Working Papers

Increased borrowing by middle-class families with low income growth played a central role in rising indebtedness

We reveal a novel channel through which market participants’ sentiment influences how they forecast stock returns: their optimism (pessimism) affects the weights they assign to fundamentals.

This paper analyzes regional contributions to the US payroll share from 1977 to 2017 and the four major business cycles throughout this period.

This paper considers the relationship between profits realized from higher insulin list prices, pharmaceutical innovation, and the financial structures of the three dominant insulin manufacturing companies, which set list prices.

The links between campaign contributions from the financial sector and switches to a pro-bank vote were direct and substantial

As Covid-19 spreads globally in the first quarter of 2020, this paper finds that firms’ primary concerns relate to the collapse of demand, increased uncertainty, and disruption in supply chains

This paper considers the ambition, scale, substance and strategy of the European Union’s Green Deal

Private equity firms have become major players in the healthcare industry. How has this happened and what are the results?

This article proposes a new “Concentric Circle framework” which would improve workers’ access to civil, labor, and employment rights.

New research points to critical role of public funding in drug discoveries and development for the last decade

We conclude that representing dynamic realism in such models is as important as – and far more empirically tractable than – continued debate about the monetization of climate damages and ‘social cost of carbon’.

The central bank today is not just the government’s bank, but also a bankers’ bank, a truly hybrid institution

To get beyond the neoclassical fallacy, economists have to stop relying on constrained-optimization methodology

This paper argues that it is a mistake to dismiss secular demand stagnation as main cause of declining potential growth in the OECD.

Reconstituting capitalism and revitalizing the liberal international order will require revisiting first principles of Western political economy, rebalancing the emphasis it places on broad living standards as opposed to national income. The 2020 US presidential campaign has begun to do just that.

This paper records the path by which African Americans were transformed from enslaved persons in the American economy to partial participants in the progress of the economy.

Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world

This paper provides novel insights on the changing functional distribution of income in the post–war US economy.

This paper analyzes the early stages of the formation of the Common Market.

This essay deals with the contradictory dynamics that engulfed Europe from 1959 to 1979, the year of the launching of the European Monetary System.

This essay deals with the EMS experience and its failure, with the Maastricht Treaty, and with the interregnum leading to the formation of the EMU in 1999.

Policy hype but vintage fiscal economics from Godley, Lerner, and Keynes

How antitrust law is ill-equipped to address tech mergers

The Chicago School has long used bankrupt assumptions to strangle antitrust policy.

We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks.

It was too good to be true: Another effort to vindicate austerity falls victim to flawed methodology.

Frequent civil conflicts in African countries may erode national identity, thus highlighting a reason why civil conflict is costly for growth and development

A report of the Commission on Global Economic Transformation’s subcommittee on Macroeconomics & Finance

Everyone is waking up to the fact that estimates of what is possible in the economy are way off: this paper explains why

This paper presents an historical analysis of the antitrust laws.

A report of the Commission on Global Economic Transformation’s subcommittee on Inequality, Technology, and the Future of Work

Why Italy’s woes are a warning to the whole Eurozone

Prisoners employed in manufacturing constitute 4.2% of total U.S. manufacturing employment in 2005; they produce cheap goods, creating labor demand shock.

This paper introduces the Knightian Uncertainty Hypothesis (KUH), a new approach to macroeconomics and finance theory.

Asset markets are indispensable in harnessing society’s diverse views and insights about future business performance. But those views are shaped as much by emotion and crowd mentality as by rational expectations.

Economic distress in rural areas and opioid exposure in cities are key indicators of overdose deaths

For years, governments in India and much of the developing world have followed the advice of a paper arguing that labor regulations actually hurt workers. The problem? The research was wrong.

Starting with the literature on the estimates of the natural rate of interest, this paper critically analyzes the modern practice of identifying the benchmark rate of monetary policy with an equilibrium or neutral interest rate reflecting “fundamental forces” unaffected by monetary factors.

The American economy changed rapidly in the last half-century. The National Income and Product Accounts (NIPA) were designed before these changes started. They have stretched to accommodate new and growing service activities, but they are still organized for an industrial economy.

Wishful thinking and tinkering won’t cut it. Nothing short of a mass mobilization for deep de-carbonization across the global economy can avert the looming climate catastrophe.

We need a new system of rules for the digital 21st century that enhances global digital cooperation and welfare. Nothing less than a historic gathering of the world’s key decision makers will get us there.    

Assessing the Peculiarities of Economics from Two Scientometric Perspectives

In this paper we comparatively explore three claims concerning the disciplinary character of economics by means of citation analysis.

This paper critically analyzes voting patterns in the 2016 U.S. presidential election.

This paper examines the relationship between placement of publications in Top Five (T5) journals and receipt of tenure in academic economics departments.

This paper concerns itself with the joint effect of implicit subsidies that are built into the US housing-finance system and financial safety net.

This paper adds to the empirical evidence on the extent to which stock-based pay incentivizes and rewards European corporate executives. It shows that the actual realized gains (that is, take-home compensation) from stock-based pay of CEOs in European publicly-listed firms may be underestimated by the use of “estimated fair value” measures. The paper also documents the heterogeneity among countries in terms of the levels and components of CEO take-home pay. We base our work on a sample of 301 large, publicly-traded companies listed in the S&P Europe 350 index from 11 EU countries: Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden and United Kingdom for the fiscal year 2015. Through analyzing companies’ annual reports, we have hand-collected data on various elements of compensation of the company’s CEO in 2015, including the gains that executives realize from stock-based pay. We document that on average half of the total compensation of the European CEOs in our sample is stock-based, measured by actual realized gains, with large differences among countries. Although in some European countries the majority of total compensation is stock-based, the proportions are still well below those that prevail in the

“Dualism” in the structure of production across sectors of the US economy, employment by sector, productivity levels and growth, real wages, and intersectoral terms-of trade increased markedly between 1990 and 2016.

Using datasets on transactions within business groups and social sentiment in China, I show that state-owned enterprises (SOEs) use internal funds to address social unrest, complying with the government’s political goals.

This paper explains how hedge-fund activists are exerting power over corporate resourceallocation far in excess of the actual voting power of their shareholdings.

Converting an Obscure Agency Footnote into an “At Will” Nullification of Dodd-Frank’s Regulation of the Multi-Trillion Dollar Financial Swaps Market

Labor market regulation is a controversial area of public policy in both developed and developing countries.

A presentation from the panel “Research Evaluation in Economic Theory and Policy Making” at the 2018 G20 Global Solutions Summit in Berlin

Alberto Baccini’s presentation for INET’s panel on research evaluation at the G20 Global Solutions Summit in Berlin, May 2018.

Has the global financial crisis of 2007 had a visible impact on the economics profession?

Adair Turner, Chair of the Institute for New Economic Thinking, Lecture at School of Advanced International Studies, Johns Hopkins University, Washington DC April 10th 2018

“Meso” level analysis of 16 producing sectors sheds light on broad forces shaping growth of employment and profits. 

As early as 1900, German sociologist Georg Simmel identified a central feature of wealth in his seminal work The Philosophy of Money. Simmel writes about the superadditum of wealth for the rich, namely that a great fortune is encircled by innumerable possibilities of use, as though by an astral body.

Over the last four decades, Americans have consistently told pollsters that they favor higher taxes on business and the wealthy, even as tax policy has moved sharply in the other direction.

Money in politics is not a strictly American phenomenon. In France, despite strong campaign finance laws, campaign donations have a direct influence on legislative and municipal election results.

The prevailing wisdom that aggregate demand ‘shocks’ determine short-run cyclical fluctuations around a supply-determined equilibrium growth rate and an associated equilibrium unemployment rate (or NAIRU) has been called into question by various streams of literature in the last decades. Specifically, a recently revived literature on hysteresis finds significant persistence in the effects of recessions and negative aggregate demand shocks (Blanchard et al. 2015; Martin et al. 2015).

A critical analysis of Piketty’s work

A large literature has detailed the seminal roles played in the Civil Rights Movement by activists, new political organizations, churches, and philanthropies. But black-owned businesses also provided a behind-the-scenes foundation for the movement’s success.

The U.S. presidential election of 2016 featured frontal challenges to the political establishments of both parties and perhaps the most shocking election upset in American history.

To get justice, targets must show measurable harm: economists can help.

Veiling among Muslim women is modeled as a commitment mechanism that limits temptation to deviate from religious norms of behavior. 

The past 30 years has witnessed a worldwide decrease in real interest rates. We demonstrate that a large part of the fall in interest rates can be explained by changes in demography, which are as the result of a sudden fall in fertility rates across all of the advanced economies in the early 1970s.

We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn.

The concern that an economy could experience persistent, and in some sense unusual, weakness goes back to Keynes’s General Theory and led Alvin Hansen to coin the term “secular stagnation.”

This paper shows that aging has positive effect on output growth per capital at positive interest rates, due to capital deepening.

We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by high unemployment and weak growth.

We explore the transmission mechanism of income inequality to output.

I have read the various conference papers and am struck by the fact that many use the (omnipresent New-Keynesian) model of an aggregate loanable funds market to diagnose secular stagnation and investigate possible remedies.

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century.

Long-term real interest rates across the world are low, having fallen by about 450 basis points (bps) over the past thirty years.

This paper replaces an earlier version of a paper released in 2014 under the title “A Model of Secular Stagnation.”

Are regulatory interventions delayed reactions to market failures or can regulators proactively pre-empt corporate misbehavior?

The US federal lobbying industry, based in Washington DC, is major focal point for political money and the exercise of influence, with expenditures peaking at approximately $2.5 billion per annum during the first Obama administration. 

One might think of the satisfied consensus reigning in macroeconomics before the financial crisis (and still relatively entrenched) as evidence of “Groupthink” in a “Divided State”

The consensus that reigned in macroeconomics before the financial crisis has come under renewed attack.

The path to holding fossil fuel producers accountable for climate change & climate damages 

The deregulatory zeal of the 1990s and 2000s has returned to the US and the post-Brexit plans to protect the City in the UK sound like the pre-crash light-touch mentality that fueled global regulatory arbitrage.  As a result, a foremost “challenge of our time” is to stop “subsidizing more one-way bets” and “doubling down on failure.”

As globalization proceeds rapidly, manufacturing industry in most of developed countries declined steadily. 

The Death of the Seventy-year American Empire  

An Assessment and Some Policy Implications

What economics can – and can’t – tell us about climate change 

We want an economy that generates stable and equitable growth—or what I call “sustainable prosperity.” We want productivity growth that makes it possible for the population to have higher living standards over time. We want an equitable sharing of the gains from productivity growth among those whose work efforts and financial resources contribute to that growth. And we want sufficient job stability to enable workers to remain in productive employment for some four decades at work while providing them with enough savings to provide them with adequate incomes over some two decades of retirement.

Can a Policy of Guaranteed Basic Income Return Mature Market Economies to les Trente Glorieuses?

Building symbiotic public-private partnerships

Decomposition by such an important category as gender helps us understand the economy at the macro level, and design macroeconomic policy, better. It also provides the foundation for advocating equal gender rights and outcomes. But, where gendered policy issues arise in mainstream macroeconomics (income maldistribution, labour market composition, etc.) the subject matter is narrowed by its microfoundations, by focusing on GDP growth and on suboptimal outcomes being explained by market imperfections.

This paper examines the value of connections between German industry and the Nazi movement in early 1933. Drawing on previously unused contemporary sources about management and supervisory board composition and stock returns, we find that one out of seven firms, and a large proportion of the biggest companies, had substantive links with the National Socialist German Workers’ Party. Firms supporting the Nazi movement experienced unusually high returns, outperforming unconnected ones by 5% to 8% between January and March 1933. These results are not driven by sectoral composition and are robust to alternative estimators and definitions of affiliation. 

After re-iterating five well-known theorems about the properties of conditional expectations in stationary settings—such as providing unbiased minimum mean square error predictions despite in- complete information, and the law of iterated expectations—we clarify unpredictability and illustrate its prevalence empirically.

In the paper that we present this afternoon, Soren Johansen, Anders Rahbek, Morten Tabor, and I introduce the Qualitative Expectations Hypothesis (QEH) as a new approach to modeling macroeconomic and financial outcomes.

“The Failure of Democracy” – “The weaknesses of Weimar” Do headlines such as these suggest that the whole architecture of the first German republic was wrong, that it was doomed right from the start, that the “collapse” was unavoidable?

Stock Market Returns and Corporate Networks 

On 23 June 2016, the British electorate voted to leave the European Union (EU). We analyse vote and turnout shares across 380 local authority areas in the United Kingdom.

This paper discusses household debt as a long term phenomenon that influences economies beyond crises.1 In other words, rather than look at how household indebtedness can lead to crises, I will focus on its surprising persistence at very high levels, and its interactions along the way with other key variables, such as public policies and spending. The first section describes some stylized facts and the final section explores the macroeconomic consequences.

Support for populism is often attributed to xenophobia, racism, sexism; to anger and resentment at immigrants, racial or ethnic minorities, or “uppity” non-traditional women. According to these accounts , people who feel socially resentful may reject established politicians as favoring those “others” over people like themselves, and turn to outsider populistic leaders.

The debt-growth relationship is complex, varying across countries and being affected by global factors. While there is no simple universal threshold above which debt-to-GDP becomes a significant brake on growth, based on data from the last four decades we show that high and rising public debt burdens slow down growth in the long term.

Unpacking the Effect of Trade on Workers and Voters