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You searched for: Content Type Working Paper Remove constraint Content Type: Working Paper Publishing Institution The Cato Institute Remove constraint Publishing Institution: The Cato Institute Topic Economics Remove constraint Topic: Economics
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  • Author: Mark A. Calabria
  • Publication Date: 01-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: There was perhaps no issue of greater importance to the financial regulatory reforms of 2010 than the resolution, without taxpayer assistance, of large financial institutions. The rescue of firms such as AIG shocked the public conscience and provided the political force behind the passage of the Dodd-Frank Act. Such is reflected in the fact that Titles I and II of Dodd-Frank relate to the identification and resolution of large financial entities. How the tools established in Titles I and II are implemented are paramount to the success of Dodd-Frank. This paper attempts to gauge the likely success of these tools via the lens of similar tools created for the resolution of the housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
  • Topic: Economics, International Trade and Finance, Financial Crisis, Reform
  • Author: Mark A. Calabria, Michael Krimminger
  • Publication Date: 02-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Not long ago a colleague of mine, who works regularly with legislators, attended a conference at which the lunch speaker, a famous economist, began by telling everyone why governments regulate financial institutions. The reasons the economist gave consisted of various (supposed) financial - market failures. Said the colleague to me later: “I just wanted to stand up and shout, 'That's got nothing to do with it!'”
  • Topic: Economics
  • Author: Robert P. Murphy, Patrick J. Michaels, Paul "Chip" Knappenberger
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: A vigorous campaign aimed at American policymakers and the general public has tried to create the perception that a federal carbon tax (or similar type of “carbon price”) is a crucial element in the urgently needed response to climate change. Within conservative and libertarian circles, a small but vocal group of academics, analysts, and political officials are claiming that a revenue-neutral carbon tax swap could even deliver a “double dividend” — meaning that the conventional economy would be spurred in addition to any climate benefits. The present study details several serious problems with these claims. The actual economics of climate change — as summarized in the peer-reviewed literature as well as the U.N. and Obama Administration reports — reveal that the case for a U.S. carbon tax is weaker than the public has been told.
  • Topic: Climate Change, Economics, Energy Policy, Politics
  • Political Geography: Global Focus
  • Author: Julio Garin, Robert Lester, Eric Sims
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting as well as to a conventional Taylor rule. These comparisons are made on the basis of welfare losses relative to a hypothetical equilibrium with flexible prices and wages. Output gap targeting is the most desirable of the rules under consideration, but nominal GDP targeting performs almost as well. Nominal GDP targeting is associated with smaller welfare losses than a Taylor rule and significantly outperforms inflation targeting. Relative to inflation targeting and a Taylor rule, nominal GDP targeting performs best conditional on supply shocks and when wages are sticky relative to prices. Nominal GDP targeting may outperform output gap targeting if the gap is observed with noise, and has more desirable properties related to equilibrium determinacy than does gap targeting.
  • Topic: Economics, Human Welfare, Markets, GDP
  • Political Geography: Global Focus
  • Author: Joshua R. Hendrickson, 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, Federal Reserve
  • Political Geography: Global Focus
  • Author: Therese M. Vaughan, 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, Financial Crisis
  • Political Geography: Global Focus
  • Author: Mark Schneider, 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, Elections
  • Political Geography: India
  • Author: Alex Nowrasteh
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The fiscal impact of immigration-how immigrants and their descendants affect government budgets-is a widely debated and contentious issue. Economists overwhelmingly accept the economic gains of immigration, but are less certain about immigrants' impact on government budgets. Contention over this issue is fueled by the numerous methodologies and complexity of analysis that obscure the fiscal costs of immigration.
  • Topic: Civil Society, Economics, Immigration, Governance, Budget
  • Author: Alex Nowrasteh
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The fiscal impact of immigration—how immigrants and their descendants affect government budgets—is a widely debated and contentious issue. Economists overwhelmingly accept the economic gains of immigration, but are less certain about immigrants' impact on government budgets. Contention over this issue is fueled by the numerous methodologies and complexity of analysis that obscure the fiscal costs of immigration.
  • Topic: Demographics, Economics, Immigration, Budget
  • Author: Benjamin Powell, Alex Nowrasteh, J. R. Clark, Robert A. Lawson, Ryan H. Murphy
  • Publication Date: 05-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The economics literature generally finds a positive, but small, gain in income to native-born populations from immigrants and potentially large gains in world incomes. But immigrants can also impact a recipient nation's institutions. A growing empirical literature supports the importance of strong private property rights, a rule of law, and an environment of economic freedom for promoting long run prosperity. Although the literature on the impact of economic freedom on various social and economic outcomes is quite large, comparatively little work has tried to explain economic freedom as a dependent variable. This paper empirically examines how immigration impacts a region's policies and institutions. We find small but positive increases in institutional quality as a result of immigration.
  • Topic: Economics, Human Welfare, International Trade and Finance, Immigration