The Brookings Papers on Economic Activity are a twice-annual series meant to bridge the gap between purely academic research and work that applies more directly to public policy. So the fall papers' release today is kind of a Wonkblog holiday. We'll be tackling some of them in depth, but for now, here are this year's papers, and what they say.
Author: Robert Moffitt, Johns Hopkins University.
What it says: Labor force participation (that is, the share of the working-age population that works) fell considerably in the 2000s, even before the recession hit. The breakdown of family structure explains much of this for men, but no obvious factor can explain it for women.
Abstract: "The decline in the employment-population ratios for men and women over the period 2000-2007 prior to the Great Recession represents an historical turnaround in the evolution of U.S. employment. The decline is disproportionately concentrated among the less educated and younger groups within the male and female populations and, for women, disproportionately concentrated among the unmarried. For men, about half of the decline can be explained by declines in wage rates and changes in nonlabor income and family structure influences. Essentially all of the male decline for married men can be explained by these factors. However, these influences explain virtually none of the decline in employment among women, including that of unmarried women. Neither taxes nor transfers appear likely to explain the employment declines, nor do other influences such as the minimum wage or health factors."
Authors: Regis Barnichon (Barcelona Graduate School of Economics) and Christopher J. Nekarda (Federal Reserve Board of Governors).
What it says: The authors developed a model for predicting the unemployment rate based on labor force flows — that is, the number of people moving into and out of unemployment in a given month — that outperforms the models used by forecasters by about 30 percent.
Abstract: "This paper presents a forecasting model of unemployment based on labor force ﬂows data that, in real time, dramatically outperforms the Survey of Professional Forecasters, the Federal Reserve Board’s Greenbook forecast, and basic time-series models. Our model reduces the root-mean-squared error of the best forecast by about 30 percent in the near term and performs especially well around recessions and turning points. Further, because our model uses information on labor force ﬂows typically ignored by other approaches, a combined forecast including our model and the Greenbook forecast yields improvement of about 35 percent for current-quarter forecasts, and 15 percent for next quarter forecasts, as well as improvements at longer horizons."
Authors: Karl Case (Wellesley), Robert Shiller (Yale) and Anne Thompson (McGraw Hill Construction).
What it says: During the 2000s housing bubble, home-buyers were generally well-informed and had sensible short-run expectations for home prices. But their long-term expectations were far too optimistic.
Abstract: "Questionnaire surveys we have undertaken in 1988 and annually 2003-2012 of recent homebuyers in each of four U.S. cities shed light on their expectations and reasons for buying and selling during the recent housing boom and subsequent collapse, and on the reasons for the housing crisis that initiated the current financial malaise. We find that homebuyers were generally well informed, and that their short-run expectations if anything underreacted to the year-to-year change in actual home prices. More of the root causes of the bubble can be seen in their long-term, ten-year, home price expectations, which reached abnormal levels relative to the mortgage rate at the peak of the boom and declined sharply since. The downward turning point around 2005 of the long boom that preceded the crisis was associated with changing public understanding of speculative bubbles."
Authors: Jacob Jensen (Stanford), Suresh Naidu (Columbia), Laurence Wilse-Samson (Columbia) and Ethan Kaplan (University of Maryland).
What it says: Our political conversation has grown more polarized in recent decades but remains less so than in late 19th century and most of the 20th. Polarized rhetoric in Congress tends to occur only after society at large has started to use that rhetoric.
Abstract: "We use the digitized Congressional Record and the Google N-gram corpus to quantitatively study the polarization of political discourse and the diffusion of political language since 1873. We statistically identify highly partisan phrases from the Congressional Record, and then use these to impute partisanship and political polarization to the millions of documents in the Google Books corpus in each year. We find that while there has been an increase in the polarization of political discourse in the last 30 years, polarization is still low relative to the late 19th and most of the 20th century. Using a dynamic panel of phrases, we also find that polarized phrases increase in frequency in Google Books prior to increases in usage in Congress, although only for the pre World War II period. Moreover, we find evidence that while Congress adopts polarized economic phrases after they appears in Google Books, it does not do so for polarized language on social issues. Our results suggest that polarized political discourse may anticipate polarization of language in Congress."
Authors: Bruce Meyer (University of Chicago) and James Sullivan (Notre Dame).
What it says: Poverty fell 12.5 percentage points between 1972 and 2010 using a better measure than the official rate. This change is explained in large part due to tax policy (including the Earned Income Tax Credit) and Social Security, while other government transfer programs are less important.
Abstract: "Few measures of U.S. economic performance receive greater attention and scrutiny than the poverty rate. The official poverty rate in 2010 was more than 2 percentage points higher than the rate in 1970 despite a doubling of real GDP per capita and trillions of dollars spent on antipoverty programs. This paper considers the long run patterns of improved measures of poverty, examining the extent of material deprivation in the United States from the early 1960s to 2010. Our results contradict previous studies that have argued that poverty has shown little improvement over time, or that anti-poverty efforts have been ineffective. We show that trends for consumption based measures of poverty and broader income based measures differ considerably from the official measure. We emphasize consumption based measures because they are theoretically a better measure of well-being and because evidence suggests consumption is better reported than income by families with few resources. A consumption based poverty measure that adjusts for bias in price indices declines by 12.5 percentage points between 1972 and 2010. In addition, the composition of the consumption poor is very different from that of the income poor with the consumption poor being noticeably worse off. Over the past few decades, married parent families with children have fared less well while the aged have done better than income data indicate. Our analyses of potential explanations for these patterns indicate that some policy changes have been effective at reducing poverty, but changes in demographics are less important. Changes in tax policy explain a substantial part of the decline in income poverty particularly for families with children. Other than social security, cash and noncash government transfer programs have only a small impact on changes in poverty. Measurement error in income is likely to explain some of the most noticeable differences between changes in income and consumption poverty, but saving and dissaving do not appear to play a large role for most demographic groups."
Author: Michael Klein (Tufts).
What it says: Controls on bringing in capital from abroad, when imposed by central banks, are effective when long-standing and applying to a wide range of capital types, but less so when better focused and only imposed for short periods.
Abstract: "This paper examines the pattern of controls on capital inflows, and the effects of these controls on financial variables, GDP, and exchange rates. A key point of the paper is the distinction between long-standing controls on a broad range of assets (walls) and episodic controls that are imposed and removed, and tend to be on a narrower set of assets (gates). Longstanding controls are shown to contribute to lower values of variables associated with financial vulnerability, and also have a positive effect on year-to-year GDP growth. Episodic controls do not have significant effects on these variables. Neither long-standing nor episodic controls significantly affect exchange rates. These differences in the effects of long-standing and episodic controls are important because, in the wake of the Great Recession, much of the policy discussion focuses on the imposition of episodic controls but the motivation for this discussion may arise from the effects of long-standing controls."