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  • Publication
    Revealing information &- or not &- in a social network of traders
    (2024-06-10) Allmis, Patrick; Pin, Paolo; Vega-Redondo, Fernando; Universidad Carlos III. Departamento de Economía; Comunidad de Madrid; Ministerio de Ciencia y Universidades (España)
    We propose a simple micro-founded model of trading with ex-ante asymmetric information similar to one proposed by Kyle (1985) in which the equilibrium price is fully revealing under rational expectations. We analyze under which conditions a privately informed trader may want to share her information with other traders for free. Despite the strictly competitive setupand conventional wisdom, we show that there is a unique separating equilibrium in which the informed trader reveals some signals and conceals others. A consequence of this is that the price need not be fully revealing of the aggregate information in the market (even if traders are risk neutral), which in turn has welfare implications on the distribution of the social surplusat equilibrium. We establish these results for a context where the pattern of communication among traders is restricted by a given social network, studying as well what network arises when links are established endogenously.
  • Publication
    Social Networks and Collective Action in Large Populations: An application to the Egyptian Arab Spring
    (2024-06-06) Deer, Lachlan; Hsieh, Chih-Sheng; König, Michael D.; Vega-Redondo, Fernando; Universidad Carlos III. Departamento de Economía; Comunidad de Madrid; Ministerio de Ciencia y Universidades (España)
    We study a dynamic model of collective action in which agents are connected by a social network. Our approach highlights the importance of communication in this problem and conceives that network &- which is continuously evolving &- as providing the channel through which agents not only interact but also communicate. We consider two alternative scenarios that differ only on how agents form their expectations: while in the "benchmark" context agents are completely informed, in the alternative one their expectations are formed through a combination of local observation and sociallearning à la DeGroot. We completely characterize the long-run behavior of the system in both cases and show that only in the latter scenario (arguably the most realistic) there is a significant long-run probability that agents eventually achieve collective action within a meaningful time scale. We suggest that this sheds light on the puzzle of how large populations can coordinate on globallydesired outcomes. Finally, we illustrate the empirical potential of the model by showing that it can be efficiently estimated for the Egyptian Arab Spring using large-scale cross-sectional data from Twitter. This estimation exercise also suggests that, in this instance, network-based social learning played a leading role in the process underlying collective action.
  • Publication
    Networking entrepreneurs
    (2024-06-06) Vega-Redondo, Fernando; Pin, Paolo; Ubfal, Diego; Benedetti, Priscilla; Domínguez, Magdalena; Rubera, Gaia; Hovy, Dirk; Fornaciari, Tommaso; Universidad Carlos III. Departamento de Economía; Comunidad de Madrid; Ministerio de Ciencia y Universidades (España)
    Can peer interaction foster entrepreneurship in large-scale environments? This paper addresses the question empirically and theoretically. Empirically, we tested the effects of peer interaction on the number and quality of business plans submitted in a Pan-African RCT including 5,000 entrepreneurs. Thetreatment provided the possibility of interaction in different interaction settings (face-to-face or virtual, peers being of the same or diverse nationalities). We find that, while estimated network effects are almost always strong, the treatment effect is not so and displays a non-monotone trade-off between diversity and interaction "bandwidth." We develop a model that sheds light on this behavior by differentiating between constructive and disruptive interaction. It is also qualitatively supported by our experimental evidence
  • Publication
    Production and Financial Networks in Interplay: Crisis Evidence from Supplier-Customer and Credit Registers
    (2024-06-06) Huremovic, Kenan; Jiménez, Gabriel; Moral Benito, Enrique; Peydró, José-Luis; Vega-Redondo, Fernando; Universidad Carlos III. Departamento de Economía; Comunidad de Madrid; Ministerio de Economía y Competitividad (España)
    We show that bank credit shocks to firms propagate upstream and downstream along the production network, with stronger effects for upstream than downstream propagation. Our identification strategy relies on: (i) administrative datasets from Spain on supplier-customer transactions and bank loans; (ii) a standard operationalization of bank credit-supply shocks during the Global Financial Crisis; and (iii) a general equilibrium model of an interfirm production network economy with financial frictions that is structurally estimated. Our results indicate that the network propagation leads to a 50% increase in the aggregate effects of bank credit supply shocks on GDP growth, with equally important first-order versus higher-order network effects.
  • Publication
    Learning Trade Opportunities through Production Network
    (2024-06-06) Huremovic, Kenan; Nurarelli, Federico; Serti, Francesco; Vega-Redondo, Fernando ; Universidad Carlos III. Departamento de Economía; Comunidad de Madrid; Agencia Estatal de Investigación (España)
    Using data on the Spanish firm-level production network we show that firmslearn about international trade opportunities and related business know-how from their production network peers. Our identification strategy leverages the panel structure of the data, import origin variation, and network structure. We find evidence of both upstream and downstream network effects, even after accounting for sectoral and geographical spillovers. Larger firms are better at absorbing valuable information but worse at disseminating it. Connections with geographically distant firms provide more useful information to start importing.
  • Publication
    Common Ownership in Production Networks
    (2024-06-06) Bizzarri, Matteo; Vega-Redondo, Fernando; Universidad Carlos III. Departamento de Economía; Comunidad de Madrid; Agencia Estatal de Investigación (España)
    We characterize the firm-level welfare effects of a small change in ownership overlap, and how it depends on the position in the production network.In our model, firms compete in prices, internalizing how their decisions affect the firms lying downstream as well as those that have common share-holders. While in a horizontal economy the common-ownership effects onequilibrium prices depend on firm markups alone, in the more general casedisplaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative questionof what are the welfare implications of affecting the ownership structure,we show that, if costs of adjusting it are large, the optimal intervention isproportional to the Bonacich centrality of each firm in the weighted networkquantifying interfirm price-mediated externalities. Finally, we also explainthat the parameters of the model can be identified from typically availabledata, hence rendering our model amenable to empirical analysis.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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].
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.
  • Publication
    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.