about the future earnings streams of companies, and we collect rich data on respondents' reasoning. We document three main results. First, inference from stale news is rare among academic experts but common among households and financial professionals, who believe that stale good news lead to persistently higher expected returns in the future. Second, while experts refer to the notion of market efficiency to explain their forecasts, households and financial professionals reveal a neglect of equilibrium forces. They naively equate higher future earnings with higher future returns, neglecting the offsetting effect of endogenous price adjustments. Third, a series of experimental interventions demonstrate that these naive forecasts do not result from inattention to trading or price responses but reflect a gap in respondents' mental models -- a fundamental unfamiliarity with the concept of equilibrium.
Dynamics of life course family transitions in Germany: exploring patterns, process and relationships
(2023)
This paper explores dynamics of family life events in Germany using discrete time event history analysis based on SOEP data. We find that higher educational attainment, better income level, and marriage emerge as salient protective factors mitigating the risk of mortality; better education also reduces the likelihood of first marriage whereas, lower educational attainment, protracted period, and presence of children act as protective factors against divorce. Our key finding shows that disparity in mean life expectancies between individuals from low- and high-income brackets is observed to be 9 years among males and 6 years among females, thereby illustrating the mortality inequality attributed to income disparities. Our estimates show that West Germans have low risk of death, less likelihood of first marriage, and they have a high risk of divorce and remarriage compared to East Germans.
We present determinacy bounds on monetary policy in the sticky information model. We find that these bounds are more conservative here when the long run Phillips curve is vertical than in the standard Calvo sticky price New Keynesian model. Specifically, the Taylor principle is now necessary directly - no amount of output targeting can substitute for the monetary authority’s concern for inflation. These determinacy bounds are obtained by appealing to frequency domain techniques that themselves provide novel interpretations of the Phillips curve.
We study the redistributive effects of inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households update upwards their beliefs about nominal debt and their own real net wealth. These changes in beliefs causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.
In current discussions on large language models (LLMs) such as GPT, understanding their ability to emulate facets of human intelligence stands central. Using behavioral economic paradigms and structural models, we investigate GPT’s cooperativeness in human interactions and assess its rational goal-oriented behavior. We discover that GPT cooperates more than humans and has overly optimistic expectations about human cooperation. Intriguingly, additional analyses reveal that GPT’s behavior isn’t random; it displays a level of goal-oriented rationality surpassing human counterparts. Our findings suggest that GPT hyper-rationally aims to maximize social welfare, coupled with a strive of self-preservation. Methodologically, our esearch highlights how structural models, typically employed to decipher human behavior, can illuminate the rationality and goal-orientation of LLMs. This opens a compelling path for future research into the intricate rationality of sophisticated, yet enigmatic artificial agents.