How do changes in income,employment and health insurance affect family mental health spending?

Using eight two-year panels from the Medical Expenditure Panel Survey data for the period 2004 to 2012, we examine the effect of economic shocks on mental health spending by families with children. Estimating two-part expenditure models within the correlated random effects framework, we find that employment shocks have a greater impact on mental health spending than do income or health insurance shocks. Our estimates reveal that employment gains are associated with a lower likelihood of family mental health services utilization. By contrast employment losses are positively related to an increase in total family mental health. We do not detect a link between economic shocks and mental health spending on behalf of fathers.

     

WHAT MAKES A GOOD ECONOMY? EVIDENCE FROM PUBLIC OPINION SURVEYS

Analysis of 35 years of previously unstudied survey data shows how the American public evaluates the health of the macroeconomy. Survey responses are multidimensional, distinct from indexes of “consumer sentiment,” and based mostly on genuine perceptions of economic conditions, not media reports of economic statistics. As such, they contain unique information about current and future values of these statistics, particularly consumption growth, a longstanding focus of the literature. Both “intangibles” and macroeconomic fundamentals explain substantial variation in the survey data; the public equates 2 to 5 percentage points of inflation with 1 percentage point of unemployment. (JEL E32, E27, E01)     

The index of consumer sentiment: Predictability and predictive power in the EEC

This paper investigates the mutual predictability between the Index of Consumer Sentiment and non-attitudinal economic indicator using linear regressions on aggregate time-series data for several EEC member countries. In the first part the ICS is regressed on economic indicators to show that a sizeable part of the fluctuations in the ICS are captured by the economic series. In a second part, new passenger automobile registrations are regressed on the ICS and on economic indicators to show that the ICS is al most a marginal determinant of consumer spending on new passenger cars. The general conclusions derived from the study strengthen the findings from previous studies which are sceptical about the usefulness of the ICS in the explanation and forecasting of discretionary consumer spending.     

THE CYCLICAL BEHAVIOR OF PRICES AND RELATIVE PRICES

Price and output shock correlations provide information concerning macroeconomic shocks. Previous research generally finds small or negative correlations between real gross domestic product (GDP) and GDP deflator shocks but positive correlations between industrial production (IP) and consumer price index (CPI) shocks at short forecast horizons. We show that mismatched price and output correlations may have different magnitudes or signs than matched pairs. Matched and mismatched correlations between disaggregated prices and output from the GDP accounts indicate the procyclical price of nondurables to durables makes correlations between mismatches misleading. Thus, there is reason to be skeptical of results based on IP and the CPI. (JEL E31, E32)     

A note on the measurement,quantification, and use of consumer confidence

It is argued that consumer spending on durable items is not necessarily the only type of consumer spending to be influenced by consumer confidence but. given a certain degree of affluence. spending on non-durables can also be influenced by it.Different methods of quantification of consumer confidence are touched upon and the issue of equal weighting versus differential weighting, where weights are ascertained by the use of factor analysis, is discussed in more detail. Various indices of consumer confidence are computed and tested by means of regression analyses. It was found that it is immaterial whether a composite measure of confidence is based on factor analysis or simply on the summing and averaging of responses.The results of the regression analyses suggest that the hypothesis that consumer sentiment partly determines movements in private consumption expenditure holds true, especially in the case of durables. There are indications, however, that spending on non-durable goods might also be influenced by consumer sentiment.     

INFLATION EXPECTATIONS AND CONSUMER SPENDING AT THE ZERO BOUND: MICRO EVIDENCE

Standard theoretical models predict that higher inflation expectations generate greater current consumer spending at the zero lower bound of interest rates. However, recent empirical studies using U.S. micro data find negative results for this relationship. We use micro data for Japan, which has experienced low interest rates for a prolonged period, to estimate ordered probit models with a variety of controls. We find robust evidence supporting the prediction of standard models: survey respondents with higher expected inflation tend to indicate that their household has increased real spending compared with 1 year ago but will decrease it in the future. This relationship appears to be stronger for asset holders and older people. (JEL E20, E21, E30, E31, E50, E52)     

AN EMPIRICAL CHARACTERIZATION OF THE DYNAMIC EFFECTS OF POLICE SPENDING ON VIOLENT AND PROPERTY CRIME

The study estimates the dynamic effects of shocks to police expenditures on measures of violent and property crime rates using annual U.S. state-level data for the period 1960–2015. We employ a structural panel VAR model and achieve identification by imposing the restriction that police spending responds to structural shocks to crime with at least a lag of 1 year. Results indicate that a shock to police spending leads to (a) persistent and significant decreases in violent and property crime rates and (b) significant and persistent negative impacts on crime rates in periods of high crime but little impacts in periods of low crime. Variance decompositions show that shocks to police spending account for moderate to large proportions of the variability of U.S. state-level crime rates. Our findings are robust across separate measures of violent and property crime rates, as well as to the inclusion of additional variables to the baseline panel VAR model. (JEL K42)     

CONSUMER CREDIT,LIQUIDITY, AND THE TRANSMISSION MECHANISM OF MONETARY POLICY

That the lending channel is alive and well for consumer lending is at first glance a compelling notion given the growth in consumer credit. However, this paper demonstrates with disaggregated monthly consumer credit data that the consumer loan‐supply effect has diminished over time. Contrary to assumptions motivating the lending channel, after the mid‐1980s, households are not constrained in accessing nonrevolving or revolving bank loans in response to a monetary shock. The findings of this paper have important implications for research on the monetary transmission mechanism beyond the lending channel and for business cycle research in general. (JEL E44, E50, E60, C32)     

THE CYCLICALITY OF PRICE‐COST MARGINS IN BANKING: AN EMPIRICAL ANALYSIS OF ITS DETERMINANTS

We study the determinants of the cyclical behavior of banks' price‐cost margins in the United States banking sector, using time series quarterly data for the period 1979–2005. We contribute to the literature by building an empirical model of the countercyclical behavior of these margins first documented by Aliaga‐Díaz and Olivero (2010a) . Doing so we are able to explore potential explanations for this behavior, and to show that margins are consistently countercyclical, even after controlling for the effects of credit risk and monetary policy. As a mechanism for the propagation of aggregate shocks, the countercyclical nature of margins in banking can provide additional support to stabilization policy. (JEL E32, E44, G21)     

INSTITUTIONS,HOUSEHOLD CREDIT COMPOSITION,AND THE BUSINESS CYCLE

We show that the negative effect of household credit growth on subsequent economic growth documented in the recent literature is not the same across countries. The effect is stronger in countries with weak institutions where the fraction of consumer credit in total household credit is greater. That is an important nuance as consumer credit is a sizable part of household credit in many emerging markets and its rapid buildup should be observed with the same caution as a rapid buildup in housing credit. (JEL G21, E32, E44)     

FORWARD GUIDANCE AND THE STATE OF THE ECONOMY

This paper analyzes forward guidance in a nonlinear model with a zero lower bound (ZLB) on the nominal interest rate. Forward guidance is modeled with news shocks to the monetary policy rule, which capture innovations in expectations from central bank communication about future policy rates. Whereas most studies use quasi‐linear models that disregard the expectational effects of hitting the ZLB, we show how the effectiveness of forward guidance nonlinearly depends on the state of the economy, the speed of the recovery, the degree of uncertainty, the policy shock size, and the forward guidance horizon when households account for the ZLB. (JEL E43, E58, E61)     

MONETARY POLICY SHOCKS,EXPECTATIONS, AND INFORMATION RIGIDITIES

This paper contributes to the literature by assessing expectation effects from monetary policy for G7 economies. We rely on expectation data from Consensus Economics and a panel vector autoregression framework, which accounts for international spillovers and time‐variation. We analyze whether monetary policy has changed the degree of information rigidity after the emergence of the subprime crisis and estimate effects of interest rate changes on expectations, disagreements, and forecast errors. We find strong evidence for information rigidities and identify higher forecast errors by professionals after monetary policy shocks. Our results suggest that the international transmission of monetary policy shocks introduces noisy information and partly increases disagreement among forecasters. (JEL E31, E52)     

ENVIRONMENTALISM,STIMULUS, AND INEQUALITY REDUCTION THROUGH INDUSTRIAL POLICY: DID CASH FOR CLUNKERS ACHIEVE THE TRIFECTA?

The 2009 American Cash for Clunkers program, which subsidized consumers who scrapped old vehicles and purchased new vehicles, was promoted by appealing to multiple constituencies. We evaluate the policy and alternatives according to its stated goals: emissions reductions, economic stimulus, and reducing inequality. We calibrate a dynamic partial equilibrium portfolio model to match consumer expenditure data from 1998 to 2011 focusing on heterogeneity across cars and trucks. We find the program generated $0.17 in environmental benefits, $0.28 in consumer surplus, and $0.31 in net discounted additional spending per subsidy dollar. Since subsidies largely went to middle-income infra-marginal consumers, the program exacerbated consumption inequality. We evaluate alternative policy designs and find no policy which simultaneously improves all outcomes. (JEL H23, L52, L92, D63)     

UNDERSTANDING THE MACROECONOMIC IMPACT OF ILLIQUIDITY SHOCKS IN THE UNITED STATES

In this paper, we empirically investigate the role of stock market illiquidity shocks, stemming from Amihud's illiquidity measure, in explaining U.S. macroeconomic fluctuations from 1973 to 2018. We find that the impact of illiquidity shocks on economic activity is substantial, and historical decomposition analysis shows that cumulative illiquidity shocks were an essential contributor to the prolonged economic slump of the Great Recession. Moreover, our identified illiquidity shocks represent a distinct source of macroeconomic instability. This suggests that illiquidity shocks, measured by the stock price impacts, may contain more information than other types of shocks in recent studies, such as financial shocks and uncertainty shocks. (JEL C32, E32)     

INTERNATIONAL EFFECTS OF EURO AREA VERSUS U.S. POLICY UNCERTAINTY: A FAVAR APPROACH

Estimating a large‐scale factor‐augmented vector autoregressive model for 18 Organisation for Economic Co‐operation and Development member countries, we quantify the global effects of economic policy uncertainty shocks. More specifically, we check whether the signs, the magnitude, and the persistence profile are consistent with the literature on the real and financial sector effects of uncertainty. In that respect, we compare the impacts of a U.S. and a Euro area policy uncertainty shock. According to our results, an increase in economic policy uncertainty has a strong negative impact on economic activity (gross domestic product), consumer prices, equity prices, and interest rates. Uncertainty shocks cause deeper recessions in Continental Europe (except Germany) than in Anglo‐Saxon countries. U.S. uncertainty shocks have a bigger impact than those for the Euro area. Economic policy uncertainty does not only affect that country where the shock originates but also has large cross‐border effects. We also find a high degree of synchronization among the responses of national variables to a (foreign) uncertainty shock, indicating evidence of an international business cycle. With respect to the responses of national long‐term interest rates to an economic policy uncertainty shock, our results reveal a strong “North‐South” divide within the Euro area with rates decreasing less significantly in the South. Moreover, economic policy uncertainty shocks emerging in one region quickly raise uncertainty outside the region of origin. (JEL C32, F42, D80)     

INVESTMENT SHOCKS,CONSUMPTION PUZZLE,AND BUSINESS CYCLES

A mass of recent research shows that investment shocks are primary driving forces of business cycles. A thorny issue, however, arises due to countercyclical consumption behavior following the investment shocks. This article contributes to the literature by resolving this anomalous issue in a model that features time inconsistency, modeled as naïve hyperbolic discounting. The proposed model delivers positive responses of consumption to an investment shock and thus produces comovement of key macroaggregates, which is in line with the observed U.S. business cycles. Furthermore, this article also substantiates the validity of the proposed model by producing comovement following an investment news (or anticipated investment) shock. Additional analyses on changes in model structure and parameter value do not reverse the main finding. (JEL E3, E7)     

INTEREST RATE PROMINENCE IN CONSUMER DECISION‐MAKING

Variations in consumers' responsiveness to interest rates across households and over time have important implications for monetary transmission. Responses from the Michigan Survey of Consumers provide an indication of the degree to which interest rates are a prominent consideration in spending decisions, news recollection, and financial situations. Prominence is strongest in housing attitudes, increases with income, education, and homeownership, and declined in the Great Recession. Rate prominence is associated with stronger responsiveness of consumption attitudes to monetary policy. (JEL D84, D91, E21, E40, E50)     

QUANTITATIVE EASING AND THE UK STOCK MARKET: DOES THE BANK OF ENGLAND INFORMATION DISSEMINATION STRATEGY MATTER?

We use intraday aggregate stock market data and an event‐study framework to assess the UK's equity market reaction to the unexpected element of the Bank of England Monetary Policy Committee's (MPC) asset purchase announcements for the 2009–2017 period. We assess the reactions of equity returns and their volatility over various time frames, both preceding and following the MPC announcements. Our results show that the UK unconventional monetary policy shocks have a significant impact on domestic equity returns and volatilities. The strength of this impact depends on the Bank's information dissemination through inflation reports and the publication of the MPC's voting records. (JEL G14, E44, E52)     

WOMEN PREFER LARGER GOVERNMENTS: GROWTH,STRUCTURAL TRANSFORMATION,AND GOVERNMENT SIZE

The increase in income per capita is accompanied, in virtually all countries, by two changes in economic structure: the increase in the share of government spending in gross domestic product (GDP), and the increase in female labor force participation. We argue that these two changes are causally related. We develop a growth model based on Galor and Weil (1996) where female participation in market activities, fertility, and government size, in addition to consumption and saving, is endogenously determined. Rising incomes lead to a rise in female labor force participation as the opportunity cost of staying at home and caring for the children increases. In our model, higher government spending decreases the cost of performing household chores, including, but not limited to, child rearing and child care, as in Rosen (1996) . We also use a wide cross‐section of data for developed and developing countries and show that higher market participation by women is positively and robustly associated with government size. We then investigate the causal link between participation and government size using a novel unique data set that allows the use of the relative price of productive home appliances as an instrumental variable. We find strong evidence of a causal link between female market participation and government size. This effect is robust to the country sample, time period, and a set of controls in the spirit of Rodrik (1998) . (JEL O4, E62, H11)     

Does Consumer Sentiment Foretell Revolving Credit Use?

The rising level of consumer debt in the U.S. is well documented. Revolving credit (credit cards) has experienced this growth, with the level of outstanding revolving credit increasing by over 600% in inflation-adjusted dollars over the past three decades. The goal here is to gauge the extent to which consumer sentiment; namely, the University of Michigan Survey Research Center Index of Consumer Sentiment, has predictive power in explaining the aggregate use of revolving credit using time-series data. The results generally show that changes in the consumer sentiment measure are related to subsequent changes in revolving credit use.