DE - Working Papers. Economics. WE

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The impact of obesity on human capital accumulation: exploring the driving factors
(2024-04-09) Carrasco, Raquel; González González, Diego; Universidad Carlos III de Madrid. Departamento de Economía; Ministerio de Economía y Competitividad (España); Comunidad de Madrid; European Commission
This study examines the impact of childhood obesity on the academic performance and human capital accumulation of high school students using data from Spain. To address potential endogeneity issues, we exploit the exogenous variation in obesity within peer groups. Specifically, we use the prevalence of obesity by gender in students' classes as an instrumentalvariable for individual obesity. The results indicate that obesity has a negative impact on academic achievement, particularly on general scores for girls, cognitive abilities as measured by CRT scores, financial abilities, and English grades for both boys and girls. In addition, we found a negative impact of obesity on girls' mathematics scores, while boys experienced a positive impact. We identify several key drivers of these effects, including teacher bias, psychological well-being, time preferences, and expectations related to labor market discrimination. Our analysis sheds light on the multiple influences of childhood obesity on academic outcomes and highlights the need for targeted interventions.
The asymmetry puzzle: the supply chain disruptions news shocks effects on oil prices and inflation
(2024-02-29) Puch González, Luis Antonio; Guinea, Laurentiu; Ruiz, Jesús; Universidad Carlos III de Madrid. Departamento de Economía; Ministerio de Economía y Competitividad (España); European Commission
This paper investigates the asymmetrical effects of supply chain disruptions on oil prices and inflation. To this purpose, we identify anticipated (news) shocks associated to the global supply chain. Then we estimate the effects of these shocks on oil prices and inflation in the US. We allow 'escalating' (restrictive) and 'deescalating' (expansionary) supply chain news shocks tohave differing effect sizes. Our empirical findings reveal that anticipated supply chain disruptions exert a substantial and statistically significant influence on both oil prices and inflation. We uncover a significant asymmetry in these effects: 'escalating news' shocks exhibit a markedly stronger and more persistent impact compared to 'deescalating news' shocks. Consequently, the oil price is less sensitive to an alleviation of supply chain strain than to an exacerbation. Our results can be rationalized by a small open economy model which is used to assess the validity of our empirical approach. Furthermore, we demonstrate that the mechanisms governing thetransmission of supply chain news shocks in the model align closely with observed empirical patterns. Failing to account for this asymmetry could lead to misjudgments regarding the repercussions of supply chain pressures.
Global, Arctic, and Antarctic sea ice volume predictions: using score-driven threshold climate models
(2024-01-25) Blazsek, Szabolcs Istvan; Escribano, Álvaro; Kristof, Erzsebet; Universidad Carlos III de Madrid. Departamento de Economía; Comunidad de Madrid; Agencia Estatal de Investigación (España)
The literature on sea ice predictions uses a variety of general circulation models (GCMs), which suggest diverse predictions of the date of ice-free or almost ice-free oceans, and focus mainly on the Arctic. According to the same literature, GCMs are not sensitive enough to tipping points in the Atlantic meridional overturning circulation (AMOC), and they underestimate the sensitivity of Arctic sea ice to carbon emissions. In this paper, we use a novel time series model, named the score-driven threshold climate (SDTC) model, and we report global, Arctic, and Antarctic sea ice predictions. For the SDTC model, the estimations are computationally less demanding than those of the GCMs. We combine long-run 1,000-year frequency climate data from 798,000 to 1,000 years ago, and short-run annual data from year 850 to year 2014. We present the evolution of long-run and short-run climate data with descriptive statistics. We estimate the SDTC model using annual data from 850 to 2014 for Arctic and Antarctic sea ice volume Ice𝑡 and Antarctic land surface temperature Temp𝑡 . We use the atmospheric CO2,𝑡 concentration as a clustering variable to define periods of climate change. We report in-sample interval forecasts of global, Arctic, and Antarctic sea ice from 1980 to 2014. Observed global and Arctic sea ice volumes are below the forecasted interval from 2003. Observed Antarctic sea ice volume is below the forecasted interval from 2011. We report out-of-sample interval forecasts of sea ice from 2015 to 2314. The out-of-sample forecasts, 𝜇[𝜇 ± 2𝜎], indicate that if the current trend of climate change continues, then Arctic sea ice will disappear around 2058[2049, 2068], and global and Antarctic sea ice will disappear around 2174[2123, 2270].
General equilibrium, welfare and policy when firms have market power
(2024-01-25) Moreno, Diego; Petrakis, Emmanuel; Universidad Carlos III de Madrid. Departamento de Economía; Agencia Estatal de Investigación (España)
We consider a simple private goods market economy and show that when firms have market power the equilibrium real wage, employment, real output, and labor share are less than under perfect competition. Contrary to common wisdom market concentration may have non-monotonic general equilibrium effects: the equilibrium allocation of a monopolistic economy may Pareto dominate that of an oligopolistic economy. Corporate taxes provide an appropriate instrument to pursue distributional objectives since, unlike taxes on labor income, they do not create additional deadweight losses. An appropriate minimum real wage improves efficiency and increases the labor share in a monopolistic economy, whereas in an oligopolistic economy its efficiency effects are uncertain due the existence of multiple equilibria.
Hidden costs of ban the box laws: unraveling the effects on drug-related deaths
(2023-12-12) Cheipesh, Oleksandra; Universidad Carlos III de Madrid. Departamento de Economía
Drawing on data from the National Vital Statistics System (NVSS), this study investigates the impact of Ban the Box (BTB) laws on drug-related mortality. Two years after adoption, BTB laws are associated with more than a 35 percent increase in drug-related mortality among Black and Hispanic men. The main mechanism driving this increase appears to be diminished labor opportunities. Consistent with the results of previous studies, I find evidence that BTB adoption reduces wages, the probability of employment, and the probability of full-time employment among Black and Hispanic men. This is the first study to provide evidence that BTB laws have negative spillover effects on drug-related fatalities.
Trends in temperature data: micro-foundations of their nature
(2023-12-05) Gadea Rivas, María Dolores; Gonzalo, Jesús; Ramos, Andrey; Universidad Carlos III de Madrid. Departamento de Economía
Determining whether Global Average Temperature (GAT) is an integrated process of order 1, I(1), or is a stationary process around a trend function is crucial for detection, attribution, impact and forecasting studies of climate change. In this paper, we investigate the nature of trends in GAT building on the analysis of individual temperature grids. Our 'micro-founded' evidence suggests that GAT is stationary around a non-linear deterministic trend in the form of a linear function with a one-period structural break. This break can beattributed to a combination of individual grid breaks and the standard aggregation method under acceleration in global warming. We illustrate our findings using simulations.
An ergodic theory of sovereign default
(2022-12-05) Pierri, Damian Rene; Seoane, Hernán; Universidad Carlos III de Madrid. Departamento de Economía; Comunidad de Madrid; Ministerio de Asuntos Económicos y Transformación Digital (España)
We present the conditions under which the dynamics of a sovereign default model of private external debt are stationary, ergodic and globally stable. As our results are constructive, the model can be used for the accurate computation of global long run stylized facts. We show that default can be used to derive a stable unconditional distribution (i.e., a stable stochastic steady state), one for each possible event, which in turn allows us to characterize globally positive probability paths. We show that the stable and the ergodic distribution are actually the same object. We found that there are 3 type of paths: non-sustainable and sustainable; among this last category trajectories can be either stable or unstable. In the absence of default, non-sustainable and unstable paths generate explosive trajectories for debt. By deriving the notion of stable state space, we show that the government can use the default of private external debt as a stabilization policy.
Optimal contracts when the players think different
(2023-10-03) Dumav, Martin; Khan, Urmee; Rigotti, Luca; Universidad Carlos III. Departamento de Economía
In a moral hazard model with heterogeneous beliefs, we show that the efficient risksharing contract does not result in a constant wage and the optimal first-best contract may not be increasing in output. When actions are unobservable, heterogeneity in beliefs implies that the monotone likelihood ratio ranking does not ensure that the wage scheme in the optimal contract is non-decreasing in output. This is because differences in beliefs may affect the incentive provision in a non-monotone way. The standard monotonicity result with common beliefs extends to belief heterogeneity when the agent is more optimistic than the principal. Yet, in the reverse case, the optimal contract can be non-monotone.
Monetary trends in the UK and the USA from 1874 to 2020: a nonlinear approach to money demand
(2023-07-20) Escribano, Álvaro; Rodriguez, Juan Andrés; Universidad Carlos III. Departamento de Economía; Comunidad de Madrid; Ministerio de Economía y Competitividad (España); Ministerio de Ciencia e Innovación (España)
Since the influential works of Friedman and Schwartz (1963, 1982) on the monetary history of the United States of America and the United Kingdom from 1876 to 1975, there has been a great concern in the literature about the instability of money demand functions when monetary trends are explored historically. Several authors, at the end of the 1980s and during the 1990s, reconsidered their statistical approach based on the distinction between money demand in the long-run (cointegration) and money demand in the short-run (error-correction models). Recently, using M1 as the measure of money, Benati, Lucas, Nicolini and Weber (2021) have shown, for a shorter and more recent period of time, that there are stable long-run money demands for a long list of countries. However, to date there are no studies on whether a stable long-run and short-run money demand equations exists for the entire monetary history of the US and the UK. By means of a nonlinear cointegration and a nonlinear error-correction approach, this paper goes beyond the work of its predecessors and presents evidence of a well-specified, long-run and short-run money demands of real broad monetary balances in these two countries from 1874 to 2020. The estimated cubic-polynomial cointegrations (US and UK) for the long-run money demand specification, and the linear (US) and cubic equilibrium correction (UK) for the short-run money demands, are shown to be stable based on an appropriate measure of the opportunity cost of holding money.
Energy News Shocks and their Propagation to Renewable and Fossil Fuels Use
(2023-05-24) Guinea, Laurentiu; Puch, Luis A.; Ruiz, Jesús; Universidad Carlos III. Departamento de Economía
This paper investigates the impact of anticipated (news) shocks on renewable and fossil energy use on the US economy. Using structural vector autoregressions (SVARs), we identify the news shocks captured in energy stock market indexes. Our findings show that renewable and fossil energy news shocks significantly affect economic activity, revealing the tensions between the traditional fossil fuel-based industries and the emerging green technology-based ones. We further identify news shocks on Economic Policy Uncertainty (EPU) index, as policy is a key factor driving the changes in the energy mix. First, we show that the identified anticipated shocks have very different propagation mechanisms from traditional surprise shocks. Then, we find that the combination of news shocks to energy stock prices and economic policy uncertainty jointly account for about 90% of the variability of output, job openings and house prices. To interpret our findings, we use a DSGE model that incorporates fossil and renewable energy sectors and news shocks as a driving force, and we show that the propagation mechanisms of news shocks in the model are consistent with our empirical observations. Our study illustrates on the critical interaction between energy news and economic policy uncertainty in affecting the real economy in the transition from dirty to clean energy technologies.
Breaking the marriage trap: unilateral divorce and its effects on labor supply of married women
(2023-04-20) Alonso-Borrego, César; Pomares Varo, Gema; Universidad Carlos III de Madrid. Departamento de Economía; Comunidad de Madrid
We assess the impact of the 2005 divorce law reform in Spain, which reduced the time length and the costs of marriage termination, on the labor market outcomes of married women. We use independent cross sections of the Spanish Labor Force Survey between 2001 and 2009. As the reform affected married couples but not unmarried couples, we undertake a differences-in-differences approach to estimate the causal effect. Our results show that the reform substantially increased the participation and the occupation rates of married women by 4 and 3 percentage points, respectively, but reduced their average working hours by 5 percent. This latter result comes along with a large increase in part time employment due to the reform. The effects weremore pronounced for women without young children, with low education levels, and living in provinces where separate property was the default marital regime.
Estimation of characteristics-based quantile factor models
(2023-04-14) Chen, Liang; Dolado, Juan José; Gonzalo, Jesús; Pan, Haozi; Universidad Carlos III. Departamento de Economía
This paper studies the estimation of characteristic-based quantile factor models where the factor loadings are unknown functions of observed individual characteristics while the idiosyncratic error terms are subject to conditional quantile restrictions. We propose a three-stage estimation procedure that is easily implementable in practice and has nice properties. The convergence rates, the limiting distributions of the estimated factors and loading functions, and a consistent selection criterion for the number of factors at each quantile are derived under general conditions. The proposedestimation methodology is shown to work satisfactorily when: (i) the idiosyncratic errors have heavy tails, (ii) the time dimension of the panel dataset is not large, and (iii) the number of factors exceeds the number of characteristics. Finite sample simulations and an empirical application aimed at estimating the loading functions of the daily returns of a large panel of S&P500 index securities help illustrate these properties.
Asymmetric effects of financial volatility and volatility-of-volatility shocks on the energy mix
(2023-03-17) Guinea, Laurentiu; Pérez, Rafaela; Ruiz, Jesús; Universidad Carlos III. Departamento de Economía; Ministerio de Economía y Competitividad (España)
We examine the asymmetric effects of financial instability shocks and their volatility on the conventional and renewable energy mix. We utilize Chicago Board Options Exchange (CBOE) Volatility Index (VIX) and the Volatility-of-Volatility index (vVIX) in a nonlinear autoregressive distributed lag (NARDL) model to examine the short- and long-term asymmetry effects across energy mix in Europe, the US, and China. Furthermore, we examine the dynamic long-run asymmetry of financial instability shocks on the energy sector and how this relationship evolves over time. Our estimation indicate that the long-term effects over the energy mix are more significant than their short-term effects. The study found that the responses to the volatility of financial instability, vVIX, are different from the responses to financial instability itself, VIX. The impact is more noticeable on changes in the vVIX than on VIX. In the US, there is a higher inclination to adopt renewable energy during periods of lower volatility, whereas Europe tends to rely on natural gas when financial instability is high but decreases its use when volatility is low. China shows symmetrical responses for gas, oil, and coal but has asymmetrical responses for renewable energy, with a negative response to high financial stability and also negative response to high uncertainty volatility. Regarding dynamic asymmetry, we notice that for oil, the long-run asymmetry is similar in both Europe and the US, with the US showing a high level of stability. Similarly, coal demonstrates high stability in both Europe and the US, while China experienced a period of instability from 2017 to 2020. Moreover, in Europe, the stable periods for gas coincide with the unstable ones in the US. However, for renewable sources, the instability periods coincide for Europe and US, but China exhibits high stability in this regard.
Heterogeneous Predictive Association of CO2 with Global Warming
(2023-02-02) Chen, Liang; Dolado, Juan José; Gonzalo, Jesús; Ramos Ramirez, Andrey David; Universidad Carlos III de Madrid. Departamento de Economía; Ministerio de Economía y Competitividad (España); Comunidad de Madrid
Global warming is a non-uniform process across space and time. This opens the door to a heterogeneous relationship between CO2 and temperature that needs to be analyzed going beyond the standard analysis based on mean temperature found in the literature. We revisit this topic through the lenses of a new class of factor models for high-dimensional paneldata, labeled Quantile Factor Models (QFM). This technique extracts quantile-dependent factors from the distributions of temperature across a wide range of stable weather stations in the Northern and Southern Hemispheres over 1959-2018. In particular, we test whether the (detrended) growth rate of CO2 concentrations help predict the underlying factors of the different quantiles of the distribution of (detrended) temperature in the time dimension. We document that predictive association is greater at the lower and medium quantiles thanat the upper quantiles and provide some conjectures about what could be behind this nonuniformity. These findings complement recent results in the literature documenting steeper trends in lower temperature levels than in other parts of the spatial distribution.
Immigration, wages, and employment under informal labor markets
(2022-09-09) Delgado Prieto, Lukas Andres; Universidad Carlos III de Madrid. Departamento de Economía
This paper studies the labor market impacts of Venezuelan immigrants in Colombia. Exploiting spatial variation in exposure, I find a negative effect on native wages driven by the informal sector (where immigrants are concentrated) and a reduction in native employment in the formal sector (where the minimum wage binds for many workers). To explain this asymmetry, I build a model in which firms substitute formal for informal labor in response to lower informal wages. Consistent with the model's predictions, I document that the increase in informality is driven by small firms that use both labor types in production.
Housing prices and credit constraints in competitive search
(2022-07-26) Díaz, Antonia; Jerez, Belén; Rincón-Zapatero, Juan Pablo; Universidad Carlos III de Madrid. Departamento de Economía; Ministerio de Economía y Competitividad (España); Comunidad de Madrid
This paper shows that, when utility is imperfectly transferable and the search process is competitive (or directed), wealthier buyers pay higher prices to speed up transactions. This result is established in a dynamic model of the housing market where households save both to smooth consumption and to build a down payment. "Block recursivity" is ensured by the existence of risk-neutral housing intermediaries. The calibrated version of our benchmark economy features greater indebtedness and higher housing prices in the long run compared to aWalrasian model, especially when the elasticity of new housing supply is low. We also show that the long-run effect of greater credit availability on housing prices depends crucially on whether or not rental and real estate housing stocks are segmented. Under full segmentation, price effects are much larger, with and without search frictions. But, even if there is no segmentation, these effects are substantial in our search model when supply elasticity is low, being larger than in the Walrasian version of the model. The last result is reversed with full segmentation, when search frictions dampen the price effect of the credit expansion.
Climate change heterogeneity: a new quantitative approach
(2022-07-12) Gadea Rivas, Marta Dolores; Gonzalo, Jesús; Universidad Carlos III de Madrid. Departamento de Economía; Ministerio de Ciencia y Tecnología (España); Agencia Estatal de Investigación (España); Fondo Europeo de Desarrollo Regional
Climate change is a non-uniform phenomenon. This paper proposes a newquantitative methodology to characterize, measure and test the existence ofclimate change heterogeneity. It consists of three steps. First, we introduce anew testable warming typology based on the evolution of the trend of the whole temperature distribution and not only on the average. Second, we define the concepts of warming acceleration and warming amplification in a testable format. And third, we introduce the new testable concept of warming dominance to determine whether region A is suffering a worse warming process than region B. Applying this three-step methodology, we find that Spain and the Globe experience a clear distributional warming process (beyond the standard average) but of different types. In both cases, this process is accelerating over time and asymmetrically amplified. Overall, warming in Spain dominates the Globe in all the quantiles except the lower tail of the global temperature distribution that corresponds to the Artic region. Our climate change heterogeneity results open the door to the need for a non-uniform causal-effect climate analysis that goes beyond the standard causality in mean as well as for a more efficient design of the mitigation-adaptation policies. In particular, the heterogeneity we find suggests that these policies should contain a common global component and a clear local-regional element. Future climate agreements should take the whole temperature distribution into account.
Asymmetric Information with multiple risks: the case of the Chilean Private Health Insurance Market
(2022-07-12) De La Mata, Dolores; Machado, Matilde P.; Olivella, Pau; Valdés, Maria Nieves; Universidad Carlos III de Madrid. Departamento de Economía
We extend Rothshild and Stiglitz (1976) model to two sources of risk to better proxy real-world health insurance markets. This extension produces an interesting theoretical possibility: Take individuals A and B, who are low risks in one dimension but A is riskier in the other dimension. Then, A may enjoy less coverage than B in the former dimension (coverage reversal). The existence of this reversal determines which individuals are more likely to suffer adverse selection. We adapt Chiappori and Salanié (2000) positive correlation test to account for this multi-dimensionality and apply it to individual-level claims data for the privately insured in Chile.
News-driven housing booms: Spain vs. Germany
(2022-07-08) Guinea, Laurentiu; Puch, Luis A.; Ruiz, Jesús; Ministerio de Economía y Competitividad (España)
We investigate how the economy responds to anticipated (news) shocks to future investment decisions. Using structural vector autoregressions (SVARs), we show that news about the future relative price of residential investment explains a high fraction of the variance of output, aggregate investment and residential investment for Spain. In contrast, for Germany it is the news shocks on business structures and equipment that explain a higher fraction of the variance of output, consumption and non-residential investment. We confront the identified shock with other shocks to provide evidence that our structural interpretation is valid. Then, to interpret our empirical findings, we propose a stylized two-sector model of the willingness to substitute current consumption for future investment in housing, structures or equipment. The model combines a wealth effect driven by the expectation of rising house prices, with a reduced-form friction in labor reallocation. We find that the model calibrated for Spain displays a response to anticipated house price shocks that stimulate residential investment, whereas for Germany those shocks enhance investment in equipment and structures. The results highlight the propagation mechanism of anticipated shocks to future investment, which is consistent with the housing booms in Spain and their absence in Germany. Such a mechanism complements a view relying on a combination of monetary, financial or housing supply and demand, surprise shocks.
Existence and uniqueness of solutions to the Bellman equation in stochastic dynamic programming
(2022-06-29) Rincón-Zapatero, Juan Pablo; Universidad Carlos III de Madrid. Departamento de Economía
In this paper we develop a general framework to analyze stochastic dynamic optimization problems in discrete time. We obtain new results of the existence and uniqueness of solutions to the Bellman equation through a general xed point theorem that generalizes known results for Banach contractions and local contractions. We study an endogenous growth model as well as the Lucas asset pricing model in an exchange economy, signicantly expanding their range of applicability.

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