focalinterest.net

Tag: Economic Theory

  • European banking crisis spread to Argentine banks

    European banking crisis spread to Argentine banks

    What the study found

    The study found that the European banking crises of 1931 reached Argentina through European banks with branches in the country. As parent banks in Europe came under strain, their Argentine affiliates experienced deposit withdrawals and changed their balance-sheet strategies.

    Why the authors say this matters

    The authors conclude that the study highlights the broader consequences of global financial integration. They also suggest that the ripple effects of the European banking crisis prolonged recessionary pressures in Argentina and altered lending practices long after the initial shock.

    What the researchers tested

    The researchers examined the repercussions of the 1931 European banking crises on Argentina’s banking sector. They used balance sheets, financial statements, and archival evidence to study the role of European banks with branches in Argentina as channels of transmission.

    What worked and what didn't

    The evidence indicates that European banks acted as conduits for transmitting financial instability to Argentina. Their Argentine affiliates saw significant deposit withdrawals and were forced to revise balance-sheet strategies, which increased vulnerability within the banking system.

    What to keep in mind

    The abstract does not describe detailed limitations or caveats. Its scope is focused on Argentina and on European banks operating there during the 1931 crisis.

    • European banks with branches in Argentina helped transmit the 1931 banking crisis.
    • Argentine affiliates experienced significant deposit withdrawals.
    • The affiliates revised their balance-sheet strategies in response to strain at parent banks in Europe.
    • The authors say the crisis had ripple effects that prolonged recessionary pressures in Argentina.
    • The study uses balance sheets, financial statements, and archival evidence.

  • Rising markups drove income inequality in France

    What the study found

    The study finds that rising markups were the main driver of income inequality in France. It also finds that taxation, markups, and asset prices all contributed to wealth inequality.

    Why the authors say this matters

    The authors conclude that the findings help explain how income and wealth inequality have evolved in France since 1984. They also say the results highlight the role of differential asset price movements and endogenous saving responses in shaping wealth inequality over time, where endogenous saving means households change how much they save in response to economic conditions.

    What the researchers tested

    The researchers used a heterogeneous-agent model, meaning a model that allows different households to behave differently. The model combined endogenous portfolio choice, a detailed representation of the tax-and-transfer system, and a reduced-form link between markups and top incomes through entrepreneurial risk. They paired this with counterfactual simulations and a simple accounting decomposition of wealth accumulation.

    What worked and what didn't

    The model accounted for the observed trends in income and wealth inequality in France since 1984, including the top 1% income and wealth shares. The analysis identified rising markups as the primary driver of income inequality, while taxation, markups, and asset prices all made significant contributions to wealth inequality.

    What to keep in mind

    The abstract does not report limitations beyond the study's focus on France since 1984. It also does not provide details on model uncertainty, alternative explanations, or how strongly each mechanism contributed beyond the qualitative ranking described.

    • Rising markups were identified as the main driver of income inequality.
    • Taxation, markups, and asset prices all contributed to wealth inequality.
    • The model matched observed inequality trends in France since 1984, including top 1% shares.
    • The study used counterfactual simulations and an accounting decomposition of wealth accumulation.
    • The authors highlight differential asset price movements and endogenous saving responses in wealth inequality.

  • Post Keynesian inflation model was not robust for U.S. data

    What the study found

    The study found that the comprehensive Post Keynesian model of inflation was not robust for U.S. data from 2002 to 2024. The revised model later matched the original sign pattern for unit labor costs, but that coefficient was not statistically significant.

    Why the authors say this matters

    The authors suggest the analysis helps assess whether a Post Keynesian explanation of inflation remains relevant for the United States, including the period after COVID-19 began. They also discuss possible reasons for the reduced size and significance of the model's coefficients and for the pass-through of wage growth to broader inflation measures.

    What the researchers tested

    The researcher used quarterly U.S. data from 2002 to 2024 and estimated a reduced-form inflation equation from a Post Keynesian perspective. The model combined an aggregate demand-augmented wage-cost markup equation with a wage growth equation, and its robustness was tested using different measures of labor market slack, wages, and inflation.

    What worked and what didn't

    The comprehensive model did not remain robust when alternative measures of wages, unemployment, and inflation were used. The negative relationship between unit labor costs and inflation in the updated model was not robust once control variables for energy costs and imports were added; after Prais-Winsten estimation to address serial correlation, the unit labor costs coefficient became positive but was not statistically significant.

    What to keep in mind

    The abstract does not describe details beyond the U.S. quarterly period studied or provide full information on the model specifications used in every test. It also does not report statistical details beyond the summary that the unit labor costs coefficient was not significant after the revised estimation.

    • The comprehensive Post Keynesian inflation model was not robust for U.S. data from 2002 to 2024.
    • Alternative measures of wages, unemployment, and inflation did not restore the model's robustness.
    • Adding controls for energy costs and imports made the unit labor costs–inflation relationship non-robust.
    • After Prais-Winsten estimation, the unit labor costs coefficient turned positive but was not statistically significant.
    • The author discusses possible reasons for weaker coefficients and wage-growth pass-through in the later period.