ASSET PRICE BUBBLES AND TECHNOLOGICAL INNOVATION

We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical “lean against the wind” credit policy. (JEL E32, E44, O40)     

R&D AND CREDIT RATIONING IN SMEs

We study the effects of credit rationing on research and development (R&D) investment using survey and accounting data on a large representative sample of manufacturing small‐ and medium‐sized enterprises (SMEs). Our econometric model accounts for the endogeneity of our credit rationing indicator and employs an innovative theory‐based identification strategy. We find that credit rationing has a significantly negative effect on both the probability to set up R&D activities and on the level of R&D spending (conditioned on the R&D decision), but the overall estimated reduction in R&D spending is largely to be associated with the first effect. (JEL G21, D82, O32, C35)     

COUPLING COUPLES WITH COPULAS: ANALYSIS OF ASSORTATIVE MATCHING ON RISK ATTITUDE

We investigate patterns of assortative matching on risk attitude, using self‐reported (ordinal) data on risk attitudes for males and females within married couples, from the German Socio‐Economic Panel over the period 2004–2012. We apply a novel copula‐based bivariate panel ordinal model. Estimation is in two steps: first, a copula‐based Markov model is used to relate the marginal distribution of the response in different time periods, separately for males and females; second, another copula is used to couple the males' and females' conditional (on the past) distributions. We find positive dependence, both in the middle of the distribution, and in the joint tails, and we interpret this as positive assortative matching (PAM). Hence we reject standard assortative matching theories based on risk‐sharing assumptions, and favor models based on alternative assumptions such as the ability of agents to control income risk. We also find evidence of “assimilation”; that is, PAM appearing to increase with years of marriage. (JEL C33, C51, D81)     

MONETARY POLICY AND ANTI‐CYCLICAL BANK CAPITAL REGULATION

The financial crisis of 2008–2009 revived attention given to booms and busts in bank credit, and their effects on real activity. This interest sparked two different strands of research in macro. The first one focuses on monetary policy in the context of financial frictions. The second studies capital regulation in banking. To the best of our knowledge, so far these two topics have mostly been studied in isolation from each other. Thus, we still lack an understanding of how monetary policy and bank capital regulation interact in the presence of financial fragility. This paper aims to contribute to furthering this understanding. Specifically, we ask how the monetary policy rule should look like in the presence of cyclical capital requirements. We extend the dynamic stochastic general equilibrium model with bank capital in Aliaga‐Díaz and Olivero by introducing price rigidities in the spirit of the New‐Keynesian literature. We find that: First, anti‐cyclical requirements have important stabilization properties relative to the case of constant requirements. This is true for all types of fluctuations that we study, which include those caused by productivity, preference, fiscal, monetary, and financial shocks. Second, output and consumption volatilities present in the no regulation economy can be recovered with anti‐cyclical requirements as long as the policy rate responds only slightly to credit spreads. Third, monetary policy rules that respond to credit conditions also perform better in terms of welfare. (JEL E32, E44)     

The practical utility of the Welch Emotional Connection Screen for rating parent–infant relational health

Emotional Connection (EC) measured by the Welch Emotional Connection Screen (WECS) was related to the Parent–Infant Interaction Rating System (PIIRS), a 5‐point adaptation of the rating system developed for the National Institute of Child Health and Human Development Study of Early Child Care and Youth Development (e.g., NICHD Early Child Care Research Network, 1999, Developmental Psychology, 35, 1399). Parent–infant dyads (n = 49 mothers; 43 fathers) were videotaped during face‐to‐face interaction at infant age 6 months; interactions were coded with both the WECS and PIIRS. At age 3, mothers completed the Child Behavior Checklist. WECS ratings of EC were associated with PIIRS rating items for both mother–infant and father–infant dyads. Mother–infant EC related positively to maternal sensitivity and positive regard for child, child positive mood and sustained attention, and dyadic mutuality, and negatively with maternal intrusiveness. Father–infant EC related positively to fathers' positive regard for child, child positive mood and sustained attention, and dyadic mutuality. Mother–infant EC predicted child behavior problems at age 3 better than mother–infant PIIRS ratings of dyadic mutuality. With fathers, neither EC nor dyadic mutuality ratings predicted mother‐reported child behavior problems. Findings highlight the practical utility of the WECS for identifying potentially at‐risk dyads and supporting early relational health.     

NON‐MONETARY INCENTIVES AND OPPORTUNISTIC BEHAVIOR: EVIDENCE FROM A LABORATORY PUBLIC GOOD GAME

This study reports data from a laboratory experiment that investigates the incentive effect of three distinct social communication schemes on free‐riding behavior. We use performance‐based approval and disapproval ratings and a linear public good game to address the above issues. The treatments vary in terms of subjects' opportunities to anonymously assign (1) only the approval ratings to other group members, (2) only the disapproval ratings to other group members, and (3) either the approval or the disapproval ratings to other group members (but not both to the same group member), after they play a standard linear public good game. Despite the Nash prediction of zero individual contribution in all three treatments, the data show that the disapproval points generate significantly higher contribution than the approval points. The treatment in which subjects could communicate either the approval or the disapproval points produces the highest level of contribution. We discuss the implications that these findings may have for efficient design of organizations. (JEL D03, H41, C72, C92)     

THE WELFARE EFFECT OF ACCESS TO CREDIT

I present a model in which credit and outside money can be used as means of payment in order to analyze how access to credit affects welfare when credit markets feature limited participation. Allowing more agents to use credit has an ambiguous effect on welfare because it may make consumption‐risk sharing more inefficient. I calibrate the model using U.S. data on credit‐card use and show that the increase in access to credit from 1990 to the near present has had a slightly negative impact on welfare. (JEL E51, E41)     

MORE MORTGAGES,LOWER GROWTH?

In newly collected data on 46 economies over 1990–2011, we show that financial development since 1990 was mostly due to growth in credit to real estate and other asset markets, which has a negative growth coefficient. We also distinguish between growth effects of stocks and flows of credit. We find positive growth effects for credit flows to nonfinancial business but not for mortgage and other asset market credit flows. By accounting for the composition of credit stocks and for the effect of credit flows, we explain the insignificant or negative growth effects of financial development in recent times. What was true in the 1960s, 1970s, and 1980s when the field of empirical credit‐growth studies blossomed, is no longer true in the 1990s and 2000s. New bank lending is not primarily to nonfinancial business and financial development may no longer be good for growth. These trends predate the 2008 crisis. They prompt a rethink of the role of banks in the process of economic growth. (JEL E44, O16, O40, C33)     

DO UNEMPLOYMENT BENEFITS AFFECT ON‐THE‐JOB SEARCH? EVIDENCE FROM LABOR TURNOVER BEFORE ESTABLISHMENT CLOSURES

We develop a job search model that predicts that potential job losers would reduce on‐the‐job search (OTJS) effort and job‐to‐job transitions before layoffs, in response to an increase in the potential duration of unemployment benefits (UB). To test this prediction, we exploit changes in the maximum potential duration of benefits in Germany to analyze how it affected labor turnover before establishment closings. The evidence supports the model prediction that workers with longer potential benefit duration are more likely to remain with their establishments until closure and to enter nonemployment. These findings indicate that the effects of UB on the OTJS decisions of potential job losers should be considered in the optimal design of the parameters of unemployment insurance systems. (JEL J63, J64, J65)     

THE EFFECTS OF PERCEIVED AND ACTUAL FINANCIAL LITERACY ON FINANCIAL BEHAVIORS

A combined measure of financial literacy that includes both a test score of actual financial literacy and a self‐rating of overall financial literacy is used in this study. We find that the combined measure appears to provide greater understanding about how financial literacy affects financial behaviors. A large national survey of U.S. adults and households (n = 28,146) was used to investigate how this overall financial literacy is likely to change financial behaviors across five financial topics: credit cards, investments, loans, insurance, and financial advice. For each topic, we include 4–5 financial behaviors (22 in total) to demonstrate the consistency of the findings within and across topics. Although we are unable to identify a causal relationship, the results from the probit analysis show that both actual and perceived financial literacy appear to influence financial behaviors and that perceived financial literacy may be as important as actual financial literacy. (JEL D14, G00)     

THE LONG‐TERM EFFECTS OF CONDITIONAL CASH TRANSFERS ON CHILD LABOR AND SCHOOL ENROLLMENT

This paper investigates the long‐term effects of conditional cash transfers on school attainment and child labor. To this end, we construct a dynamic heterogeneous agent model, calibrate it with Brazilian data, and introduce a policy similar to the Brazilian Bolsa Família. Our results suggest that this type of policy has a very strong impact on educational outcomes, sharply increasing primary school completion. The conditional transfer is also able to reduce the share of working children from 22% to 17%. We then compute the transition to the new steady state and show that the program actually increases child labor over the short run, because the transfer is not enough to completely cover the schooling costs, so children have to work to be able to comply with the program's schooling eligibility requirement. We also evaluate the impacts on poverty, inequality, and welfare. (JEL O11, I25, J24)     

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)     

TIMING IS MONEY: DOES LUMP‐SUM PAYMENT OF THE EARNED INCOME TAX CREDIT AFFECT SAVINGS AND DEBT?

Earned income tax credit (EITC) benefit income is paid out in a lump‐sum around tax time. We investigate whether savings and debt among EITC‐eligible families reflect the timing of payments. Using nationally representative, individual‐level data on self‐reported debt and savings outcomes, we search for differences in monthly behavior between EITC‐eligible and ‐ineligible households. We find evidence that credit card and unsecured debt holding among EITC‐eligible families reflects the timing of the EITC, with low debt levels at tax time relative to other months. Debt holding among ineligible families with children does not exhibit a similar pattern. We find limited evidence of intrayear patterns in savings behavior among EITC‐eligible families. (JEL D14, I38, H23)     

CREDIT COUNSELING AND CONSUMER CREDIT TRAJECTORIES

Nonprofit credit counseling provides consumers with financial education, individualized financial counseling, and debt restructuring. Despite potential benefits, relatively little is known about its efficacy. This study uses administrative data to assess the relationship between counseling and consumer credit outcomes. We estimate difference‐in‐difference models to analyze credit outcomes for a counseled group relative to a matched comparison group for six quarters after a baseline period. We find evidence of a substantial credit shock around the time of counseling. Post‐treatment, counseling is associated with a persistent reduction in debt even after accounting for bankruptcies, foreclosures, debt charge‐offs, or participation in debt consolidation programs. (JEL D12)     

Assessing Efficacy and Importance of Career Counseling Competencies

The authors examined self‐efficacy and perceived importance of several career counseling competencies among counselors in school settings (N = 567). The social cognitive career theory was used as a conceptual framework. Participants completed a modified version of the Career Counseling Self‐Efficacy Scale (CCSES) that also included an importance rating. A principal components analysis was used to examine the factorial structure of the modified CCSES and to determine the generalizabilty of the original CCSES findings to practicing school counselors. In addition, counselors' importance ratings were compared to those of a panel of counselor educators and career guidance consultants.     

BETWEEN SCYLLA AND CHARYBDIS: INCOME DISTRIBUTION,CONSUMER CREDIT,AND BUSINESS CYCLES

We introduce a macroeconomic model with heterogeneous households and an aggregate banking sector in order to analyze the impact of rising income inequality under different credit scenarios. Growing inequality produces debt‐led consumption boom dynamics when the banking sector is characterized by a lower capital requirement and a higher willingness to lend. Instead, when inequality rises but the banking sector is highly regulated, aggregate demand and output fall. Our results also yield new insights on the appropriate fiscal policy reaction to stabilize the economy: acting on the progressivity of the tax system seems more effective than a proactive countercyclical fiscal policy. (JEL C63, D31, E62, G01)     

EMPLOYMENT DYNAMICS OF IMMIGRANTS VERSUS NATIVES: EVIDENCE FROM THE BOOM‐BUST PERIOD IN SPAIN, 2000–2011

This article studies whether the durations in unemployment and employment for immigrants and natives respond differently to changes in economic conditions and to the receipt of unemployment benefits. Using Spanish administrative data for the period 2000–2011, we estimate multi‐spell duration models that disentangle unobserved heterogeneity from true duration dependence. Our findings suggest that immigrants are more sensitive to changes in economic conditions both in terms of unemployment and employment hazards. The effect of the business cycle is not constant but decreases with duration at a higher rate among immigrants. We provide evidence that the higher job separation rates and lower capital‐labor complementarity of immigrants are mechanisms that are possibly compatible with these results. We also find evidence of a disincentive effect of unemployment benefits on unemployment duration, which is stronger for immigrants, but only at the beginning of the unemployment spell, especially under good economic conditions. Finally, unemployment benefits increase job match quality only for native workers with temporary contracts. (JEL J64, J61, C23, C41, J65)     

CHARACTERIZING ECONOMIC GROWTH PATHS BASED ON NEW STRUCTURAL CHANGE TESTS

One of the prevalent topics in the economic growth literature is the debate between neoclassical, semi‐endogenous, and endogenous growth theories regarding the model that best describes the data. An important part of this discussion can be summarized in three mutually exclusive hypotheses: the “constant trend,” the “level shift,” and the “slope shift” hypotheses. In this article we propose the characterization of a country's economic growth path according to these break hypotheses. We address the problem in two steps. First, the number and timing of trend breaks is determined using new structural change tests that are robust to the presence, or not, of unit roots, surpassing technical and methodological concerns of previous empirical studies. Second, conditional on the estimated number of breaks and break dates, a statistical framework is introduced to test for general linear restrictions on the coefficients of the suggested linear disjoint broken trend model. We further show how the aforementioned hypotheses, regarding the economic growth path, can be analyzed by a test of linear restrictions on the parameters of the breaking trend model. We apply the methodology to historical per capita gross domestic product for an extensive list of countries. The results support the three alternative hypotheses for different sets of countries. (JEL C22, F43, O40)     

LEARNING ABOUT EDUCATION

Limited human capital investment is a common characteristic of low‐income countries despite the fact that estimated returns to educational investment in low‐income countries are generally higher than those in high‐income countries. Empirical evidence suggests that income and credit constraints can only account for a part of this underinvestment. Recent experimental evidence shows that families' misperceptions about the returns to education play a role in their low‐investment levels. This paper builds a heterogeneous‐agent model of human capital and growth that incorporates an adaptive learning mechanism to capture the way agents form perceptions about returns to education. We find natural conditions guaranteeing existence of stable equilibria. Along transition paths, agents' misperceptions about returns to education depress realized returns, which serves to reenforce and perpetuate low human‐capital investment. If human capital investments have both private and public returns, we find multiple stable equilibria, including those which are characterized by low investment and low returns. (JEL D83, O10, I25)