Research

Monetary and Macroeconomics

Despite decades of research exploring the relationship between the economy and crime, there is a lack of clarity in this work.  Questions remain, particularly with respect to how the economy is measured and whether the relationship between the economy and crime is the same across contexts. The literature to date has overlooked what is called the “shadow” economy, which represents the unreported economic activity. We examine the relationship between traditional measures of the legitimate economy (e.g., unemployment) and crime as well as whether estimates of the shadow economy moderates this relationship for each US state from 1997 to 2008. Our results show that the shadow economy reduces the strength of the relationship between the legitimate economy and crime, and the effect of the economy on crime is conditional on the level of the shadow economy.

We add households with heterogeneous discount factors and constrained credit to a research and development (R&D)-based endogenous growth model. Borrowers' access to credit has profound implications for growth. The direction and magnitude of this effect depend on preferences over labor supply. If labor supply is highly elastic and households do not smooth their labor supply between labor that produces output and R&D, annual growth decreases from 11.6% to approximately zero as the debt-to-capital ratio rises from 0 to 1.38. If households instead have a strong preference for smoothing their labor supply, then growth increases from 2.91% to 3.83% as the debt-to-capital ratio rises from 0 to 1.55. In both cases, less elastic labor supply weakens these effects. The results are similar if existing ideas do not affect the creation of new ideas. Now, when households do not smooth their labor supply, less debt results in faster growth, and productivity and output converge to much higher values.

Online Appendix - Shadow Economy Measure by State from 1999 to 2019

We use a two-sector dynamic deterministic general equilibrium model that specifically accounts for trends among time-series variables to estimate the size of the shadow economy for the 50 U.S. states from 1999 to 2019, following Solis-Garcia and Xie (2018, 2022). This paper improves on existing measures of the state-level shadow economy (such as the multiple indicators, multiple causes (MIMIC) methodology by Wiseman (2013). In particular, this new measure is based on theoretical foundations, extends the previous measure to include the Great Recession, includes dollar value estimates of the shadow economy, and produces considerably more variation over time and across states. Furthermore, we explore determinants of this new shadow economy measure using a panel vector autoregressive model and find that, on average, states with higher levels of economic freedom, lower regulatory barriers, and larger real GDP have smaller shadow economies. States with bigger governments, on average, have larger shadow economies, and the effect of corruption on shadow economic activity is non-linear, with a positive initial and subsequent negative impact.

This paper examines credit market imperfections in a New Keynesian model with housing. Unlike in the related literature, households may default on their debt if housing prices are sufficiently low, potentially resulting in a temporary loss of access to credit or housing markets. Default has three opposing effects on borrowers. First, the loss of access to housing markets provides borrowers with an incentive to substitute toward consumption. Second, default transfers wealth from lenders to borrowers. Third, the loss of access to credit markets prevents borrowers from smoothing their consumption, resulting in decreased consumption. We use adaptive learning to solve the model and find that borrowers respond to default by increasing their consumption. However both aggregate and lenders’ consumption decrease in the default state. In addition, default distorts the housing market, which causes a large amplification of the decline in housing prices that initially caused default. We thus conclude that mortgage default is not simply an effect of economic downturns, but that it is a causal factor as well. 

This paper investigates the impact of natural disasters on household debt. Some researchers find that following natural disasters, borrowing and delinquency rates increase modestly in the short run. Although, little consensus has emerged on the sensitivity of these results to disaster severity and type or whether these shocks generate persistent changes in total household debt. Using U.S. county-level evidence from the Spatial Hazards Events and Losses Database and the New York Federal Reserve Bank Consumer Credit Panel from 1999 to 2011, we estimate the persistence of disaster shocks on household debt per capita. Our results suggest that, consistent with previous literature, the relationship between natural disasters and debt is conditional on disaster severity and type. Specifically, we find that super severe disasters produce contemporaneous decreases of between 1% and 3% and only these super severe disasters generate any lasting reductions in household debt per capita. In addition, we decompose these aggregate changes in per capita debt across different categories of debt (mortgage, auto, and credit card) and explore how these decomposed estimates vary across three of the most damaging types of disasters (hurricanes, tornadoes, and hail storms). We find that these impacts vary considerably and posit this heterogeneity depends on the availability, and use of, disaster relief and insurance payments.

This paper augments the traditional New Keynesian model with housing, two credit constraints and long-term debt in order to examine the interaction between multi-period loans, leverage and indeterminacy. Allowing firms to borrowing heavily against commercial housing by increasing the loan-to-value ratio from 0.01 to 0.90 reduces the level of steady state output approximately 3.19% and decreases social welfare. In contrast, in- creasing the debt limit of households increases steady state output 2.72%. Social welfare is maximized under a utilitiarian function when households can borrow at a loan-to-value ratio of about 0.49. An economy with long-term debt also makes stabilization much more difficult for monetary policymakers because determinacy is harder to attain. Instead of only having to satisfy the Taylor Principle (which implies that a more than one-to-one response to inflation is sufficient to achieve determinacy), central bankers must either use a strict inflation target or aggressive response to inflation and the output gap to ensure determinacy.

This paper investigates the impact of the home mortgage interest deduction (HMID) on economic growth. The U.S. tax system incentivizes home purchases through three mechanisms: non-taxation of imputed rental income, special treatment of capital gains from home sales, and the HMID. The focus of this paper is to determine whether or not certain features of the tax system in the United States, in particular the HMID, result in inefficient overinvestment in housing and consequently lower economic growth. Theoretically, the after-tax price of real estate investment is distorted by the HMID relative to other types of capital. The impact of overinvestment in housing is hypothesized to be lower subsequent economic growth.

Public Economics 

This paper extends the current literature by considering existence of the flypaper effect internationally, with donor countries supplying foreign aid to recipient countries. The flypaper effect refers to the empirical anomaly associated with intergovernmental grants stimulating government expenditures more than can be explained by a pure income effect. The results reveal evidence of flypaper behavior such that for recipient countries one dollar of foreign aid raises public spending by $0.21-$0.42, whereas an equal increase in domestic income raises government expenditures by only $0.09-$0.16. Furthermore, we exploit variation in political institutions across countries and find that the flypaper effect is most pronounced in less democratic countries and find no flypaper effect in more democratic countries. This suggests that government officials are more likely to behave as expected by the median voter model when they are held accountable. Furthermore, countries with proportional, rather than majority/plurality, voting mechanisms do not display flypaper behavior.

Behavioral Economics

This paper evaluates the impact of loss aversion as a behavioral motivator on students' classroom performance, merging the behavioral economics and the educational incentives literature. The authors conducted an experiment with undergraduate students at the University of Kentucky, where student grades were framed in two different ways. In the treatment sections, the final course grade was framed as a loss, so that students began the semester with full marks and as the course progressed they lost points for less than perfect exam, quiz, and project scores. In contrast, in the control sections a traditional grading scheme was implemented whereby students began the course with zero points and earned points throughout the semester as assignments were completed. We find that, at conventional significance levels, an individual in the treatment class did not have a statistically different final grade than an individual in the control class. However, we uncovered a heterogeneous gender effect. Males in the treatment class score between 2.88 and 4.19 percentage points higher on the final grade than males in the control class, ceteris paribus. Conversely, females in the treatment class score between 3.30 and 4.33 percentage points lower on the final grade than females in the control class.

We examine the potential for increased student learning and retention through more frequent assignments. We conduct a field experiment that investigates whether student knowledge retention can be improved by increasing the frequency of homework assignments, motivating students to have more exposure to the material, and reducing the incentives for students to procrastinate. We find that the impact of the treatment on student performance varies based on the student’s past academic performance. Students on the lower end of the academic performance distribution benefit from the structure imposed by more frequent assignments and perform better. However, students with high prior academic performance are harmed by the intervention. The final exam scores of high-performing students are lower in courses with higher assignment frequency.  

Economics Education

This paper describes an empirical research project in an upper-level undergraduate economics writing-in-the-discipline course that aims to reduce the high fixed costs associated with designing an empirical research project assignment and to encourage more undergraduate economics research. This project has a dual-purpose: to teach students economics discipline-specific writing conventions and reproducible empirical research methods. We present a sequenced project design and a replication documentation protocol and posit that requiring students to produce this comprehensive documentation promotes student learning and leads to improvements in organization and coherence throughout the entire research and writing process. Through effective writing, data management, and empirical analysis students learn to do econometrics. The project learning objectives, workflow, evaluation criterion, and replication protocol are outlined in detail, along with the pedagogical rationale for each component. 

In response to many higher-education institutions searching for methods to reduce or address gender bias in SET results, this study investigates gender bias in Standard Evaluations of Teaching. Specifically this bias is examined at varying timing throughout the semester.  Employing data from the classrooms of principles of economics instructors at multiple institutions, this paper analyzes whether students rate their male and female professors differently and whether that difference widens or shrinks at certain times of the semester. Three evaluations assess student’s first impressions, impressions immediately after exam one is returned, and final impressions. Preliminary results indicate that no overt sexism is present in today’s students at the outset, yet statistically significant bias again female emerges after the first exam grade is returned. By establishing when gender bias is greatest and when it is most diminished, universities and colleges will have practical means of decreasing gender bias in the hiring, evaluation, and tenure and promotion of female academics.

The authors of this article examine trends in the economics discipline regarding the classification of some undergraduate economics majors, i.e., econometrics and quantitative economics degrees, as STEM. According to the Integrated Postsecondary Education Data System (IPEDS), the number of institutions conferring undergraduate econometrics and quantitative economics (STEM-eligible) degrees rose from 25 in 2012 to 71 in 2018, with total degrees conferred increasing 12-fold. By 2018, STEM-eligible economics degrees comprised 13.2 percent of all undergraduate economics degrees conferred, up from just 1.2 percent in 2012. This brief note outlines trends in undergraduate economics majors regarding STEM and non-STEM degree distinctions and discusses potential motivations for these changes.

From 2012 to 2019, the proportion of undergraduate economics degrees conferred annually denoted as “Econometrics and Quantitative Economics” (STEM-eligible) increased from 1% to 22%. We present results from a survey of the 73 institutions conferring at least one STEM-eligible economics degree in 2017 or 2018. We find that most institutions (59%) offer both traditional and STEM-eligible degrees and report needing departmental, college/university committee, and provost/dean approval to (re-)classify. The main motivation for this change is maintaining consistency with an increasingly quantitative discipline (73%). The significant differences in requirements between STEM-eligible and traditional economics degrees are the proportion requiring single variable calculus (91% vs 69%), multivariable calculus (70% vs 31%), linear algebra (48% vs 21%), basic econometrics (96% vs 77%), and advanced econometrics (48% vs 8%).

We describe an undergraduate economics elective focused on the Great Recession and the recession resulting from the Covid-19 pandemic. We have taught the course with great success at both liberal arts colleges and research universities, and at all levels of the curriculum ranging from a first-year seminar to an upper-level elective. This paper offers a roadmap for instructors interested in offering the class. Although we assume intermediate macroeconomics as a prerequisite, we discuss how we have adapted the class for students with different backgrounds. The course is divided into seven units: the housing bubble and asset pricing, housing policy and history, propagation and panic, monetary policy, fiscal policy, aftermath and international perspectives, and the macroeconomics of Covid-19. We provide both sample assignments and readings.

Online Appendix - Taxonomy of Requirements

This paper describes the undergraduate economics curriculum for most of the 793 U.S. colleges and universities that conferred an economics bachelor’s degree in 2019. In addition to updating the prevalence of the core requirements of the economics major and how these differ by institution type, we record new information on the variation in requirements across economics degree types, as classified by the National Center for Education Statistics, including STEM-designated degree types. We also investigate the prevalence of calculus-based intermediate courses and find that 63% of economics degrees require calculus for intermediate microeconomics and macroeconomics. In addition, 67% of degrees require single-variable calculus, 10% require multi-variable calculus, and 54% require basic econometrics (up from 41% in 2010) and these requirements also vary highly by degree type. 

Economic education has emerged as an important subfield in economics over the last several decades.  This paper explores the author gender breakdown found in economic education journals compared to top-tier, general-interest economics journals and some field journals.  We find that from 2009 to 2019, the percentage of articles published by women in general-interest and selected field journals has remained relatively constant, while female publications in economic education journals have grown to match the percentage of women in the discipline.

Economics has become increasingly empirical and, alongside this shift, has come more demand for improved transparency and reproducibility in empirical economic research. In this paper, we distribute a survey to almost 1,500 economics faculty from the top 161 liberal arts colleges with an economics major (according to U.S. News & World Report) in the United States to determine the prevalence of teaching reproducible methods in undergraduate economics, summarize the most-common methods of instruction, and determine the intended student learning objectives. We find that of the economics faculty at liberal arts colleges who teach these reproducible methods, most do so in advanced upper-level (42%) and basic econometrics (31%) courses. Those faculty report teaching reproducibility using the following methods: transparent coding (85%), organizational skills (78%), and producing replication documentation (47%) through individual research projects (82%), homework assignments (55%), and/or workshops (33%). We conclude with some qualitative text analysis to shed light on the intended learning objectives and find that research skills (59%) and the importance of reproducibility (37%) are the most common reasons cited for teaching these methods. 

Sports Economics

Fan support is a critical component in establishing home court advantage across many sports. Whether the impact is on referee decision making or psychologically affecting opposing teams, fans influence the outcome of games. Due to varying degrees of local and state ordinances, the 2020-2021 college basketball season created the opportunity to explore the impact of home court advantage when fans were not allowed to attend some matches. We exploit differences in conference-level policies to measure the impact of fan attendance on home advantage before and then during the pandemic with attendance restrictions. Our results suggest that policies restricting attendance during the Covid-19 pandemic more strongly impacted the home advantage (measured by score differential) for teams that play in power conferences relative to those in mid-major and low-major conferences.