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on Macroeconomics |
| By: | Ricardo J. Caballero; Alp Simsek |
| Abstract: | This article summarizes empirical research on the interaction between monetary policy and asset markets, and reviews our previous theoretical work that captures these interactions. We present a concise model in which monetary policy impacts the aggregate asset price, which in turn influences economic activity with lags. In this context: (i) the central bank (the Fed, for short) stabilizes the aggregate asset price in response to financial shocks, using large-scale asset purchases if needed ("the Fed put"); (ii) when the Fed is constrained, negative financial shocks cause demand recessions, (iii) the Fed's response to aggregate demand shocks increases asset price volatility, but this volatility plays a useful macroeconomic stabilization role; (iv) the Fed's beliefs about the future aggregate demand and supply drive the aggregate asset price; (v) macroeconomic news influences the Fed's beliefs and asset prices; (vi) more precise news reduces output volatility but heightens asset market volatility; (vii) disagreements between the market and the Fed microfound monetary policy shocks, and generate a policy risk premium. |
| JEL: | E32 E43 E44 E52 G12 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32053&r=mac |
| By: | Lo Duca, Marco; Moccero, Diego; Parlapiano, Fabio |
| Abstract: | We analyse the impact of macroeconomic and monetary policy shocks on corporate credit risk as measured by firms’ probabilities of default (PDs) for the four largest euro area countries. We estimate the impact of shocks on one-year PDs using local projections (LP). For the period 2014-19, we find that aggregate shocks significantly affect the dynamics of credit risk. An adverse supply shock leads to a deterioration of firms’ riskiness 10 per cent above the average PD. Contractionary monetary policy shocks exert similar, but delayed effects. Firms’ responses to shocks vary depending on their characteristics and degree of financial constraints. Smaller firms are affected to a larger degree. Firms’ outstanding indebtedness and debt repayment capacity are an important transmission channel for aggregate shocks, but the accumulation of cash reserves helps building resilience. JEL Classification: C23, C55, E43, E52, G33 |
| Keywords: | corporate credit risk, local projections, monetary policy shocks, probabilities of default, structural demand and supply shocks |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242897&r=mac |
| By: | Bonam, Dennis; Ciccarelli, Matteo; Gomes, Sandra; Aldama, Pierre; Bańkowski, Krzysztof; Buss, Ginters; da Costa, José Cardoso; Christoffel, Kai; Elfsbacka Schmöller, Michaela; Jacquinot, Pascal; Kataryniuk, Ivan; Marx, Magali; Mavromatis, Kostas; Moyen, Stéphane; Mužić, Ivan; Notarpietro, Alessandro; Papageorgiou, Dimitris; Rannenberg, Ansgar; Skotida, Ifigeneia; Bouabdallah, Othman; Dobrew, Michael; Hauptmeier, Sebastian; Holm-Hadulla, Fédéric; Brzoza-Brzezina, Michał; Hurtado, Samuel; Kolasa, Marcin; Patella, Valeria; Renault, Théodore; Domínguez-Díaz, Rubén; Lechthaler, Wolfgang; McClung, Nigel; Šestořád, Tomáš; Silgado-Gómez, Edgar; Železník, Martin; von Thadden, Leo; Menéndez-Álvarez, Carolina |
| Abstract: | In the low inflation and low interest rate environment that prevailed over the period 2013-2020, many argued that besides expansionary monetary policy, expansionary fiscal policy could also support central banks’ efforts to bring inflation closer to target. During the pandemic, proper alignment of fiscal and monetary policy was again crucial in promoting a rapid macroeconomic recovery. Since the end of 2021 an environment of higher inflation, lower growth, higher uncertainty, and higher interest rates has changed the nature of the required policy mix and poses different challenges to the interaction between monetary and fiscal policy. Following up on the work done under the ECB’s 2020 strategy review (see Debrun et al., 2021), this report explores some of the renewed challenges to monetary and fiscal policy interactions in an environment of high inflation. The main general conclusion is that, with an independent monetary policy that aims to bring inflation back to target in a timely manner, it is still possible to design fiscal policy in a way that protects vulnerable parts of society against the costs of high inflation without pulling against the central bank’s effort to tame inflation. This is more likely to be the case if fiscal measures are temporary and targeted, and if priority is given to structural reforms and public investment in support of potential growth. The latter is particularly effective in reshaping the supply side of the economy in a manner that is likely to have a lasting positive structural impact. JEL Classification: E22, E52, E58, E62 |
| Keywords: | fiscal policy, monetary policy, public investment |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2024337&r=mac |
| By: | Nuhu, Peter; Bukari, Dramani; Sulemana, Yusif |
| Abstract: | The World Economic Forum in 2014 reports that persistent jobless growth is one of the topmost challenges the globe faces. International Labour Organisation (ILO) data indicates that Ghana’s employment elasticity of output has been fallen since 1992; from 0.76 in 1992-1999 to 0.5 since 2006. This trend implies that from 1992, the ability of the Ghanaian economy to create jobs as it grows has been shrinking. Similarly, estimates show that Nigeria’s output elasticity of employment averages 0.39% across all sectors. Through decomposition, this paper investigates the nexus between credit and employment with the view to answering the following questions. i. How does economic activity impact employment creation in developing countries like Ghana and Nigeria? ii. How does credit intensity impact employment creation? iii. How important is sectoral credit mix to creating employment? And iv. Should sectoral employment factor guide credit extension? The results for both countries show that total change in employment consequent on credit availability has been positive. However, the adoption of credit as a trigger for employment creation must not only be intensified but also deliberately targeted at the sectors of the economy that offer the greatest potential for job creation. |
| Keywords: | Credit, Employment, Economic Activity, Unemployment, Ghana, Nigeria |
| JEL: | E24 E44 E51 O55 O57 |
| Date: | 2023–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118345&r=mac |
| By: | Andriantomanga, Zo |
| Abstract: | This paper performs a real-time forecasting exercise for US inflation from 1992Q1 to 2022Q2. We reinvestigate the literature on autoregressive (AR) inflation gap models - the deviation of inflation from long-run inflation expectations. The findings corroborate that, while simple models remain hard to beat, the multivariate extensions to the AR gap models can improve forecasting performance at short horizons. The results show that (i) forecast combination improves forecast accuracy over simpler models, (ii) aggregating survey measures, using dynamic principal components, improves forecast accuracy, (iii) and the additional information obtained from the error correction process between inflation and long run inflation expectations can improve forecasting performance. In spite of our models providing more accurate one-step ahead forecasts on average, fluctuation tests reveal that over unstable time periods - mainly during the GFC and the Covid-19 pandemic - the AR(1) benchmark performed better. |
| Keywords: | Inflation, survey forecasts, forecast combination, inflation expectations, error correction, real-time data |
| JEL: | C53 E31 E37 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119904&r=mac |
| By: | Monique Reid; Pierre Siklos |
| Abstract: | Abundant evidence that the inflation expectations of financial analysts differ in economically important ways from those of non-financial specialists, has been followed by increasing demand for firm level data, in an attempt to more accurately capture the views of price setters. The unusually rich firm level survey data from South Africa allows us to explore some of the ways in which the expectations of firms differ from that those of other groups surveyed. We focus specifically on forecast disagreement, which can offer insights about the level of uncertainty reflected in the data, as well as the degree to which expectations are anchored. We find that divergence of inflation forecasts amongst respondents is partly explained by differences in how respondents believe the broader macroeconomy is evolving. We also consider the impact of different types of aggregation of the data. It is when we construct a new measure of macroeconomic disagreement that combines all the variables being forecast that we are able to see that forecasters responded sharply in early 2020 as the pandemic emerged. |
| Keywords: | forecast disagreement, firm level, labor, professional forecasts, Bureau of Economic Research, South African Reserve Bank |
| JEL: | E37 E31 E47 E32 E58 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2024-05&r=mac |
| By: | Enisse Kharroubi; Enisse Kharroubi and Frank Smets |
| Abstract: | Following evidence on the role of firm profits in the current inflation surge, we develop a New Keynesian model where profit-driven inflation stems from the presence of reservation profits on the supply side. We use this framework to investigate the positive and normative implications of cost push shocks, focusing on energy price shocks. We first show that these shocks lead to inefficiently large supply contractions and thereby inefficiently large (profit-driven) inflation, as firms which retrench do not internalise the social costs of doing so. Second, we show that optimal monetary policy follows a pecking order. It first aims at shielding the supply side from the fallout of the shock, thereby undoing the negative retrenchment externality. It then splits the burden of the shock between supply and demand, when insulating the supply side is too costly. Finally, when the energy price shock is very large, monetary policy loses traction. Budget-neutral fiscal interventions, e.g. redistribution from high- to low-income households and/or from high- to low-profit firms, can then restore monetary policy effectiveness. |
| Keywords: | energy price shocks, price stickiness, reservation profits, optimal monetary policy, corporate tax |
| JEL: | D21 E23 E31 E32 E52 E62 H24 H25 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1167&r=mac |
| By: | Bloom, Nicholas; Bunn, Philip; Mizen, Paul; Smietanka, Pawel; Thwaites, Gregory Douglas |
| Abstract: | We analyse the impact of Covid-19 on productivity using data from an innovative monthly firm survey panel that asks for quantitative impacts of Covid on inputs and outputs. We find total factor productivity (TFP) fell by up to 5% during 2020-21. The overall impact combined large reductions in 'within-firm' productivity, with an offsetting positive 'between-firm' effects as less productive sectors, and less productive firms within them, contracted. Despite these large pandemic effects, firms' post-Covid forecasts imply surprisingly little lasting impact on aggregate TFP. We also see significant heterogeneity over firms and sectors, with the greatest impacts in those requiring extensive in-person activity. We also ask about unmeasured inflation in the form of deteriorating product quality, finding an additional 1.4% negative impact on TFP. |
| Keywords: | Covid-19; productivity; coronavirus |
| JEL: | D24 D84 E24 E32 O47 |
| Date: | 2023–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121314&r=mac |
| By: | Alexandre Carrier; Kostas Mavromatis |
| Abstract: | We examine optimal normalization strategies for a central bank confronted with persistent inflationary shocks and a potential de-anchoring of expectations. Our analysis characterizes optimal monetary policy, when the central bank uses both the short-term interest rate and the balance sheet, in a framework in which agents’ expectations can deviate from the rational expectations benchmark. Optimal policy is developed using a sufficient statistics approach, highlighting the dynamic causal effects of changes in each policy instrument on the central bank’s targets. Three key insights emerge: first, the interest rate is identified as the key instrument for managing inflationary pressures, outperforming balance sheet adjustments. Second, having anchored expectations about the path of quantitative tightening (QT) is crucial to mitigate economic downturns and controlling inflation, within the framework of an optimal balance sheet strategy set under a predefined interest rate rule. Lastly, when both the interest rate and QT are set optimally, expectations are found to significantly influence the optimal interest rate trajectory, whereas their impact on the optimal QT path is comparatively minimal. |
| Keywords: | Optimal monetary policy; de-anchored expectations; normalization strategy |
| JEL: | E52 E71 D84 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:800&r=mac |
| By: | James Costain; Galo Nuño Barrau; Carlos Thomas |
| Abstract: | We build an arbitrage-based model of the yield curves in a heterogeneous monetary union with sovereign default risk, which can account for the asymmetric shifts in euro area yields during the Covid-19 pandemic. We derive an affine term structure solution, and decompose yields into term premium and credit risk components. In an extension, we endogenize the peripheral default probability, showing that it decreases with central bank bond-holdings. Calibrating the model to Germany and Italy, we show that a "default risk extraction" channel is the main driver of Italian yields, and that flexibility makes asset purchases more effective. |
| Keywords: | sovereign default, quantitative easing, yield curve, affine model, Covid-19 crisis, ECB, pandemic emergency purchase programme |
| JEL: | E5 G12 F45 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1165&r=mac |
| By: | Jing Cynthia Wu; Yinxi Xie; Ji Zhang |
| Abstract: | Motivated by empirical evidence, we propose an open-economy New Keynesian model with financial integration that allows financial intermediaries to hold foreign long-term bonds. We find financial integration features an amplification for a domestic monetary policy shock and a negative spillover for a foreign shock. These results hold for conventional and unconventional monetary policies. Among various aspects of financial integration, the bond duration plays a major role, and our results cannot be replicated by a standard model of perfect risk sharing between households. Finally, we observe an important interaction between financial integration and trade openness and demonstrate trade alone does not have an economically meaningful impact on monetary policy transmission. |
| Keywords: | central bank research; international financial markets; monetary policy transmission |
| JEL: | E44 E52 F36 F42 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-3&r=mac |
| By: | Pablo Ottonello; Thomas Winberry |
| Abstract: | We study the role of financial frictions in determining the allocation of investment and innovation. Empirically, we find that firms are investment-intensive when they have low net worth but become innovation-intensive as they accumulate more net worth. To interpret these findings, we develop an endogenous growth model with heterogeneous firms and financial frictions. In our model, low net worth firms are investment-intensive because their returns to capital are high. Financial frictions slow the rate at which firms exhaust the returns to capital and shift towards innovation. Calibrating to the US economy, we find that the resulting lower growth implies large GDP losses even though capital misallocation is small. In other words, financial markets effectively fund the implementation of existing ideas, but do not adequately fund the discovery of new ideas. If innovation has positive spillovers, a planner would not only raise innovation but also lower investment expenditures among constrained firms. |
| JEL: | E22 E23 G3 O30 O4 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32056&r=mac |
| By: | Faccia, Donata; Hünnekes, Franziska; Köhler-Ulbrich, Petra |
| Abstract: | In this paper we build a unique dataset to study how banks decide which firms to lend to and how this decision depends on their own situation and the characteristics of their borrowers. We find that weaker capitalised banks adjust their credit standards more than healthier banks, especially for firms with a higher default risk. We also show how credit standards change in reaction to two specific macroeconomic developments, namely an increase in bank funding costs and a sudden deterioration in banks’ corporate loan portfolios. Here we find that weaker banks respond more forcefully by tightening their credit standards more than better capitalised banks. This development is particularly pronounced when banks are linked to riskier firms. Insofar, we provide evidence of heterogeneity in the bank lending channel, depending on the situation of the lenders and the borrowers. JEL Classification: E44, E51, E52, G21 |
| Keywords: | bank lending channel, credit risk, credit supply, monetary policy transmission |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242902&r=mac |
| By: | Gabriel Bizama; Alexander Wu; Bernardo Paniagua; Max Mitre |
| Abstract: | This research aims to provide a framework to assess the contribution of digital currencies to promote financial inclusion, based on a diagnosis of the landscape of financial inclusion and domestic and cross-border payments in Latin America and the Caribbean. It also provides insights from central banks in the region on key aspects regarding a possible implementation of central bank digital currencies. Findings show that although digital currencies development is at an early stage, a well-designed system could reduce the cost of domestic and cross-border payments, improve the settlement of transactions to achieve real-time payments, expand the accessibility of central bank money, incorporate programmable payments and achieve system performance demands. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.09811&r=mac |
| By: | Min Dai; Hanqing Jin; Xi Yang |
| Abstract: | We propose an innovative data-driven option pricing methodology that relies exclusively on the dataset of historical underlying asset prices. While the dataset is rooted in the objective world, option prices are commonly expressed as discounted expectations of their terminal payoffs in a risk-neutral world. Bridging this gap motivates us to identify a pricing kernel process, transforming option pricing into evaluating expectations in the objective world. We recover the pricing kernel by solving a utility maximization problem, and evaluate the expectations in terms of a functional optimization problem. Leveraging the deep learning technique, we design data-driven algorithms to solve both optimization problems over the dataset. Numerical experiments are presented to demonstrate the efficiency of our methodology. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.11158&r=mac |
| By: | Izquierdo-Tort, Santiago (Instituto de Investigaciones Economicas, Universidad Nacional Autonoma de Mexico); Jayachandran, Seema (Department of Economics, Princeton University); Saavedra, Santiago (Facultad de Economía, Universidad del Rosario) |
| Abstract: | Payments for Ecosystem Services (PES) are a widely used approach to incentivize conservation efforts such as avoided deforestation. Although PES effectiveness has received significant scholarly attention, whether PES design modifications can improve program outcomes is less explored. We present findings from a randomized trial in Mexico that tested whether a PES contract that requires enrollees to enroll all of their forest is more effective than the traditional PES contract that allows them to exercise choice. The modification’s aim is to prevent landowners from enrolling only parcels they planned to conserve anyway while leaving aside other parcels to deforest. We find that the full-enrollment treatment significantly reduces deforestation compared to the traditional contract. This extra conservation occurs despite the full-enrollment provision reducing the compliance rate due to its more stringent requirements. The full-enrollment treatment quadrupled cost-effectiveness, highlighting the potential to substantially improve the efficacy of conservation payments through simple contract modifications. |
| Keywords: | Deforestation; Payments for Ecosystem Services; financial incentives; contract design; Mexico |
| Date: | 2024–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:021022&r=mac |
| By: | Adrien HERVOUET; Emmanuel LORENZON; Cesare RIGHI; Valerio STERZI |
| Abstract: | We study operating companies’ delegation of patent enforcement to patent assertion entities, a practice called “patent privateering.” Using a privateer may allow an operating company to generate higher patent revenues, increase rivals’ costs with “stealth” attacks, and limit the legal responsibilities to bear litigation costs. Using data on European patent transfers and patent infringement litigation in five large European jurisdictions in 2010-2020, we show that patent privateering is more likely to occur for patents with relatively lower economic value, for standard essential patents, and when the target of patent assertion is a competitor of the operating company. |
| Keywords: | intellectual property; patent; patent privateering; patent litigation; patent assertion enentity; SEP |
| JEL: | K11 K41 O31 O34 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:grt:bdxewp:2023-10&r=mac |
| By: | Roscoe Conan d'Souza (EM - emlyon business school, Jindal Global University); Ignasi Marti (EM - emlyon business school, Universitat Ramon Llull, ESADE Business School, Barcelona) |
| Abstract: | Prior research has shown that human trafficking has multiple facets and is deeply enmeshed in societies around the world. Two central challenges for anti-trafficking organizations pertain to confronting systemic injustices and establishing caring organizations for survivors to start the process of healing and restoration. Analyzing the work of an anti-trafficking organization, International Sanctuary (ISanctuary) in Mumbai, we seek to elucidate how a space for caring for trafficking survivors is constructed in a largely non-egalitarian and unjust context. We contribute to discussions on how caring infrastructures are possibly developed so that they do not write off (pre)existing gendered and in-egalitarian social structures and how they shape individual biographies. We also highlight how the specific, situated context—defined by those very structures—shapes and influences the transformative potential of care interventions. |
| Keywords: | Ethic of care, ethics of justice, Sex human trafficking, Organized spaces for caring |
| Date: | 2022–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04381311&r=mac |
| By: | Shima, Mst. Urmi Akter; Hasan, Mohammad Monirul |
| Abstract: | This study investigates the intricate dynamics of land transformation and its correlation with rising surface temperatures in Gazipur District, Bangladesh, amid rapid urbanization and climate change. As urban areas attract more inhabitants, Gazipur experiences alarming rates of urbanization, contributing significantly to the Urban Heat Island (UHI) phenomenon. The depletion of water bodies exacerbates this effect, posing severe consequences for the regional climate and environment. Conducted as an integrated study utilizing Geographic Information System (GIS) and Remote Sensing (RS), this research spans the years 2000 to 2021. Landsat 7 & 8 satellite imagery products were employed to analyze land cover changes and recover Land Surface Temperature (LST). Remote sensing techniques enabled the examination of the impact of vegetation cover changes on surface temperature, revealing a strong correlation between LST and land cover classes. Results indicate a substantial reduction in water bodies, decreasing from 33% to 0.01%, and a parallel decline in vegetation cover. These areas are increasingly converted into built-up spaces, contributing to rising temperatures that fluctuate between 28℃ and 35℃. The findings underscore the significance of land cover classes in influencing surface temperature variations. The study not only adds depth to the understanding of Gazipur's evolving landscape but also contributes valuable insights into the intricate relationship between land transformation, urbanization, and climate change. |
| Keywords: | Vegetation coverage, Land Surface Temperature, Environmental Sustainability, Climate Change, Urbanization |
| JEL: | Q23 Q24 Q25 Q56 Q57 R14 R52 |
| Date: | 2022–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119867&r=mac |
| By: | Seiyoun Kim; Vjollca Sadiraj; Yongsheng Xu |
| Abstract: | We conduct a laboratory experiment to study individual decision on donating to a charity in response to changes in the tax rate and income in the presence of matching and two types of rebate subsidies: deterministic and stochastic. Private consumption is taxed, and contributions are subsidized in a way that preserves the relative price of giving across the fundraising mechanisms. We find that tax framing and rebate subsidy elicit less charitable contribution than neutral framing and matching subsidy; the negative effect on donation is smaller for stochastic than deterministic rebate subsidies. Data suggest that charitable giving is a normal good and that donations and private consumption are complements. |
| Keywords: | charitable giving, tax deduction, rebate subsidy, matching subsidy, experiments |
| JEL: | H41 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2023-01&r=mac |
| By: | Justin Beaudoin (Department of Economics, Acadia University); Justin Tyndall (University of Hawaii Economic Research Organization and Department of Economics, University of Hawaii at Manoa) |
| Abstract: | Bus Rapid Transit (BRT) systems have become increasingly common in US cities. BRT stations provide a local amenity by improving transportation options for local residents, but may also represent a local nuisance due to noise or displacement of other road users. We estimate whether BRT is priced into local real estate by studying a recently opened BRT project in Vancouver, Washington. We use a difference-in-difference method with both hedonic and repeat sales estimators to test for a price effect. We estimate a 5-7% price premium for homes located within a 20 minute walk of a BRT station. Overall, BRT generated new real estate value that exceeded the project’s construction costs by a factor of six. We discuss how government could leverage future residential property value increases to fund construction of BRT projects. |
| Keywords: | Transportation, Transit, Bus Rapid Transit, Real Estate |
| JEL: | R30 R32 R38 R40 R42 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:hae:wpaper:2023-3&r=mac |
| By: | Felix Chan; Laszlo Matyas |
| Abstract: | The paper introduces a new estimation method for the standard linear regression model. The procedure is not driven by the optimisation of any objective function rather, it is a simple weighted average of slopes from observation pairs. The paper shows that such estimator is consistent for carefully selected weights. Other properties, such as asymptotic distributions, have also been derived to facilitate valid statistical inference. Unlike traditional methods, such as Least Squares and Maximum Likelihood, among others, the estimated residual of this estimator is not by construction orthogonal to the explanatory variables of the model. This property allows a wide range of practical applications, such as the testing of endogeneity, i.e., the correlation between the explanatory variables and the disturbance terms, and potentially several others. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.11229&r=mac |
| By: | Mayer, J. H.; Meinecke, Milena; Quick, Reiner; Kusterer, Frank; Kessler, Patrick |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:136444&r=mac |
| By: | Jonathan Roth |
| Abstract: | This note discusses the interpretation of event-study plots produced by recent difference-in-differences methods. I show that even when specialized to the case of non-staggered treatment timing, the default plots produced by software for three of the most popular recent methods (de Chaisemartin and D'Haultfoeuille, 2020; Callaway and SantAnna, 2021; Borusyak, Jaravel and Spiess, 2024) do not match those of traditional two-way fixed effects (TWFE) event-studies: the new methods may show a kink or jump at the time of treatment even when the TWFE event-study shows a straight line. This difference stems from the fact that the new methods construct the pre-treatment coefficients asymmetrically from the post-treatment coefficients. As a result, visual heuristics for analyzing TWFE event-study plots should not be immediately applied to those from these methods. I conclude with practical recommendations for constructing and interpreting event-study plots when using these methods. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12309&r=mac |