Credit flows to businesses during the Great Recession

During the last recession, credit flows suffered their worst slowdown since World War II. A look at selected credit market measures gives some insight into why the slowdown was so severe. The measures also show that in spite of the size of the shock, credit flows actually recovered extremely quickly—a testament to the depth of the credit markets, and possibly the interventions that were taken to support them.Flow of funds ; Economic conditions - United States ; Recessions

Job separations, heterogeneity, and earnings inequality

Changes in the fraction of workers experiencing job separations can account for> most of the increase in earnings dispersion that occurred both between, as well as> within educational groups in the United States from the mid-1970s to the mid-> 1980s. This is not true of changes in average earnings losses following job separations.> A search model with exogenous human capital accumulation calibrated> to match some selected moments of the U.S. labor market is used to measure the> effects of changes in the fraction of workers experiencing job separations (extensive> margin) versus changes in average earnings losses following job separations> (intensive margin). While both margins do well in accounting for the increase in> the college premium, only the changes in the extensive margin do well in accounting> for the increases in the variance of both the permanent and transitory> components of earnings.Wages ; Income distribution

The implications of capital-skill complementarity in economies with large informal sectors

In most developing nations, formal workers tend to be more experienced, more educated, and earn more than informal workers. These facts are often interpreted as evidence that low-skill workers face barriers to entry into the formal sector. Yet, there exists little direct evidence that such barriers are important. This paper describes a model where significant differences arise between formal and informal workers even though labor markets are perfectly competitive. In equilibrium, the informal sector emphasizes low-skill work because informal managers have access to less outside financing, and choose to substitute low-skill labor for physical capital.Labor market

The Implications of Capital-Skill Complementarity in Economies with Large Informal Sectors

In most developing nations, formal workers tend to be more experienced and educated than informal workers, a fact often interpreted as evidence that low-skill workers face barriers to entry into the formal sector. Yet, there exists little direct evidence that labor markets are segmented in those nations. This paper describes a model where significant differences arise between workers across sectors even though labor markets are perfectly competitive. In equilibrium, the informal sector emphasizes low-skill work because informal managers have access to less outside financing, and choose to substitute low-skill labor for physical capital. We argue that subsidiary implications of the model for the organization of production are borne out by the existing evidence on informal economic activities in developing countries.

Finance matters

We present a model in which the importance of financial intermediation for development can be measured. We generate financial differences by varying the degree to which contracts can be enforced. Economies where enforcement is poor employ less capital and less efficient technologies. Yet, accounting for all the observed dispersion output requires a higher capital share or a lower elasticity of substitution between capital and labor than usually assumed. We find that the effects of changes in those technological parameters on output are markedly larger when financial frictions are present. Finance, that is, matters.Financial markets ; Productivity

The spatial structure of the financial development in Brazil

This paper explores the financial development in Brazil. It focuses on the impacts of the development level of a municipality’s financial system over its neighborhood, under the light of the Central Place Theory. Using a GMM estimator for a spatial panel model with an endogenous spatial lag and spatial moving average errors we investigate the spatial structure of the financial system in Brazil. The results point to a negative spatial association between the Brazilian municipalities’ financial system, in the way that a municipality with more developed financial system tends to be surrounded by municipalities with less developed financial systems.financial development, spatial structure, bank strategy, Brazil

A multi-sectoral approach to the U.S. Great Depression

We document sectoral differences in changes in output, hours worked, prices, and nominal wages in the United States during the Great Depression. We explore whether contractionary monetary shocks combined with different degrees of nominal wage frictions across sectors are consistent with both sectoral as well as aggregate facts. To do so, we construct a two-sector model where goods from each sector are used as intermediates to produce the sectoral goods that in turn produce final output. One sector is assumed to have flexible nominal wages, while nominal wages in the other sector are set using Taylor contracts. We calibrate the model to the U.S. economy in 1929, and then feed in monetary shocks estimated from the data. We find that while the model can qualitatively replicate the key sectoral facts, it can account for less than a third of the decline in aggregate output. This decline in output is roughly half as large as the one implied by a one-sector model. Alternatively, if wages are set using Calvo-type contracts, the decline in output is even smaller.Depressions ; Wages ; Prices

Improving the Multi-Dimensional Comparison of Simulation Results: A Spatial Visualization Approach

Results from simulation experiments are important in applied spatial econometrics to, for instance, assess the performance of spatial estimators and tests for finite samples. However, the traditional tabular and graphi- cal formats for displaying simulation results in the literature have several disadvantages. These include loss of results, lack of intuitive synthesis, and difficulty in comparing results across multiple dimensions. We pro- pose to address these challenges through a spatial visualization approach. This approach visualizes model precision and bias as well as the size and power of tests in map format. The advantage of this spatial approach is that these maps can display all results succinctly, enable an intuitive interpretation, and compare results efficiently across multiple dimensions of a simulation experiment. Due to the respective strengths of tables, graphs and maps, we propose this spatial approach as a supplement to traditional tabular and graphical display formats. To allow readers to generate maps such as the ones presented in this article, a package (written in Python) has been made available by the authors as free/libre software. The package includes an example as well as a short tutorial for researchers without programming experience and can be downloaded at: https://github.com/darribas/simVizMap.

Determinants of banking profitability: explaining the Nordic-Southern European divide

This paper explains the profitability gap between the better performing Nordic banks and their Southern European counterparts. The research, focused on the 2010-2017 period, ascertains that there are substantial differences in corporate governance mechanisms between the groups’ largest banks, but these either are non-significant or show mixed results when correlated with profitability. Additionally, the gap is partially explained by the higher Southern effective tax rates coupled with an increased focus on retail banking activity in the Nordics, but liquidity, proxied by total deposits over total assets, was found to positively influence profitability and to be higher in the South