The Global Eye : CEPR

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Monday, 15 February 2016

Forward guidance and "lower for longer": The case of the ECB (CEPR)

A number of contributions to research on monetary policy have suggested that policy should be asymmetric near the lower bound on nominal interest rates. As inflation and economic activity decline, policy should ease more aggressively than it would in the absence of the lower bound. As activity recovers and inflation picks up, the central bank should act to keep interest rates lower for longer than without the bound. In this note, we investigate to what extent the policy easing implemented by the ECB since summer 2013 mirrors the rate recommendations of a simple policy rule or deviates from it in a way that indicates a â€œlower for longerâ€ approach to policy near zero interest rates.

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11117

A Jury of Her Peers: The Impact of the First Female Jurors on Criminal Convictions (CEPR)

This paper uses an original data set of more than 3000 cases from 1918 to 1926 in the Central Criminal Courts of London to study the effect of the Sex Disqualification (Removal) Act of 1919. Implemented in 1921, this Act made females eligible to serve on English juries, providing a novel setting for studying the impact of female representation on jury verdicts. Results based on a pre-post research design imply that the inclusion of females had little effect on overall conviction rates but resulted in a large and significant increase in convictions for sex offenses and on the conviction rate differential between violent crime cases with female versus male victims. The inclusion of women also increased the likelihood of juries being discharged without reaching a verdict on all charges and the average time taken to reach a verdict. A complementary analysis of cases in which the jury was carried over from a previous trial also implies that the inclusion of female jurors on the seated jury sharply increased conviction rates for violent crimes against women versus men.

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11116

Solution Methods for Models with Rare Disasters (CEPR)

This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with rare disasters along the line of those proposed by Rietz (1988), Barro (2006}, Gabaix (2012), and Gourio (2012). DSGE models with rare disasters require solution methods that can handle the large non-linearities triggered by low-probability, high-impact events with sufficient accuracy and speed. We solve a standard New Keynesian model with Epstein-Zin preferences and time-varying disaster risk with perturbation, Taylor projection, and Smolyak collocation. Our main finding is that Taylor projection delivers the best accuracy/speed tradeoff among the tested solutions. We also document that even third-order perturbations may generate solutions that suffer from accuracy problems and that Smolyak collocation can be costly in terms of run time and memory requirements.

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11115

Two-stage contests with effort-dependent rewards (CEPR)

We study two-stage all-pay contests where there is synergy between the stages. The reward for each contestant is fixed in the first stage while it is effort-dependent in the second one. We assume that a player's effort in the first stage either increases (positive synergy) or decreases (negative synergy) his reward in the second stage. The subgame perfect equilibrium of this contest is analyzed with either positive or negative synergy. We show, in particular, that whether the contestants are symmetric or asymmetric their expected payoffs may be higher under negative synergy than under positive synergy. Consequently, they prefer smaller rewards (negative synergy) over higher ones (positive synergy).

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11113

The (Displacement) Effects of Spatially Targeted Enterprise Initiatives: Evidence from UK LEGI (CEPR)

We investigate the impacts of a significant area-based intervention (LEGI) that aimed to increase employment and entrepreneurial activity in 30 disadvantaged areas across England. We examine the spatial pattern of effects at a fine spatial scale using panel data for small geographic units and a regression discontinuity design that exploits the programme eligibility rule. The results indicate considerable local displacement effects. Employment increases in treated areas close to the treatment area boundary at the cost of significant employment losses in untreated localities just across the boundary. These differences vanish quickly when moving away from the boundary and do not persist after the programme is abolished. These findings support the view that area-based interventions may have considerable negative displacement effects on untreated parts of the economy. This displacement can substantially reduce (or in this case eliminate) any net benefits.

http://cepr.org/active/publications/discussion_papers/dp.php?dpno=11112