This paper has put a demand-side empirical structure to the hypothesis that foreign aid volatility adversely affects choices to lifelong learning in recipient countries. Lifelong learning is measured as the combined knowledge acquired during primary, secondary and tertiary educational enrolments. Three types of aggregate foreign aid volatilities are computed in a twofold manner: baseline standard deviations and standard errors (standard deviations of residuals after first-order autoregressive processes). An endogeneity robust system GMM empirical strategy is employed. The findings broadly show that foreign aid volatility does not adversely affect the demand-side choices of lifelong learning in Africa. As a policy implication, when faced with aid uncertainty, the demand for education would increase. This may be explained by the need for more self-reliance in order to mitigate income risks or/and the use of education as means of coping with uncertainty. More policy implications are discussed.
{"title":"Foreign Aid Volatility and Lifelong Learning","authors":"S. Asongu, J. I. Uduji, E. N. Okolo-Obasi","doi":"10.2139/ssrn.3496016","DOIUrl":"https://doi.org/10.2139/ssrn.3496016","url":null,"abstract":"This paper has put a demand-side empirical structure to the hypothesis that foreign aid volatility adversely affects choices to lifelong learning in recipient countries. Lifelong learning is measured as the combined knowledge acquired during primary, secondary and tertiary educational enrolments. Three types of aggregate foreign aid volatilities are computed in a twofold manner: baseline standard deviations and standard errors (standard deviations of residuals after first-order autoregressive processes). An endogeneity robust system GMM empirical strategy is employed. The findings broadly show that foreign aid volatility does not adversely affect the demand-side choices of lifelong learning in Africa. As a policy implication, when faced with aid uncertainty, the demand for education would increase. This may be explained by the need for more self-reliance in order to mitigate income risks or/and the use of education as means of coping with uncertainty. More policy implications are discussed.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115828280","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the impact of sovereign market tensions on the real economy through the bank lending channel. Using a large matched bank-firm panel data set that tracks credit relations in Italy over the period 2009-2011, we show that the Greek bailout in the spring of 2010 had a negative impact on the riskiness of government securities held in the portfolio of financial intermediaries, which in turn led to a tightening in credit supply to firms. Firms, especially riskier ones, were unable to smooth out the credit shortage. We estimate that the shock to sovereign bonds led, via the lending channel, to a drop in aggregate bank lending to corporations of almost 2 percent over the subsequent year which translated in a reduction of investment by smaller firms.
{"title":"Sovereign Debt Exposure and the Bank Lending Channel: Impact on Credit Supply and the Real Economy","authors":"Margherita Bottero, Simone Lenzu, F. Mezzanotti","doi":"10.2139/ssrn.2722521","DOIUrl":"https://doi.org/10.2139/ssrn.2722521","url":null,"abstract":"We study the impact of sovereign market tensions on the real economy through the bank lending channel. Using a large matched bank-firm panel data set that tracks credit relations in Italy over the period 2009-2011, we show that the Greek bailout in the spring of 2010 had a negative impact on the riskiness of government securities held in the portfolio of financial intermediaries, which in turn led to a tightening in credit supply to firms. Firms, especially riskier ones, were unable to smooth out the credit shortage. We estimate that the shock to sovereign bonds led, via the lending channel, to a drop in aggregate bank lending to corporations of almost 2 percent over the subsequent year which translated in a reduction of investment by smaller firms.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131707029","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Debt overhang of the non-financial private sector has been one of the main reasons for the ongoing global stagnation, and recent data released by the International Monetary Fund, International Institute of Finance, United Nations Conference on Trade and Development and others indicate that debt overhang of the non-financial private sector is worse in 2019 than it was in 2007. In light of history, at this level of debt overhang, a global non-financial private sector debt deleveraging is inevitable, if it did not start already. If disorderly, this deleveraging is likely to lead to deep global debt deflation, followed by a deep global recession (and possibly a global depression), thereby creating financial and economic instabilities and further tensions in international relations with dire consequences for emerging and developing countries, not to mention developed countries. Blending the German Currency Reform of 1948 and the 'Modern Debt Jubilee' of Steve Keen, we propose a globally coordinated one-off orderly non-financial debt deleveraging to address this debt overhang. It is a partial debt Jubilee financed by zero-coupon perpetual bonds. Given its focus on the entire non-financial private sector, it is more comprehensive than mechanisms that focus on either only the households or only the firms. Finally, we propose a second mechanism to extend the first to include all sectors because the high debt burdens the world suffers from are neither only private nor only public but both.
{"title":"A New Framework for Global Debt Deleveraging: Globally Coordinated Deleveraging Authorities","authors":"A. Oncu, T. S. Oncu","doi":"10.2139/SSRN.3492749","DOIUrl":"https://doi.org/10.2139/SSRN.3492749","url":null,"abstract":"Debt overhang of the non-financial private sector has been one of the main reasons for the ongoing global stagnation, and recent data released by the International Monetary Fund, International Institute of Finance, United Nations Conference on Trade and Development and others indicate that debt overhang of the non-financial private sector is worse in 2019 than it was in 2007. In light of history, at this level of debt overhang, a global non-financial private sector debt deleveraging is inevitable, if it did not start already. If disorderly, this deleveraging is likely to lead to deep global debt deflation, followed by a deep global recession (and possibly a global depression), thereby creating financial and economic instabilities and further tensions in international relations with dire consequences for emerging and developing countries, not to mention developed countries. Blending the German Currency Reform of 1948 and the 'Modern Debt Jubilee' of Steve Keen, we propose a globally coordinated one-off orderly non-financial debt deleveraging to address this debt overhang. It is a partial debt Jubilee financed by zero-coupon perpetual bonds. Given its focus on the entire non-financial private sector, it is more comprehensive than mechanisms that focus on either only the households or only the firms. Finally, we propose a second mechanism to extend the first to include all sectors because the high debt burdens the world suffers from are neither only private nor only public but both.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131225019","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Being renowned with big global trademarks such as Google, Intel, Ebay and Hollywood in Silicon valley, the world people may imagine the enormous potential power of California State, United States. Thanks to this enormous power, this valley has speeded up the Californian economy to a continuous hike. By 2012, California's GDP exceeded 2 trillion US dollars and GDP per capita reached 43 thousand dollars, ranking first in the United State and 12th globally if compared as an independent economy. However, world's cycles of economic and finance’s crises’ troughs have worsened the Californian budget deficit and made it persistent. The 2008-2009's fiscal deficit was 40 billion dollars when the tax revenues reached 90 billions while the state’s spending was 130 billions. Lacking suitable execution measures, the state’s budget has been dragging down behind other states. This paper will examine the historical context and propose some policy measures to tackle the bottle-lock of the state’s dilemma.
{"title":"What Can Be Learnt From the Past California’s Budget Crisis","authors":"Van Chung Vu","doi":"10.2139/ssrn.3490509","DOIUrl":"https://doi.org/10.2139/ssrn.3490509","url":null,"abstract":"Being renowned with big global trademarks such as Google, Intel, Ebay and Hollywood in Silicon valley, the world people may imagine the enormous potential power of California State, United States. Thanks to this enormous power, this valley has speeded up the Californian economy to a continuous hike. By 2012, California's GDP exceeded 2 trillion US dollars and GDP per capita reached 43 thousand dollars, ranking first in the United State and 12th globally if compared as an independent economy. However, world's cycles of economic and finance’s crises’ troughs have worsened the Californian budget deficit and made it persistent. The 2008-2009's fiscal deficit was 40 billion dollars when the tax revenues reached 90 billions while the state’s spending was 130 billions. Lacking suitable execution measures, the state’s budget has been dragging down behind other states. This paper will examine the historical context and propose some policy measures to tackle the bottle-lock of the state’s dilemma.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128293655","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study a budget allocation problem between two players where budget allocations entail positive externalities. We characterize an optimal mechanism when the designer is unable to commit ex ante to the allocation rule. Without commitment, every incentive compatible mechanism the designer can implement is a hierarchical mechanism --- the allocation rule partitions the type space into intervals and allocates the budget to the player in the highest interval, dividing it evenly if both are in the same interval. The optimal mechanism uses a partition with infinitely many intervals. With full commitment power, this hierarchical mechanism remains optimal for a family of distributions that includes the uniform.
{"title":"Resource Allocation with Positive Externalities","authors":"Dhruva Bhaskar, E. Sadler","doi":"10.2139/ssrn.2853085","DOIUrl":"https://doi.org/10.2139/ssrn.2853085","url":null,"abstract":"We study a budget allocation problem between two players where budget allocations entail positive externalities. We characterize an optimal mechanism when the designer is unable to commit ex ante to the allocation rule. Without commitment, every incentive compatible mechanism the designer can implement is a hierarchical mechanism --- the allocation rule partitions the type space into intervals and allocates the budget to the player in the highest interval, dividing it evenly if both are in the same interval. The optimal mechanism uses a partition with infinitely many intervals. With full commitment power, this hierarchical mechanism remains optimal for a family of distributions that includes the uniform.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117060431","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Chinese Abstract: 内容摘要：地方债务置换是财政部在甄别存量地方政府性债务的基础上，把银行存款、城投债、信托融资等地方政府原有的短期和高成本债务置换成中长期、低成本的地方政府债券的活动，旨在通过成本转换、期限转换和债务形式转换化解财政风险，其制度本质是财政与金融之间的风险再分配。当前，地方债务置换的制度重心应当从风险分配转向风险规制，防止财政风险与金融风险交织传染所引发的系统性风险，推进财政金融法制的协同性变革。
English Abstract: Local Government Debts Securitization refers to the process of the Ministry of Finance ascertains and then transforms the existing local government debts which are usually short-term and high-cost, including bank loans, debts owed by local fundraising platforms and fundraising through trusts, to local government debentures which are medium or long term and low-cost. It aims to dissolve fiscal risks by changing the cost, term and form of the local government debts, which is in nature a redistribution of risk between the fiscal and the financial system. It is submitted that the idea of risk redistribution be replaced by risk regulation, preventing systemic risk caused by the intertwining of fiscal and financial risks and synchronizing the reform of fiscal and financial systems.
Chinese Abstract: 内容摘要：地方债务置换是财政部在甄别存量地方政府性债务的基础上，把银行存款、城投债、信托融资等地方政府原有的短期和高成本债务置换成中长期、低成本的地方政府债券的活动，旨在通过成本转换、期限转换和债务形式转换化解财政风险，其制度本质是财政与金融之间的风险再分配。当前，地方债务置换的制度重心应当从风险分配转向风险规制，防止财政风险与金融风险交织传染所引发的系统性风险，推进财政金融法制的协同性变革。English Abstract: Local Government Debts Securitization refers to the process of the Ministry of Finance ascertains and then transforms the existing local government debts which are usually short-term and high-cost, including bank loans, debts owed by local fundraising platforms and fundraising through trusts, to local government debentures which are medium or long term and low-cost. It aims to dissolve fiscal risks by changing the cost, term and form of the local government debts, which is in nature a redistribution of risk between the fiscal and the financial system. It is submitted that the idea of risk redistribution be replaced by risk regulation, preventing systemic risk caused by the intertwining of fiscal and financial risks and synchronizing the reform of fiscal and financial systems.
{"title":"中国地方债务置换的法律分析：缘由、本质与风险规制 (Legal Analysis of Local Government Debts Securitization in China: Origin, Nature and Risk Regulation)","authors":"(Robin) Hui Huang, A. Li","doi":"10.2139/ssrn.3478932","DOIUrl":"https://doi.org/10.2139/ssrn.3478932","url":null,"abstract":"<b>Chinese Abstract:</b> 内容摘要：地方债务置换是财政部在甄别存量地方政府性债务的基础上，把银行存款、城投债、信托融资等地方政府原有的短期和高成本债务置换成中长期、低成本的地方政府债券的活动，旨在通过成本转换、期限转换和债务形式转换化解财政风险，其制度本质是财政与金融之间的风险再分配。当前，地方债务置换的制度重心应当从风险分配转向风险规制，防止财政风险与金融风险交织传染所引发的系统性风险，推进财政金融法制的协同性变革。<br><br><b>English Abstract:</b> Local Government Debts Securitization refers to the process of the Ministry of Finance ascertains and then transforms the existing local government debts which are usually short-term and high-cost, including bank loans, debts owed by local fundraising platforms and fundraising through trusts, to local government debentures which are medium or long term and low-cost. It aims to dissolve fiscal risks by changing the cost, term and form of the local government debts, which is in nature a redistribution of risk between the fiscal and the financial system. It is submitted that the idea of risk redistribution be replaced by risk regulation, preventing systemic risk caused by the intertwining of fiscal and financial risks and synchronizing the reform of fiscal and financial systems.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121994671","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In response to debt crises, policy makers often feature Collective Action Clauses (CACs) in sovereign bonds among the pillars of international financial architecture. However, the content of official pronouncements about CACs suggests that CACs are more like doorknobs: a process tool with limited impact on the incidence or ultimate outcome of a debt restructuring. We ask whether CACs are welfare improving and, if so, whether they are pillars or doorknobs. The history of CACs in corporate debt suggests that CACs can be good, bad or unimportant depending on their vulnerability to abuse and the available alternatives, including bankruptcy and debt exchanges. The history of CACs in sovereign bond workouts is recent and thin. Without restructuring data, the empirical literature has focused on the ex-ante (pricing) effects of sovereign CACs. To the extent that CACs leave borrowing costs unchanged or even lower them, they are likely to be welfare improving. But the magnitude of the welfare effects cannot be inferred from these studies. Based on the evidence so far, we conjecture that sovereign CACs are like doorknobs: useful, but perhaps not essential. To date, there is no evidence of abuse of the sort observed in U.S. corporate bond restructurings in the 1920 and 1930s. The bulk of pricing studies suggests that any increases in borrowing costs are small. On the other hand, debt exchanges using transactional techniques other than CACs have had a decent track record, suggesting that CACs are not the only way to resolve a debt crisis in the absence of a treaty-based bankruptcy alternative. Future empirical work should focus on how CACs perform in debt restructuring rather than on their ex ante effects.
{"title":"CACs and Doorknobs","authors":"Anna Gelpern, Jeromin Zettelmeyer","doi":"10.2139/ssrn.3473836","DOIUrl":"https://doi.org/10.2139/ssrn.3473836","url":null,"abstract":"In response to debt crises, policy makers often feature Collective Action Clauses (CACs) in sovereign bonds among the pillars of international financial architecture. However, the content of official pronouncements about CACs suggests that CACs are more like doorknobs: a process tool with limited impact on the incidence or ultimate outcome of a debt restructuring. We ask whether CACs are welfare improving and, if so, whether they are pillars or doorknobs. The history of CACs in corporate debt suggests that CACs can be good, bad or unimportant depending on their vulnerability to abuse and the available alternatives, including bankruptcy and debt exchanges. The history of CACs in sovereign bond workouts is recent and thin. Without restructuring data, the empirical literature has focused on the ex-ante (pricing) effects of sovereign CACs. To the extent that CACs leave borrowing costs unchanged or even lower them, they are likely to be welfare improving. But the magnitude of the welfare effects cannot be inferred from these studies. Based on the evidence so far, we conjecture that sovereign CACs are like doorknobs: useful, but perhaps not essential. To date, there is no evidence of abuse of the sort observed in U.S. corporate bond restructurings in the 1920 and 1930s. The bulk of pricing studies suggests that any increases in borrowing costs are small. On the other hand, debt exchanges using transactional techniques other than CACs have had a decent track record, suggesting that CACs are not the only way to resolve a debt crisis in the absence of a treaty-based bankruptcy alternative. Future empirical work should focus on how CACs perform in debt restructuring rather than on their ex ante effects.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-10-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133594053","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze repayment incentives in an infinite horizon competitive economy where agents cannot commit to financial contracts. We follow Bulow and Rogoff (1989) by assuming that a defaulting agent is excluded from borrowing forever but keeps the ability to save. Hellwig and Lorenzoni (2009) proved that self-enforcing and not-too-tight debt limits can form a bubble (or discounted martingale) at equilibrium. They also show that when debt limits form a bubble, then the equilibrium outcomes (prices and consumption) are the same as in a model without private debt but with unbacked public debt. The contribution of this paper is to show that bubbles are the only debt limits that are self-enforcing and not too tight. Our characterization is obtained without imposing any ad-hoc boundedness assumption on the endogenous debt limits.
{"title":"Self-Enforcing Debt and Rational Bubbles","authors":"V. Martins-da-Rocha, Mateus Santos","doi":"10.2139/ssrn.3169229","DOIUrl":"https://doi.org/10.2139/ssrn.3169229","url":null,"abstract":"We analyze repayment incentives in an infinite horizon competitive economy where agents cannot commit to financial contracts. We follow Bulow and Rogoff (1989) by assuming that a defaulting agent is excluded from borrowing forever but keeps the ability to save. Hellwig and Lorenzoni (2009) proved that self-enforcing and not-too-tight debt limits can form a bubble (or discounted martingale) at equilibrium. They also show that when debt limits form a bubble, then the equilibrium outcomes (prices and consumption) are the same as in a model without private debt but with unbacked public debt. The contribution of this paper is to show that bubbles are the only debt limits that are self-enforcing and not too tight. Our characterization is obtained without imposing any ad-hoc boundedness assumption on the endogenous debt limits.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117185037","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We find empirical evidence of a possible structural break in the relationship between the foreign holdings of U.S. Treasury securities and the U.S. long-term interest rate occurring at the time when U.S. monetary policy became constrained at the zero-lower bound (ZLB). The estimated marginal effect of the foreign holdings ratio on the U.S. long-term interest rate, particularly its long-run effect, appears to have become stronger during the ZLB regime than it was before. We argue that the leading explanation of this apparent break is the nonlinearity introduced by the ZLB. Motivated by theory, we propose a flexible nonlinear specification to deal with the ZLB — a threshold single-equation error-correction model splitting the sample in two regimes, pre-ZLB and ZLB, which replaces the observed Fed Funds rate with a shadow Fed Funds rate derived from a Tobit-IV model to incorporate a broader measure of the stance of monetary policy. With this setup, we find no significant structural break in the relationship between foreign holdings and long-term rates at the ZLB. Therefore, we argue that the ZLB is a leading cause of the apparent shift in the empirical relationship. We also show that the estimated effects are not just statistically-significant, but also economically-significant. Through counterfactual analysis, we show that changes in China’s holdings of U.S. Treasury securities played an important role in explaining the 2004-2006 interest rate conundrum period and kept the long-term interest rate from going ever lower in the recent ZLB period.
{"title":"The Contribution of Foreign Holdings of U.S. Treasury Securities to the U.S. Long-Term Interest Rate","authors":"Yixiang Zhang, Enrique Martínez-García","doi":"10.2139/ssrn.3495790","DOIUrl":"https://doi.org/10.2139/ssrn.3495790","url":null,"abstract":"We find empirical evidence of a possible structural break in the relationship between the foreign holdings of U.S. Treasury securities and the U.S. long-term interest rate occurring at the time when U.S. monetary policy became constrained at the zero-lower bound (ZLB). The estimated marginal effect of the foreign holdings ratio on the U.S. long-term interest rate, particularly its long-run effect, appears to have become stronger during the ZLB regime than it was before. We argue that the leading explanation of this apparent break is the nonlinearity introduced by the ZLB. Motivated by theory, we propose a flexible nonlinear specification to deal with the ZLB — a threshold single-equation error-correction model splitting the sample in two regimes, pre-ZLB and ZLB, which replaces the observed Fed Funds rate with a shadow Fed Funds rate derived from a Tobit-IV model to incorporate a broader measure of the stance of monetary policy. With this setup, we find no significant structural break in the relationship between foreign holdings and long-term rates at the ZLB. Therefore, we argue that the ZLB is a leading cause of the apparent shift in the empirical relationship. We also show that the estimated effects are not just statistically-significant, but also economically-significant. Through counterfactual analysis, we show that changes in China’s holdings of U.S. Treasury securities played an important role in explaining the 2004-2006 interest rate conundrum period and kept the long-term interest rate from going ever lower in the recent ZLB period.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131445881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-17DOI: 10.33423/jabe.v21i8.2575
Ashraf Ahmed, M. A. Kabir
Student loan is a pervasive problem in the United States. Historically, higher education has been a major driver of intergenerational mobility in the United States. The current student loan has increased substantially over the years, surpassing credit card and auto loans. Using panel data from all States, this paper attempts to empirically predict if income inequality is affected by student loans. Statistical analysis points towards student loan exacerbating income inequality. Other variables such as private college tuition and household poverty have a highly significant negative effect on income inequality. The overall results suggest that increased access to higher education at the expense of higher student loans may be countervailing to the income distribution dynamics of the United States.
{"title":"Effect of Student Loans on Income Inequality in the United States","authors":"Ashraf Ahmed, M. A. Kabir","doi":"10.33423/jabe.v21i8.2575","DOIUrl":"https://doi.org/10.33423/jabe.v21i8.2575","url":null,"abstract":"Student loan is a pervasive problem in the United States. Historically, higher education has been a major driver of intergenerational mobility in the United States. The current student loan has increased substantially over the years, surpassing credit card and auto loans. Using panel data from all States, this paper attempts to empirically predict if income inequality is affected by student loans. Statistical analysis points towards student loan exacerbating income inequality. Other variables such as private college tuition and household poverty have a highly significant negative effect on income inequality. The overall results suggest that increased access to higher education at the expense of higher student loans may be countervailing to the income distribution dynamics of the United States.","PeriodicalId":127865,"journal":{"name":"Political Economy: Budget","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129824322","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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