Master’s in Economics of Public Policy alum George Bangham ’17 currently works as a policy analyst at the Resolution Foundation, an influential London-based think tank focused on living standards. In February George published a new report on subjective well-being in the UK, which marked the Foundation’s first detailed analysis of subjective well-being data and its lessons for economic policymakers.
The report received widespread media coverage in the UK Guardian, Times and elsewhere, as well as international coverage in France and India among other countries.
It was launched at an event in Westminster where speakers included the LSE’s Professor Paul Dolan, UK Member of Parliament Kate Green and former head of the UK Civil Service Lord Gus O’Donnell.
Speaking to the Barcelona GSE Voice, George said that while researching and writing the paper he had drawn closely on the material he covered while studying for the Master’s in Economics of Public Policy, particularly the courses on panel data econometrics, on the analysis of social survey microdata, and on the use of subjective well-being data for policy analysis.
This paper studies the differential persistent effects of initial economic conditions for labor market entrants in the United States from 1976 to 2015 by education, gender, and race using labor force survey data. We find persistent earnings and wage reductions, especially for less advantaged entrants, that increases in government support only partly offset. We confirm that the results are unaffected by selective migration and labor market entry by also using a double-weighted average unemployment rate at labor market entry for each birth cohort and state-of-birth cell based on average state migration rates and average cohort education rates from census data.
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Cristina shares a summary of the paper and some notes about the writing process:
Health shocks at birth are important in and of themselves. But they also have an impact on outcomes later in life, such as education, productivity or adult health. There is a large literature showing that health shocks at birth lead to important negative outcomes later on. For instance, children born with low birth weight have a higher probability of having adverse health and developmental outcomes in the medium run (Johnson and Schoemi (2011a,b), Case et al. (2005)). However, there is much less research on the potential factors that can compensate those early life shocks. This represents an important element with strong implications for policy makers.
In this paper, jointly with Antonio Cabrales, Sergi Jimenez and Judit Vall, we identify one of these factors. In particular, we want to answer the following question: Are educated parents able to reverse a negative health shock that their children experience at birth?
To answer this question we study the causal effect of a child labor regulation on the short and long-term health of the affected individuals’ descendants. In 1980 a child labor reform took place in Spain, which increased the minimum legal age to work from 14 to 16 years old. A previous paper shows that this reform increased the education of both women and men. At the same time, the reform decreased the fertility and marriage rates of individuals affected, and importantly, it was detrimental for their male children’s health at delivery. At birth, male babies from more educated mothers have worse perinatal health outcomes, such as lower birth weight or low maturity. We estimated that the reform caused 618 more births at less than 37 weeks of gestation, 837 more first multiple births, and 768 extra births with low birth weight. On the other hand, we do not find the same negative impact of the reform over female babies.
Given the size of the effects that we find on birth outcomes and the established links between health at birth and long-term health, we would expect that the deterioration of infant health at birth would persist in the medium and long term unless there is a compensation mechanism. Yet, in the medium run, we find that the effects of the reform on objective health outcomes are insignificant for both males and females. Thus, we can conclude that educated parents can reverse negative shocks at birth.
Our data suggest that the long term reversal is achieved through maternal vigilance. The male children of treated mothers with higher education are perceived as having worse health even at older ages. Their objective health status is, however, indistinguishable from that of other boys. This suggests more concerned mothers. These boys are also more likely to have private health insurance. This latter trait is significant. In Spain private health insurance is purchased in addition to the universal public health coverage. This double coverage allows beneficiaries to avoid the system gatekeeper and, hence, to have quicker access to specialists and additional tests and checkups.
We started this paper in 2017 as a follow-up project. In a previous paper, Elena Del Rey, Sergi Jimenez and Judit Vall analyze the effects of the child labor reform over education and labor market outcomes. They find that the reform increased the educational attainment of both men and women affected by the regulation. In particular, they find that the reform reduced the number of early school leavers (individuals not finishing compulsory education) by 7.6% in the case of men, and by 11% in the case of women. They also find a positive effect in the probability of attaining post-compulsory education. The reform decreased the number of individuals that do not attain any level of post-compulsory education by 3.3% for men and 2.7% for women..
In a different paper, we show that the reform decreased marriage and fertility rates for affected women. At the same time, we also find evidence that the reform is detrimental for the health of the offspring at the moment of delivery. We document three channels contributing to this detrimental effect: the postponement in age of delivery, the increase in single mothers, and the increase in the likelihood that those women engage in unhealthy behaviors such as smoking.
Thus, the reform had a positive effect on the parents, that are now more educated, but a detrimental effect on their children’s health at the moment of delivery. This reform, then, constitute a perfect setting to analyze parent’s education as a possible factor that will allow the reversal of negative health shocks at birth.
Bitcoin has been gaining more and more attention by investors and researchers since its introduction by Nakamoto (2008). It possesses three main appealing features: (i) direct transactions without bank intermediation, (ii) low transaction fees and (iii) anonymity. The consumer base and transaction frequency in the digital currencies market and the number of businesses and organizations that accept bitcoin as a means of payment have been considerably expanding. Apart from its increasing use in transactions, literature suggests that bitcoin has some favorable characteristics as an asset.
In the paper we examine the impact of shocks in stock markets, exchange rates, gold, oil, central bank rates, internet trends and policy uncertainty on bitcoin returns employing alternative VAR and Factor- Augmented VAR (FAVAR) models and using generalized and local impulse response functions. We also use factor and principal component (PC) analysis to capture the magnitude of the effects that European, US and China-Japan markets have on bitcoin returns.
Our results suggest a significant interaction between bitcoin and traditional stock markets, a weaker with FX markets and the macroeconomy and an anemic importance of popularity measures. Lastly, we reveal the increased impact of Asian markets on bitcoin compared to other geographically-defined markets, which however appears to have waned in the last two years after the Chinese regulatory interventions. This has been accompanied by a sudden contraction of CNY’s share in bitcoin trading volume and a rapid expansion of USD’s share.
Panagiotidis, T., Stengos, T. and Vravosinos, O. (2018). The effects of markets, uncertainty and search intensity on bitcoin returns. International Review of Financial Analysis, doi: 10.1016/j.irfa.2018.11.002
Even when only 20% of the elder population in the world receives pension coverage (Pallares-Miralles, Romero and Whitehouse, 2012) which in addition is not always adequate according to ILO, non-contributory pensions are present only in a handful of developing countries. Moreover, the elderly population is currently growing as individuals tend to live longer, what further evidences the imperative need to apply this type of programs. Costa Rica implemented a non-contributory pension policy in 1975 to ensure the livelihood of those in economic need that were not able to save provisionary funds to confront the old age risks, so that elders aged above 65 living in extreme poverty are eligible for coverage. Additionally, Costa Rica adopted a 186% increase on the pension amount in 2007 in order to mitigate poverty. This study aims to provide further empirical evidence of the indirect effects of the non-contributory pensions in Latin America, through a study case for Costa Rica that explores the impact of this pension on employment and schooling, household composition, and changes in well-being for the period from 2001 to 2009.
The methodology applied includes a first difference-in-differences specification (DD) as a general model, which compares the group of receivers before and after 2007 with a control group aged above 65 years old. Secondly, we exploit the discontinuity on the treatment assignment regarding the age of the oldest household member to define a Regression Discontinuity Fuzzy Design (RD). This local analysis only identifies the effects of receiving the pension, so that we move towards a third Difference in Discontinuity Design (diff-in-disc) that combines the previous models, quantifying the impacts of the pension increase as well. The RD and diff-in-disc settings include an alternative sample where the treated are households with a member between 65 and 69 years, while the counterpart is aged between 61 and 64.
Conclusions and key results:
Our results show a generally positive picture of the Costa Rican non-contributory pension, if we consider that the policy was designed to provide an allowance to elder that never contributed to the formal system, allowing them to retire at age 65. However, conditional income transfers sometimes involve unintended consequences that characterize the policy as defective.
In the case of the DD sample, where the family structures are characterized by households with senior members and households where the recipient is father or mother of the household head, the results show major spillover effects on the remaining members, especially in terms of labor- related reactions. Indeed, the estimations show that those households that benefit from the non- contributory pension reduce significantly by 0.179 the number of individuals in the labor force, compared to non-beneficiaries. Individuals in the treated households work 1.747 hours less than their counterparts and receive a labor income 61.9 USD lower than those households that do not receive the pension. Given that the Costa Rican non-contributory pension policy requires leaving the labor market as a necessary condition for receiving the grant, we might relate the reduction in labor participation to perverse incentives, as the remaining household members might take advantage of this transfer to change their time allocation preferences between work and leisure.
Nonetheless, the results obtained in the RD and diff-in-diff models rule out our preliminary interpretation. Both estimates reveal no significant reactions at the household level for any of the outcomes analyzed, what means that households do not change their employment-related decisions in the short-run, even when the recipient must leave the labor market. In this case, the households with senior members predominate over other type of family structures, hence we would have expected a significant decreasing effect for labor force participation. Probably this is because unemployment and job instability hit the most vulnerable population groups, so that individuals with uncertain job prospects see in the non-contributory pension an opportunity to receive a steady income. Moreover, we do not find evidence neither for the incentive for other young members of the family to move in with the elderly participant, nor for the recipient to move out and live on her own.
The main goal of our Master Project is to predict intraday stock market movements using two different kinds of input features: financial indicators and sentiments from news and tweets. While the former are part of the common technical analysis of financial econometric models, the extracted sentiment of news articles and tweets from Twitter are also proven to correlate with stock markets movements. Our paper aims at contributing to the existing academic and professional knowledge in two main directions. First, we evaluate three different approaches to extract the sentiment from both social and mass media based on its forecasting power. Second, we deploy a battery of engineered features based on the sentiment, together with the financial indicators, in a machine learning model for a fine-grained minute-level forecasting exercise. In the end, two different classes of models are fitted to test the forecasting power of the combined input features. We estimated a classical ARIMA-model, and an XGBoost-model as machine learning algorithm. We collected data on the companies Apple, JPMorgan Chase, Exxon Mobil, and Boeing.
Research by Francesco Amodio ’10 (Economics) and co-authors at The World Bank and Barcelona GSE
Francesco Amodio ’10 (Economics) co-authored this article for VoxDev with Barcelona GSE Research Professor Giacomo De Giorgi along with World Bank economists Jieun Choi and Aminur Rahman. In the article, the team gives an overview of a field experiment they conducted and theoretical model they developed that describes the interaction between firms and inspectors.
“In collaboration with the World Bank Group and the State Tax Service of the Kyrgyz Republic, we designed an incentive scheme for tax inspectors that rewards them based on the anonymous evaluation submitted by inspected firms. In theory, this should increase the bargaining power of firms in their relationship with tax officials, and decrease the bribe size. However, if firms pay bribes instead of taxes, bribes can increase on the extensive margin, and tax revenues could decrease.”
They found that anonymous rating of inspectors can decrease bribes and increase tax revenues as long as it takes into account market structure considerations.
There exists a substantial body of literature concerned with the calibration of the Heston model for pricing financial derivatives under stochastic volatility, many of which rely on computationally expensive algorithms. Our paper evaluates a calibration method of the Heston model proposed by Alòs, De Santiago, and Vives (2015), which can be used to price derivatives with little computational effort. The calibration method is innovative in the sense that it considers only the three most critical regions of the implied volatility surface. The regions where the underlying option is, firstly, at-the-money, secondly, close to maturity and lastly, far away from maturity. Although their procedure is parsimonious and very easy to implement, they calibrate a model whose empirical applicability is contested.
The main contribution of our paper is the evaluation of their model in an extensive numerical exercise as well as an application to real data. Collecting empirical option data has been one of the main challenges with respect to this work, since historical data on financial derivatives is not accessible to the public. Faced with this issue we have written a script that allowed us to automatically scrape option data at a high frequency over just a couple of weeks. Thus, we build our own extensive data base. Also, we have made the data and code available on https://griipen.shinyapps.io/bgse/ and https://github.com/HitKnit/BGSE2018/tree/HitKnit-optionscraping, respectively.
In terms of our results, we find that whilst the calibration method has solid theoretical foundations and produces satisfactory estimation results within the theoretical Heston universe. However, it fails in practice. Specifically, for the numerical exercise we find that out of all simulations the maximum average error across the entire volatility surface is 0.999 percent while the mean error across simulations is only 0.481 percent. In sharp contrast to that, absolute percentage errors for our empirical data are on the order of 30-40 percent in many cases. In the following figure, we present our findings for intra-daily data from May 16, 2018. The left column shows empirical implied volatilities for a European call option on Facebook Inc. (FB) stocks. From top to bottom volatilities are shown for the opening, lunch and closing sessions. The central column shows the fitted volatility surfaces while the right column shows absolute percentage differences between empirical and estimated values. The finding that errors are particularly high for at-the-money options with short times to maturity is robust across the entire data sample.
Conclusions and key results:
In light of these results, we conclude that inherent limitations of the Heston Model disqualify the calibration for practical use. Nonetheless, we believe that similarly simple calibration methods as the one examined here should be used in combination with more sophisticated option pricing models.
Brian Albrecht ’14 (Economics of Public Policy) offers both a normative and a positive view
Brian Albrecht is a PhD candidate at the University of Minnesota and a graduate of the Barcelona GSE Master’s Program in Economics of Public Policy, as well as a past editor of the Barcelona GSE Voice. He is also a contributor to the Sound Money Project, a blog from the American Institute for Economic Research (AIER).
In two recent articles, he talks about money as a social contract, both from a normative and a positive perspective:
“Both monetary theory and social contract theory consider a hypothetical situation (a model) in which people in a society come together and collectively agree on some social institution. I have argued that both social contract theorists and monetary theorists use these hypotheticals to draw normative conclusions about what types of institutions are preferable. However, part of monetary theory is also concerned with the positive (i.e., not normative) question “Where does money come from?” In a similar way, part of social contract theory is concerned with the positive question “Where does the state come from?”
Read both of Brian’s articles over on the AIER website:
Our paper analyzes the impact of a cash transfer program targeting households in extreme poverty in Uruguay, called the Tarjeta Uruguay Social (henceforth referred to as TUS). In the past decades, cash transfers have become one of the main social assistance policies used to address poverty and inequality in developing countries. Their objective is to reduce vulnerability by increasing and smoothing household income, although additional objectives are usually defined depending on the program and country, such as increasing access to health and education, and reducing food insecurity (DFID 2011; Honorati et al. 2015).
The impact of these programs on different life outcomes has been widely studied. Overall, positive impacts on poverty, food insecurity, child school enrollment, labor outcomes, health and social cohesion have been found (DFID 2011; ODI 2016). Nevertheless, more research is still needed to understand the channels and particular aspects that determine their success, since countries differ widely in the details of program design. In our research, by taking advantage of considerable design modifications since the implementation of TUS, we evaluate the impact of the amount of the transfer and the benefit duration on relevant outcomes.
The Tarjeta Uruguay Social (TUS) is a conditional cash transfer program implemented in 2009 which aims at assisting those in situations of extreme poverty in Uruguay. It targets the 60,000 worst-off households by providing them with a monthly cash transfer on a prepaid magnetic card. This card can be used to purchase food items, cleaning supplies, and hygiene products, excluding cigarettes and alcohol. Eligibility for the program is based on the Critical Needs Index (CNI), a proxy means test that evaluates household poverty, using variables associated to education, dwelling, access to durable goods and household composition. The program has undergone many modifications since its inception, including increasing the number of participants, changing the eligibility criteria, and a doubling of the benefit for half of the recipients. Our analysis begins in 2013, in which the program had 60,000 participants, and the poorest 30,000 according to the CNI received a doubling of their benefit, creating two benefit categories: Simple TUS and Double TUS. In our research, we exploit the doubling of the benefit based on the CNI by using a Fuzzy Regression Discontinuity Design to evaluate the impact of the amount of the benefit on life outcomes.
The availability of an extensive set of administrative data allowed us to evaluate the impact of the doubling on an array of outcomes. There are many different channels through which this cash transfer program could have positive effects, since the resources freed up by the relaxation of the household budget constraint could be used differently according to household preferences. Therefore, by taking advantage of a rich set of administrative data, we analyzed 65 outcomes: housing and living conditions, food insecurity, formal labor market work, education enrollment of children and adolescents, prenatal and birth health conditions, and family composition. Additionally, we analyze how the duration of the benefit affects the impact of the program by comparing the effects for beneficiaries who receive the transfer for different time periods. We analyze short-term outcomes for those who receive the transfer for less than a year; medium-term outcomes for those who receive the transfer for two to three years; and long-term outcomes for those who receive the transfer consistently for three years.
Our results show than an increase in the amount of a cash transfer can in fact have important impacts on the life outcomes of recipients. Positive effects were found with regard to living conditions, with an increase in investment in durable goods and a betterment of housing conditions, such as purchasing water heaters or washing machines, adding a bathroom to the home, and upgrading from a trash roof to a concrete one. Additionally, results show positive impacts concerning individual outcomes, with improvements regarding prenatal care and months of formal work observed. Nevertheless, some negative results were found in the short-term, which could potentially be explained by an attempt of manipulation by the beneficiaries in order to ensure continued benefit provision under uncertainty. Results also show that the duration of the benefit has a considerable impact on how the transfer is spent. More positive significant household results are found in the medium-term, while individual results become stronger in the long-term. The increasing effects of more persistent benefits could potentially be explained due to uncertainty in the short-term regarding whether the benefit will continue to be provided, which decreases over time.
This study contributes to the literature of poverty alleviation policies by providing evidence which can be used to improve the design of cash transfer programs. The positive effects found in this paper from comparing different amounts of the transfer within the same program indicate that the monetary amount of the benefit is a relevant policy parameter with consequences for the effectiveness of the program. Additionally, the results for heterogeneous effects by benefit duration indicate that the persistence of the transfer is another relevant aspect of program design. The evidence provided in this paper indicates that a predefined duration upon entering the program together with a minimum duration of one year could constitute a good practice. This may mitigate negative effects regarding household manipulation attempts and potentiate positive effects by reducing income volatility and increasing housing investments. Our results suggest that further research on benefit size and timing is imperative for policy design of cash transfers, one of the main tools to reach universal social protection.