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9372. The Supply of Transaction Assets, Nominal Income, and Monetary Policy Transmission
- Author:
- Joshua R. Hendrickson and David Beckworth
- Publication Date:
- 06-2015
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Over the last few years, the Federal Reserve has conducted a series of large scale asset purchases. Given the Federal Reserve’s dual mandate, the objective of this policy has been to generate an increase in real economic activity while maintaining a low, stable rate of inflation. The effectiveness of large scale asset purchases and the ability of the central bank to achieve a particular target has been subject to debate. The monetary transmission mechanism is of primary importance for understanding the effects of both the recent large scale asset purchases and of monetary policy more generally. The purpose of this paper is to propose a monetary transmission mechanism and to present empirical support for this mechanism. In particular, this paper suggests that monetary policy is transmitted through changes in the growth rate of transaction assets through both a direct and indirect effect. First, an increase in the growth rate of the monetary base, whether through lump sum transfers or open market operations, generates a real balance effect that increases real economic activity. Second, the indirect effect is through bank lending. Since bank loans are often a function of nominal income, expansionary monetary policy increases bank lending. Since economics agents are forward-looking and the the effects of monetary policy are persistent, monetary policy is transmitted through the expected future time path of the growth of transaction assets and nominal income. This characteristic is especially important in light of the policy recommendations of Sumner (2011, 2012) and Woodford (2012), in which the central bank attaches an explicit target for the level of nominal income to large-scale asset purchases.1
- Topic:
- Economics, Markets, Monetary Policy, and Federal Reserve
- Political Geography:
- Global Focus
9373. International Developments in the Insurance Sector: The Road to Financial Instability?
- Author:
- Therese M. Vaughan and Mark A. Calabria
- Publication Date:
- 05-2015
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- International activity related to the regulation and supervision of financial services has exploded since the global financial crisis. The crisis exposed weaknesses in the structure for regulating internationally active banks, and motivated a number of work streams aimed at strengthening standards (most notably, significant revisions to the Basel capital standard for internationally active banks, now known as Basel III). The insurance sector was also stressed by the meltdown in financial markets that occurred in 2007-2008, albeit far less than the banking sector, and, with the exception of AIG, it is generally recognized that insurers played little role in the financial crisis, and that traditional insurance activities do not pose a systemic risk to the financial system.1,2 Nonetheless, the insurance sector has also been targeted for a new stream of regulatory initiatives at the international level. The most important organizations with respect to these activities are the International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB), both based in Basel, Switzerland. The purpose of this paper is to review these developments and to highlight potential concerns for U.S. insurance markets.
- Topic:
- Economics, International Trade and Finance, Markets, and Financial Crisis
- Political Geography:
- Global Focus
9374. A Tale of Two Villages: Kinship Networks and Political Preference Change in Rural India
- Author:
- Neelanjan Sircar
- Publication Date:
- 09-2015
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- This paper develops a theory on how voters form and change political preferences in democratic developing world contexts. In the developing world, where state institutions are often weak, voters tend to be more focused on the competence and capacity of parties and candidates to deliver benefits. Such information may be difficult to ascertain, so voters must glean information from how candidates conduct themselves during the electoral campaign. Voters use kinship networks to develop more accurate preferences by collectively reasoning through newly available information on candidates. In order to demonstrate these claims, this study analyzes data collected on political preferences and kinship networks in two villages just before and after the campaign period during the 2011 Assembly election in the Indian state of West Bengal. The paper finds very strong kinship network effects on changes in issue preferences and vote choice over the course of the campaign and explains the results through qualitative work and a series of network autoregressive statistical models. In sum, this paper demonstrates how voters develop independent preferences and implement political change, even in low information contexts with weak human capital.
- Topic:
- Democratization, Politics, Self Determination, and Elections
- Political Geography:
- India
9375. Whose Side Are You On? Identifying the Distributive Preferences of Local Politicians in India
- Author:
- Mark Schneider and Neelanjan Sircar
- Publication Date:
- 08-2015
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The literature on decentralized public programs suggests that errors in the targeting of anti-poverty programs are rooted in the capture of these programs by local elites or local politicians. Consistent with the literature on moral economy in political science and experimental economics, we argue that voters in contexts of rural poverty prefer local leaders who target subsistence benefits to the poor. In a high information village context, where voters and leaders know each other, we argue that local elections lead to the selection of local leaders with pro-poor preferences over the distribution of these benefits. We show this with a novel theory of local politicians’ social preferences. We test our theory with unique data from a behavioral measure, conducted in the context of a lottery with a modest cash prize in rural India, that captures a scenario in which local leaders have full discretion and anonymity over allocation among members of their rural communities. We analyze our data using a novel estimation strategy that takes the characteristics of the pool of potential beneficiaries into account in decisions over allocation under a budget constraint. We find that local leaders have strong preferences for targeting the poor, and particularly those they believe supported them politically in the past. This article suggests that free and fair elections at the local level can powerfully encourage pro-poor targeting even in contexts of weak institutions and pervasive poverty. It also makes a fundamental contribution to research on distributive politics by challenging research in this area to demonstrate the effect of electoral strategies and other distortions on allocation relative to local leaders’ baseline distributive preferences.
- Topic:
- Democratization, Economics, Politics, Political Theory, and Elections
- Political Geography:
- India
9376. Signaling Legitimacy to Foreign Investors: Evidence from Chinese IPOs on U.S. Markets.
- Author:
- Xu Jin, Donald Patton, and Martin Kenney
- Publication Date:
- 05-2015
- Content Type:
- Working Paper
- Abstract:
- From 1999-2010 120 Chinese emerging growth firms undertook initial public stock offerings on U.S. markets. This provided a remarkable natural experiment for exploring how this class of organizations from a radically different political economy established their legitimacy and how, once established, this legitimacy permitted organizational and personnel flexibility for later firms. The increased legitimacy allowed changes in the backgrounds of the members of the IPO top management team (TMT) and independent members of the board of directors (BoD). We find that overall composition of both the TMT and BoD in terms of experience in the U.S. decreased and “Chineseness” increased, but at different rates. For the operational TMT members, U.S. experience decreased dramatically over time, except for the CFO who is the representative of investors within the TMT. Similarly, on the BoD, the venture capitalists continued to have high levels of US experience, while the other independent members tracked the TMT in having less US experience. In this increased legitimacy allows the acceptance of “foreign” operational management, but investors are less lenient in terms of ensuring that their “monitors,” the CFO and venture capitalists, should show evidence, i.e., U.S. experience and background, that they adhere to the investor’s values.
- Topic:
- Economics, International Trade and Finance, Markets, and Political Economy
- Political Geography:
- China
9377. Responding to Uncertainty: Syndication Partner Choice by Foreign Venture Capital Firms in China.
- Author:
- Xiao Huang, Martin Kenney, and Donald Patton
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Abstract:
- Cross-border venture capital investment has grown dramatically. Drawing upon observations about the liability of foreignness, previous research has shown that foreign venture capitalists (VCs) tend to partner with local VCs in order to offset information asymmetry and the liabilities of foreignness. Much of the literature has suggested that local VCs should help reduce operational uncertainty. This paper examines syndication partner choice in China, which today is likely the most uncertain environment in which foreign VCs operate on a large scale. This provides an ideal environment for understanding partner selection under uncertainty. Our results show that foreign investors are more likely to choose Chinese investors in later rounds and in more mature portfolio firms. While foreign firms with more Chinese experience are more likely to co-invest with Chinese VCs, the older foreign VC firms are less likely to do so. Remarkably, having a Chinese office made foreign VCs less likely to coinvest. In seed-stage investments, when uncertainty is the greatest, foreign firms are least likely to co-invest with Chinese VCs, and this was not affected by the maturation of the market, while at the later stage, when uncertainty is lowest, they are most likely to co-invest.
- Topic:
- Economics, International Trade and Finance, Markets, and Political Economy
- Political Geography:
- China
9378. Innovative Clusters & New Work: A Case Study of TaskRabbit
- Author:
- Emily Isaac
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Berkeley Roundtable on the International Economy
- Abstract:
- In the past five years, San Francisco has become home to dozens of new online and mobile “service networking” companies that claim to be “revolutionizing” the way work gets done. Making up what has come to be known as the “platform economy,” these technology companies provide the platforms for online and mobile marketplaces in which users can buy and sell their goods and services. Together, these “platform economy” companies make up a concentrated innovative cluster in the San Francisco Bay Area, and, more specifically, San Francisco proper. One of the sharing economy’s pioneers and largest success stories, TaskRabbit Inc. allows users to outsource small jobs and tasks to local contractors—or, in company lingo, neighborhood “Taskers.” Launched out of Boston in 2008, TaskRabbit is just one of many tech startups that have left Boston for the San Francisco Bay Area. Since relocating to San Francisco, the company has received $37.5 million in venture funding, is available in 20 cities, and reportedly has 1.25 million users and over 25,000 Taskers. Indeed, TaskRabbit exemplifies the immeasurable benefits of strategically locating a firm in an industry cluster.
- Topic:
- Economics, International Trade and Finance, Science and Technology, Communications, and Labor Issues
- Political Geography:
- United States
9379. MyFitnessPal: How This Winner-Took-All by Helping People Lose
- Author:
- Emily Alonso
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Abstract:
- Up until about 10 years ago, when a person thought of fitness, health or weight loss, they did not necessarily associate those things with technology. However, as the world takes on a new digital landscape, health care industries from weight-loss to hospitals are becoming increasingly digitized. The idea behind this digitization of the health/fitness industries is that people able to quantify their health will be more likely to improve it (MacManus). Thus with the utilization of big data, big people will begin to no longer be an “epidemic” in our society. Though this is wishful thinking, digital platforms are making individual health related data processes more efficient, with quicker delivery than ever before possible and an enhanced user experience. Those willing to commit to their own positive physical change whilst utilizing assisting technologies are becoming healthier in a more efficient manner. (Chanelle)
- Topic:
- Health, Markets, Science and Technology, and Communications
- Political Geography:
- United States
9380. Where Will Work Come from in the Era of the Cloud and Big Data?
- Author:
- John Zysman and Martin Kenney
- Publication Date:
- 01-2015
- Content Type:
- Working Paper
- Abstract:
- Will the digital revolution, and its current manifestation in Cloud computing and platform-based work, inexorably lead to the elimination of jobs and work due to automation. Are new opportunities for work opening? Should we be thinking in terms of conventional work or is value creation the key? Certainly, nearly all firms are experiencing intense competition leading to commoditization based principally upon price. In the first section of this paper, we explore the pathways opened as cloud computing, transforms the way both goods and services are innovated, produced, and distributed. Production now has two aspects; classically understood manufacturing and ICT-enabled services, activities and virtual goods, both of which can be transformed to escape a commodity trap. As firms in advanced countries seek to sustain advantage in global markets, their efforts alter not only the terms of competition, but the character of work. The second section speculates upon the ways in which the cloud, as a platform, is transforming the nature of work, jobs, and employment. The emergence of cloud-based platforms such as, Airbnb, the Apple app store, Github, Google, LinkedIn, and Uber is redefining the forms and nature of value creation. Paradoxically, given that Google monetizes peoples’ searches, Facebook and LinkedIn monetize posts, Github monetizes open source software creation, and App stores monetize software creations, it is also possible to argue that more value than ever is being created, even while traditional notions of employment are being challenged. This suggests that as a consequence of the implementation of cloud-based strategies; an entirely new category of work organization, which we term, the “Platform Economy” is emerging.
- Topic:
- Science and Technology, Communications, Labor Issues, and Global Markets
- Political Geography:
- Global Focus