Using Personal Car Register for Measuring Economic Inequality in Countries with a Large Share of Shadow Economy: Evidence for Latvia

We suggest using information from the state register of personal cars as an alternative indicator of economic inequality in countries with a large share of shadow economy. We illustrate our approach using the Latvian pool of personal cars. Our main finding is that the extent of household economic inequality in Latvia is much larger than officially assumed. According to Eurostat, the officially published estimate of the Gini coefficient for Latvia is 0.374 for 2009, which is much higher than the Gini coefficient value reported for all the 27 EU member countries (0.304), but significantly lower than 0.48 according to our results.     

Interpolating the Lorenz Curve: Methods to Preserve Shape and Remain Consistent with the Concentration Curves for Components

C¹‐class interpolation methods that preserve monotonicity and convexity and are thus suitable for the estimation of the Lorenz curve from grouped data are not widely known. Instead, parametric models are usually applied for such estimation. Parametric models, however, have difficulty in accurately approximating every part of income/expenditure distributions. This paper proposes two types of C¹‐class shape‐preserving interpolation methods. One is a piecewise rational polynomial interpolation (proposed independently by Stineman and Delbourgo) that enables consistent interpolation of the concentration curves for income/expenditure components, attaining approximately the same accuracy as that of the existing methods when applied to decile‐grouped data or to more detailed aggregation. Another is a Hybrid interpolation that employs pieces of curves derived from parametric models on end intervals. Empirical comparisons show that the Hybrid interpolation (with the assistance of parametric models for class‐boundary estimation) outperforms the existing methods even when applied to quintile‐grouped data without class boundaries.     

Parallel trade,product quality,and welfare

We study the welfare effects of parallel trade (PT) considering investment in quality. We thus revisit the case for PT in research-intensive industries. We find that PT may raise quality, depending on how preferences for quality differ across countries. Conditional on quality, consumer surplus may rise (fall) in the PT-source (PT-recipient) country. While PT reduces ex post welfare, improving quality is a necessary condition for PT to increase welfare ex ante.     

Occupations,fields of study and returns to education

This paper considers several possible channels behind the well‐documented effect of education on earnings. The first channel is that education makes workers more productive on a given task, as in a conventional human capital framework. The second channel is based on the idea that education helps workers get assigned to higher‐paying occupations where output is more sensitive to skill. A third and final channel is that workers are more productive and earn more when they are matched to a job related to their field of study. Using data from the 2005 National Graduate Survey and the 2006 Canadian Census, I find that channels two and three account for close to half of the conventionally measured return to education. The results indicate that the return to education varies greatly depending on occupation, field of study and the match between these two factors.     

FX Intervention in the New Keynesian Model

We develop an open-economy New Keynesian Model with foreign exchange (FX) intervention in the presence of a financial accelerator and shocks to risk appetite in international capital markets. We obtain closed-form solutions for optimal monetary and FX intervention policies assuming the central bank cannot commit to future policies, and we compare the solution to that under policy commitment. We show how FX intervention can help reduce the volatility of the exchange rate, of inflation, and of the output gap, thus mitigating welfare losses associated with shocks in the international capital markets. We also show that, when the financial accelerator is strong, there is a risk of indeterminacy (self-fulfilling currency and inflation movements) although FX intervention can reduce this risk and thus reinforce the credibility of the inflation targeting regime. Model simulations match well the impact of a VIX shock obtained by local projections on a panel of inflation targeting emerging markets.     

Nuclear bombs and economic sanctions

We examine the efficacy of trade sanctions when a target's action causes an irrevocable change in the status quo; for example, sanctions to stop a target's nuclear weapons development program. We find that when a sanctioning country cannot precommit to maintain sanctions long after a target becomes a nuclear power, sanctions are not only inefficacious but they backfire, spurring a target to intensify its effort to complete the nuclear program. If the nuclear program has several stages to complete, gradually increasing sanctions as the nuclear threat becomes more imminent may also backfire even though the program is potentially stoppable when sufficient pressure is applied earlier on. We also discuss the policy implications of our analysis.     

Fame and the fortune of academic economists: How the market rewards influential research in economics

We analyze the pay and position of 1009 faculty members who teach in doctoral‐granting economics departments at 53 large public universities in the United States. Using the Web of Science, we have identified the journal articles published by these scholars and the number of times each of these articles has been subsequently cited in published research articles. We find that research influence, as measured by various measures of total citations, is a remarkably strong predictor of the salary and the prestige of the department in which professors are employed. We also examine the effect of coauthorship. Surprisingly, we find no salary penalty for sharing authorship; however, in terms of prestige of employing department, coauthorship is fully discounted.     

The impact of E‐Verify mandates on labor market outcomes

A number of states have adopted laws that require employers to use the federal government's E‐Verify program to check workers' eligibility to work legally in the United States. Using data from the Current Population Survey, this study examines whether such laws affect labor market outcomes among Mexican immigrants who are likely to be unauthorized. We find evidence that E‐Verify mandates reduce average hourly earnings among likely unauthorized male Mexican immigrants while increasing labor force participation among likely unauthorized female Mexican immigrants. Furthermore, the mandates appear to lead to better labor market outcomes among workers likely to compete with unauthorized immigrants. Employment rises among male Mexican immigrants who are naturalized citizens in states that adopt E‐Verify mandates, and earnings rise among U.S.‐born Hispanic men. There is no evidence of significant effects among U.S.‐born non‐Hispanic whites.