Publications

The Sahm Rule and Predicting the Great Recession Across OECD Countries

We examine the start date of the Great Recession across OECD countries based on two successive quarters of negative GDP growth recession. For most OECD countries this establishes the start of recession in Q22008 or Q32008. We find that the Sahm Rule identifies the start of recession in the US to...

Modelling the impact of Covid-19 on the UK economy: an application of a disaggregated New-Keynesian model

We set out a framework that can be used to evaluate policies intended to mitigate the economic effects of Covid-19. In our framework shocks that affect only certain sectors can spill over to other sectors because of input-output linkages and limited income insurance. We show that policies such as...

Modelling and Estimating Large Macroeconomic Shocks During the Pandemic

Publication date: 11 Jun 2021 | Publication type: NIESR Discussion Paper | NIESR Author(s): Corrado, L | JEL Classification: C11, C51, E30 | NIESR discussion paper number: 530

Abstract This paper proposes and estimates a new Two-Sector One-Agent model that features large shocks. The resulting medium-scale New Keynesian model includes the standard real and nominal frictions used in the empirical literature and allows for heterogeneous COVID-19 pandemic exposure across...

Micro level data for macro models: the distributional effects of monetary policy

Publication date: 20 May 2021 | Publication type: NIESR Discussion Paper | External Author(s): Corrado, L, Fantozzi, D | JEL Classification: C81, D31, E52, E58 | NIESR discussion paper number: 529

Abstract In this paper we investigate the effect of standard and non-standard monetary policy implemented by the ECB on income inequality in Italy. We use a novel database based on the survey micro level data on Income and Living Conditions (EU-SILC, Istat) in a repeated cross-section experiment...

Be kind or take it on the chin? Political narratives, pandemics, and social distancing

Abstract How does a political leader’s messaging during a pandemic inﬂuence social distancing by citizens? We model the strategic choice of narrative in a beauty contest setting where the leader seeks to eliminate the disease. The leader’s resolve to eliminate the disease affects her narrative in...

The long-run investment eﬀect of taxation in OECD countries

Abstract The gradually changing nature of production and the move away from tangible investment towards intangible investment over the past century suggests that the eﬀects of the tax structure on investment need to be reassessed. To address this issue, we establish an endogenous growth model in...

Spatial and Spatio-Temporal Error Correction Networks and Common Correlated Effects

Abstract We provide a way to represent spatial and temporal equilibria in terms of error correction models in a panel setting. This requires potentially two different processes for spatial or network dynamics, both of which can be expressed in terms of spatial weights matrices. The first captures...

What we can learn about economics from professional sport during Covid-19

Abstract The economics of sport and how sport provides insights into economics have experienced exogenous shocks from Covid-19, facilitating many natural experiments. These have provided partial answers to questions of: how airborne viruses may spread in crowds; how crowds respond to the risk and...

Causal effects of an absent crowd on performances and refereeing decisions during Covid-19

Abstract The Covid-19 pandemic has induced worldwide natural experiments on the effects of crowds. We exploit one of these experiments that took place over several countries in almost identical settings: professional football matches played behind closed doors within the 2019/20 league seasons. ...

Outlier detection methodologies for alternative data sources: International review of current practices

Publication date: 2 Dec 2020 | Publication type: NIESR Discussion Paper | NIESR Author(s): Boshoff, J, Mao, X, Young, G | JEL Classification: C43, E31 | NIESR discussion paper number: 523

This research has been funded by the Office for National Statistics as part of the research programme of the Economic Statistics Centre of Excellence (ESCoE). This paper was first published in July 2020: “Outlier detection methodologies for alternative data sources: International review of current...

Does Obamacare Care? A Fuzzy Difference-in-Discontinuities Approach

Publication date: 26 Nov 2020 | Publication type: NIESR Discussion Paper | External Author(s): Galindo-Silva, H, Somé, N, Tchuente, G | JEL Classification: C13, I12, I13, I18 | NIESR discussion paper number: 522

Abstract This paper explores the use of a fuzzy regression discontinuity design where multiple treatments are applied at the threshold. The identiﬁcation results show that, under the very strong assumption that the change in the probability of treatment at the cutoﬀ is equal across treatments, a...

An Economic Model of Health-vs-Wealth Prioritization During COVID-19: Optimal Lockdown, Network Centrality, and Segregation

Publication date: 23 Nov 2020 | Publication type: NIESR Discussion Paper | External Author(s): Pongou, R, Tchuente, G, Tondji, J | JEL Classification: E61, H12, I18, J15, D85 | NIESR discussion paper number: 521

Abstract We address the problem of ﬁnding the optimal lockdown and reopening policy during a pandemic like COVID-19, for a social planner who prioritizes health over short-term wealth accumulation. Agents are connected through a fuzzy network of contacts, and the planner’s objective is to determine...

When the penny doesn’t drop – Macroeconomic tail risk and currency crises

Publication date: 18 Nov 2020 | Publication type: NIESR Discussion Paper | External Author(s): Duley, C, Gai, P | JEL Classification: F31, G01, E44, N24 | NIESR discussion paper number: 520

Abstract We extend the canonical global game model of currency crises to allow for macroeconomic tail risk. The exchange rate peg is attacked if fundamentals reach a critical threshold, or if there is a suﬃciently large public shock. Large shocks generate doubt amongst investors about both the...

Bank reserves and broad money In the global financial crisis: a quantitative evaluation

Abstract The Federal Reserve responded to the global financial crisis by initiating an unprecedented expansion of central bank money (bank reserves) once the policy rate had reached the lower bound. To capture the salient features of the crisis, we develop a model where the central bank can provide...

How to not miss a productivity revival once again?

Abstract Over the past 15 years productivity growth in advanced economies has significantly slowed, giving rise to the productivity paradox of the New Digital Economy – that is, the notion of increased business spending on ICT assets and digital services without a noticeable increase in...

Time series models for epidemics: leading indicators, control groups and policy assessment

Abstract This article shows how new time series models can be used to track the progress of an epidemic, forecast key variables and evaluate the effects of policies. A class of univariate time series models was developed by Harvey and Kattuman (2020). Here the framework is extended to modelling...

Banking Concentration and Financial Crises

Publication date: 5 Oct 2020 | Publication type: NIESR Discussion Paper | External Author(s): Barrell, R, Karim, D | JEL Classification: E44; G01; G18; | NIESR discussion paper number: 516

Abstract Policy makers need to know if the structure of competition and the degree of banking market concentration change the incidence of financial crises. Previous studies have not always come to clear conclusions. We use a new dataset of 19 countries where we include capital adequacy and house...

Macroprudential Policy, Monetary Policy and the Bank Interest Rate Margin

Abstract Against the background of the policy interest in the interaction of monetary policy and macroprudential policy, we present empirical estimates of effects of macroprudential policies alongside monetary policy on banks’ interest rate margins (net interest income/average assets). This is an...

The Effects of Macroprudential Policy on Banks' Profitability

Despite the importance of profitability to banks’ growth and stability, there have, to our knowledge, been no studies which assess the effect of macroprudential regulation on banks’ profitability, a key aspect of the transmission of macroprudential measures. We seek to fill this lacuna with...

The Fed’s enhanced swap lines and new interventions in the Treasury market

In March 2020, the Federal Reserve enhanced its existing swap lines with foreign central banks, and introduced additional temporary swap lines with other central banks, in order to support the smooth functioning of U.S. dollar funding markets during the coronavirus epidemic. The Federal Reserve...

Brexit and the Euro

The year 2019 marked the 20th anniversary of the establishment of the Euro. It was also the last full year before the UK formally left the European Union. This paper examines the relationship between the UK and the euro area. We look at the economic distance between core and periphery groups of...

Below the Aggregate: A Sectoral Account of the UK Productivity Puzzle

Publication date: 18 Oct 2019 | Publication type: NIESR Discussion Paper | Theme: Trade, Investment & Productivity | NIESR Author(s): Riley, R, Rincon-Aznar, A, Samek, L | JEL Classification: E22, E23, L60, L70, L80, L90, O47 | NIESR discussion paper number: 508

We analyse new industry-level data to re-examine the UK productivity puzzle. We carry out an accounting exercise that allows us to distinguish general macroeconomic patterns from sector trends and idiosyncrasies, providing a roadmap for anyone interested in explaining the puzzle. We focus on the UK...

A Century of High Frequency UK Macroeconomic Statistics: A Data Inventory

This paper provides an inventory of the available macroeconomic statistics in the UK for the last hundred years or so. The focus is on documenting the higher frequency (daily, monthly and quarterly) macroeconomic data that are available after the World War 1, rather than longer run annual time...

The evolution of tax implicit value judgements, redistribution and income inequality in the UK: 1968 to 2015

An issue of interest in the literature that explores the drivers of inequality is the distributional bearing of tax and transfer policy, where an important theme concerns changes in the relative treatment of alternative population subgroups. We develop an empirical approach for quantifying the...

What does leadership look like in schools and does it matter for school performance?

We consider the role played by school leaders in improving pupil attainment, going beyond previous studies by exploring the leadership roles of deputy and assistant heads and classroom-based teachers with additional leadership responsibilities. Using panel data for state-funded secondary schools in...

Some International Evidence for Keynesian Economics Without the Phillips Curve

Farmer and Nicolò (2018) show that the Farmer Monetary (FM)-Model outperforms the three-equation New-Keynesian (NK)-model in post war U.S. data. In this paper, we compare the marginal data density of the FM-model with marginal data densities for determinate and indeterminate versions of the NK-...

Tax Policy for Innovation

A large number of countries around the world now provide some kind of tax incentive to encourage firms to undertake innovative activity. This paper presents the policy rationale for these incentives, discusses their design and potential effectiveness, and reviews the empirical evidence on their...

The Indeterminacy Agenda in Macroeconomics

This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by...

Distressed Banks, Distorted Decisions?

Exploiting differences in pre-crisis business banking relationships, we present evidence to suggest that restricted credit availability following the 2008 financial crisis increased the rate of business failure in the United Kingdom. But rather than "cleansing” the economy by accelerating the exit...

Nominal GDP growth indexed bonds: Business Cycle and Welfare Effects within the Framework of New Keynesian DSGE model

We examine the welfare effects of GDP-indexed bonds in a New Keynesian DSGE model. We add to a literature showing that the issuance of GDP-indexed bond may help stabilise public debt and so give more room for countercyclical fiscal policy, by conducting a careful general equilibrium welfare...

A Comparison of Earnings Related to Higher Level Vocational/Technical and Academic Education

We use the earliest cohort of English secondary school leavers with newly available Longitudinal Education Outcomes data (622,000 pupils in 2002/03) to compare earnings of people with higher vocational/technical qualifications to those of degree holders. The unusually rich data allow us to estimate...

Bank Leverage Ratios, Risk and Competition - An Investigation Using Individual Bank Data

Following experience in the global financial crisis (GFC), when banks with low leverage ratios were often in severe difficulty, despite high-risk-adjusted capital measures, a leverage ratio was introduced in Basel III to complement the risk-adjusted capital ratio (RAR). Empirical testing of the...

The Bank Capital-Competition-Risk Nexus - A Global Perspective

The Global Financial Crisis (GFC) highlighted the importance of a number of unresolved empirical issues in the field of financial stability. First, there is the sign of the relationship between bank competition and financial stability. Second, there is the relation of capital adequacy of banks to...

The Impact of the Introduction of the National Living Wage on Employment, Hours and Wages

Publication date: 21 Feb 2019 | Publication type: NIESR Discussion Paper | Theme: Employment & Social policy | NIESR Author(s): Aitken, A, Dolton, P, Riley, R | NIESR discussion paper number: 501

In 2015 the UK government announced the introduction of a new ‘National Living Wage’ (NLW) that would apply to those aged 25 and above from April 2016. At a rate of £7.20, this represented a significant increase of 7.5% over the existing National Minimum Wage (NMW) rate. Previous research has...

Young people’s education choices and progression to Higher Education; A comparison of A-Level and Non-A-Level students in Key Stage 5, their subject choices and transitions to university

This study analyses students’ choices when leaving Key Stage 4 (KS4) to Key Stage 5 (KS5) for pupils progressing to either academic A-Level or vocational “Non-A-Level” Level 3 programmes. Using school-level data (published by the Department for Education) and linked administrative data, which...

Monetary and Exchange Rate Policies for Sustained Growth in Asia

The more advanced economies in Asia are experiencing slower growth rates. Structural reforms are the most important policies for keeping growth rates up, but this paper takes the growth slowdown as given and focuses on implications for monetary policy. The key policy implication is the importance...

The Fiscal Theory of the Price Level in Overlapping Generations Models

We demonstrate that the Fiscal Theory of the Price Level (FTPL) cannot be used to determine the price level uniquely in the overlapping generations (OLG) model. We provide two examples of OLG models, one with three 3-period lives and one with 62-period lives. Both examples are calibrated to an...

Understanding and Confronting Uncertainty: Revisions to UK Government Expenditure Plans

We develop a simple model that motivates fiscal stabilisation policy, in the presence of economic and control uncertainty. An examination of a real-time database of economic variables and forecasts shows that our knowledge of the current and future state of the economy is subject to significant...

Real-time Forecast Combinations for the Oil Price

Baumeister and Kilian (2015) combine forecasts from six empirical models to predict real oil prices. In this paper, we broadly reproduce their main economic findings, employing their preferred measures of the real oil price and other real-time variables. Mindful of the importance of Brent crude oil...

Is Football a Matter of Life and Death – Or is it more Important than that?

Football is the national sport of most of the planet. This paper examines how happy the outcomes of football matches make us. We calibrate these results relative to other activities and estimate the dynamic effects these exogenous events have on our utility over time. We find that football – on...

The Lack of Wage Growth and the Falling NAIRU

There remains a puzzle around the world over why wage growth is so benign given the unemployment rate has returned to pre-recession levels. It is our contention that a considerable part of the explanation is the rise in underemployment which rose in the Great Recession but has not returned to pre-...

The Role of Financial Policy

I review the contribution and influence of Milton Friedman’s 1968 presidential address to the American Economic Association. I argue that Friedman’s influence on the practice of central banking was profound and that his argument in favour of monetary rules was responsible for thirty years of low...

Implementing Macroprudential Policy in NiGEM

In this paper we incorporate a macroprudential policy model within a semi-structural global macroeconomic model, NiGEM. The existing NiGEM model is expanded for the UK, Germany and Italy¹ to include two macroprudential tools: loan-to-value ratios on mortgage lending and variable bank capital...

Effects of asset purchases and financial stability measures on term premia in the euro area

We study the effects of the announcements of ECB asset purchases and of financial stability measures in the euro area in the wake of the global financial crisis and the euro area sovereign debt crisis on ten-year government bond term premia in eleven euro area countries. We find that the term...

The Household Fallacy

We refer to the idea that government must ‘tighten its belt’ as a necessary policy response to higher indebtedness as the household fallacy. We provide a reason to be skeptical of this claim that holds even if the economy always operates at full employment and all markets clear. Our argument rests...

The Impact of Management Practices on SME Performance

We examine the impact of management practices on firm performance among SMEs in Britain over the period 2011-2014, using a unique dataset which links survey data on management practices with firm performance data from the UK’s official business register. We find that SMEs are less likely to use...

Consumption Dynamics, Housing Collateral and Stabilisation Policies: A Way Forward for Policy Co-Ordination?

We decompose aggregate consumption of heterogeneous consumers by modelling both savers and their links to collateral constrained borrowers through a bank which prices credit risk. Savers own both firms and the commercial bank while borrowers require loans from the commercial bank to effect their...

Pricing Assets in a Perpetual Youth Model

Publication date: 31 Jan 2018 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Farmer, R | NIESR discussion paper number: 485

This paper constructs a general equilibrium model where asset price fluctuations are caused by random shocks to beliefs about the future price level that reallocate consumption across generations. In this model, asset prices are volatile, and price-earnings ratios are persistent, even though there...

Did Central Banks Cause The Last Financial Crisis? Will They Cause The Next?

Recent history suggests that raising interest rates higher than warranted by macroeconomic prospects would not be the right policy for financial stability. The significant tightening of monetary policies in the advanced economies from mid-2004 to mid-2006 failed to stop increased risk-taking in the...

Peer Effects and Social Influence in Post-16 Educational Choice

This paper investigates whether the educational choices that young people make after the completion of their GCSEs (at age 16) are influenced by their peers. More specifically, it takes advantage of the variation in peer groups that arises when students move from primary to secondary school in...