with S. Cattan, E. Fitzsimons, C. Meghir and M. Rubio-Codina (May 2017, NBER WP No.20965)
Abstract: We examine the channels through which a randomized early childhood intervention in Colombia led to significant gains in cognitive and socio-emotional skills among a sample of disadvantaged children aged 12 to 24 months at baseline. We estimate the determinants of material and time investments in these children and evaluate the impact of the treatment on such investments. We then estimate the production functions for cognitive and socio-emotional skills. The effects of the program can be explained by increases in parental investments, which have strong effects on outcomes and are complementary to both maternal skills and child’s baseline skills.
– Parental Beliefs and Investments in Human Capital
with Flavio Cunha and Pamela Jervis (available soon)
Abstract: We shed light on the importance of parental subjective beliefs in explaining the heterogeneity in parental choices of investments in the development of their children. Subjective beliefs about the production function of skills in early childhood development is crucial since parents may have biased beliefs about the returns to investments, which is crucial to pin down in designing policies aimed at remediating poor investments. To determinate the importance of parental subjective beliefs, we first show how to convert the answers to a specific set of questions into estimates of expected rates of returns on specific investment and then relate these estimates to actual parental behavior, then we formulate and estimate a model in which parents have subjective beliefs about the technology governing the formulation of skill in early childhood development, drawing on detailed and unique data for the identification other model from an early childhood intervention ran in Colombia, in which, home visitors paid weekly visits to randomly chosen households with the aim of promoting child cognitive and psychosocial development and improving mother-child interactions. The intervention targeted poor households with children aged 12 to 24 months at baseline and lasted 18 months.
with Costas Meghir and Emily Nix (June 2015, NBER WP No.21740)
Abstract: We study human development from the early years to adolescence by embedding a structural model within a measurement system for factor models. Our theoretical framework extends in several dimensions the approach taken by Cunha et al (2010). We use flexible functional form assumptions for the distribution of factors and use an instrumental variable approach to take into account the endogeneity of investment. Using data from three waves of two cohorts of Indian Children from the Young Lives Survey, we estimate the production function for two dimensions of human capital: cognition and health. The richness of the data and the fact that they cover children from the age of 1 until the age of 15 allows us to cover a very long and important interval, which has previously not been investigated in this fashion. We uncover important complementarities, so that the non-linearity of the production function is important. We also show that it is important to take into account the endogeneity of investment.
with R. Bernal, X. Peña and M. Vera-Hernandez
Abstract: Colombia’s national early childhood strategy launched in 2011 aimed at improving the quality of childcare services offered to socio-economically vulnerable children, and included transferring children from small non-parental family daycare units into large childcare centers in urban areas. This study seeks to understand the effects of this transition on children’s cognitive and socio-emotional development, as well as nutritional and health status, using a cluster-randomized control trial with a sample of 2,767 children between the ages of 6 and 60 months. The results point to improved height for age, a reduction in overweight children, and an increase in the incidence of diarrhea due to the transition. Apart from these, the transition did not have statistically significant effects on most developmental outcomes.
with Arthur Alik-Lagrange Costas Meghir, Sandra Polana-Reyes and Marcos Vera-Hernandez
Abstract: Workfare programs provide a low paid employment guarantee to individuals in selected public works. They are designed to self-select the poor and provide insurance against job losses by informal sector workers at the possible cost of crowding out private labor effort. We analyze the impact of a Colombian workfare program called Job in Action [Empleo en Accin] to shed light on the following issues: (1) whether the program crowds out labor effort by members of the household different from the participant in the particular context of a middle-income economy, (2) whether there are gains in household labor income, but also in consumption, which is important to assess the role of the program as an insurance mechanism and (3) whether there are some gains from participating in the program six months after the program has finished. Our results show no evidence of the program crowding out private labor effort by other household members. In addition, we find that the program had large positive transfer benefits, as the program increased individuals labor income and labor supply in large as well as small municipalities. There is a positive significant impact in small municipalities on consumption which is doubled when focusing only on food consumption. Finally, we do find that the program had a significant positive effect on individuals outcomes as well as on households monthly labor income per capita in small rural municipalities six months after the program ended. We shed light on the potential channels explaining this novel result in the literature on public work schemes.
with Peter Levell, Hamish Low and Virginia Sanchez-Marcos (New draft December 2017)
Abstract: There is a renewed interest in the size of labour supply elasticities and the discrepancy between micro and macro estimates. Recent contributions have stressed the distinction between changes in labour supply at the extensive and the intensive margin. In this paper, we stress the importance of individual heterogeneity and aggregation problems. At the intensive margins, simple specifications that seem to fit the data give rise to non-linear expressions that do not aggregate in a simple fashion. At the extensive margin, aggregate changes in participation are likely to depend on the cross sectional distribution of state variables when a shock hits and, therefore, are likely to be history dependent. We tackle these aggregation issues directly by specifying a life cycle model to explain female labour supply in the US and estimate its various components. We estimate the parameters of different component of the model. Our results indicate that (i) at the intensive margin, Marshallian and Hicksian elasticities are very heterogeneous and, on average, relatively large; (ii) Frisch elasticities are, as implied by the theory, even larger; (iii) aggregate labour supply elasticities seem to vary over the business cycle, being larger during recessions.
with Arlen Guarin, Carlos Medina and Costas Meghir (June 2015, forthcoming in American Economic Journal. Applied)
Abstract: We use experimental data on a training program implemented in 2005 in Colombia. We match the experimental survey data collected for evaluation purposes with administrative data and find that, up to ten years later, the JeA program had a positive and significant effect on the probability to work in the formal sector. Applicants in the treatment group also contributed more months to social security and were more likely to work for a large firm. Earnings of treated applicants were 11.8% higher in the whole sample, and they made larger contributions to social security. Consistently with the findings of the short term evaluation, we find that most of the impact on formal earnings is obtained through higher participation in the formal sector. We compute non-parametric bounds for the impact of the program on various percentiles of the earnings distribution and we find some suggestive evidence that for women the program might have also increased productivity. The evidence however is not precise enough to obtain significant lower bounds for these effects. Throughout the analysis we compute p-values corrected for multiple hypotheses testing. We also find that for the whole sample of applicants, those in the treatment group have 0.315 more years of education, and have a probability of graduating from high school 10 percent higher than the control group. We find no significant effect on the probability of attending college or any school program, nor on fertility decisions, marital status or some dimensions of assortative mating. Among applicants matching to the census of the poorest population, we find that beneficiaries are more likely to participate in the labor market, to be employed, and to be enrolled in a private health insurance at the time of the survey. Finally, we find that the benefits of the JeA program are higher than it costs, leading to an internal rate of return of at least 22.1 percent. On the whole, the program was a cost-effective alternative, worth to consider to bridging the transit of youths from the informal to the formal sector in the future.
with Ingvild Almas, Alex Armand and Pedro Carneiro (October 2015, forthcoming in the Economic Journal )
Abstract: This paper studies how targeted cash transfers to women affect their empowerment. We use a novel identification strategy to measure women’s willingness to pay to receive cash transfers instead of their partner receiving it. We apply this among women living in poor households in urban Macedonia. We match experimental data with a unique policy intervention (CCT) in Macedonia offering poor households cash transfers conditional on having their children attending secondary school. The program randomized whether the transfer was offered to household heads or mothers at municipality level, providing us with an exogenous source of variation in (offered) transfers. We show that women who were offered the transfer reveal a lower willingness to pay, and we show that this is in line with theoretical predictions.
with Elena Pastorino (November 2015)
Abstract: We propose a model of price discrimination that accounts for the nonlinearity of unit prices of basic food items in developing countries. We model consumers subsistence constraints and allow consumers to differ in their marginal willingness and absolute ability to pay for a good. We also incorporate outside options from purchasing a good that depend on consumers preferences for the good, like self-production or access to other markets. We obtain a simple characterization of optimal nonlinear pricing and show that nonlinear pricing leads to higher levels of consumption, lower marginal prices, and higher consumer surplus than implied by the standard nonlinear pricing model. We prove that a multiplicative utility version our model is nonparametrically identified under common assumptions, derive nonparametric and semi- parametric estimators of the models primitives, and develop a test that formally allows to distinguish between our model and the standard model. These estimators, as well as the test we propose, can be easily implemented using individual-level data commonly available for beneficiaries of conditional cash transfer programs in developing countries. We find that the model well accounts for the data and that at the estimated primitives, nonlinear pricing especially benefits consumers who purchase intermediate to large quantities compared to linear pricing. We show that failure to account for the endogeneity of prices in the presence of heterogeneous constraints among consumers can lead to an incorrect assessment of the impact of common policies, like cash transfers, that affect households ability to pay. When sellers have market power, such policies effectively increase sellers ability to price discriminate and may thus give rise to asymmetric price changes for low and high quantities demanded, thereby exacerbating the consumption distortions typically associated with nonlinear pricing. These results confirm the importance of incorporating our proposed extensions of the standard nonlinear pricing model to evaluate the distributional effects of nonlinear pricing.
with Alex Armand, Pedro Carneiro and Valerie Lechene
Abstract: This paper studies the differential effect of targeting cash transfers to men or women onthe structure of household expenditures on non-durables. We study a policy intervention in the Republic of Macedonia, offering cash transfers to poor households, conditional on having their children attending secondary school. The recipient of the transfer is randomized across municipalities, with payments targeted at either the mother or the father of the child. Using data collected to evaluate the conditional cash transfer program, we show that the gender of the recipient has an effect on the structure of expenditure shares. Targeting transfers to women increases the expenditure share on food by about 4 to 5 percentage points. This effect is driven by a shift in the relative income shares of women in municipalities where the payment is targeted at mothers. To study how targeting affect expenditures at different points of the income distribution, we estimate Engel curves for food and within the food basket. We find that targeting payments to mothers induces, for different food categories, not only an intercept shift, but also a change in the slope of the Engel curve.
with Britta Augsburg and Ralph de Haas
Abstract: In this paper, we study theoretically and empirically the demand for microfinance loans under different contract arrangements and different environments. In particular, we compare loans with joint liability to loans with group liability. With a simple theoretical model, we show that the demand for group liability loans can be larger than that for individual liability loans in an environment in which risk averse customers value the long run relationship with the microfinance institution. Joint liability loans might constitute a way to diversify risk. We also show that the demand for loans depend negatively on the riskness of the projects. Empirically, using data from a randomized controlled trial from Mongolia, we show that the predictions of the model hold true in the data. We use innovative data on subjective expectations about the riskness of projects and show that the subjective riskness of projects does affect negatively the demand for loans but the effect is muted in villages where group loans are available, confirming the insurance role of joint liability loans.
with Costas Meghir and Corina Mommaerts (March 2015, NBER WP No.21059)
Abstract: This paper analyzes the extent to which members of an extended family network insure each another against income shocks. We develop a model of intertemporal consumption that decomposes income shocks and insurance parameters into within-family and between-family components and generates a test of within-family partial insurance. To identify the model, we derive covariance restrictions between income and consumption across family members and over time. We use recent income and consumption panel data from the PSID and exploit the intergenerational structure of the data to estimate the parameters of the model.
with Andrea Bonfatti, Sagiri Kitao and Guglielmo Weber (March 2015)
Abstract: In this paper we study the effect of demographic transitions on the economy of Latin America and Caribbean (LAC). We build a model of multi- regions of the world and derive the path of macroeconomic variables including aggregate output, capital, labor and saving rate, as the economies face a rapid shift in the demographics. The timing and the extent of the demographic transition differ across regions. We simulate the model in both closed economy and open economy assumptions to quantify the roles played by the factor mobility across regions in shaping capital accumulation and equilibrium factor prices.
with Torben Nielen (May 2014)
Abstract: Using full-population register data from Denmark, this study shows that estimates of the economic gradient in mortality depends on the specific measure of economic resources used, where we investigate permanent income, annual income or financial and housing wealth. Our favorite measure is what we call ‘Permanent income’, that is the average level of income over a long interval. We find that when using annual income or current wealth, the gradient is overestimated, unless one controls for a number of additional variables, such as education, civil status and initial health. In the last part of the paper, we compare the results from Denmark to results from the UK. Although the countries are very different in terms of inequality, the estimates of the gradient we find are very similar, suggesting that differential levels of resources (including information), rather than inequality itself, determine the gradient in survival and mortality.
with Valérie Lechene (September 2010)
Abstract: We examine the effect of large cash transfers on the consumption of food by poor households in rural Mexico. The transfers represent 20% of household income on average, and yet, the budget share of food is unchanged following receipt of this money. This is an important puzzle to solve, particularly so in the context of a social welfare programme designed in part to improve nutrition of individuals in the poorest households. We estimate an Engel curve for food. We rule out price increases, changes in the quality of food consumed and homotheticity of preferences as explanations for this puzzle. We also show that food is a necessity, with a strong negative effect of income on the food budget share. The decrease in food budget share caused by the large increase in income is cancelled by some other relevant aspect of the programme so that the net effect is nil. We argue that the program has not changed preferences and that there is no labelling of money. We propose that the key to the puzzle resides in the fact that the transfer is put in the hands of women and that the change in control over household resources is what leads to the observed changes in behaviour.
with E. Paculak et al. (New Developments for Child & Adolescent Development, forthcoming)
with I.Almås, A. Armand and P. Carneiro (Economic Journal, forthcoming)
Abstract: This paper suggests, uses, and evaluates a novel identification strategy to measure power in the household. Our strategy is to elicit women’s willingness to pay to receive a cash transfer instead of their spouse receiving the same transfer. We selected participants from a sample of women who had already participated in a unique policy intervention in Macedonia offering poor households cash transfers conditional on having their children attending secondary school. The program randomized whether the cash transfers were offered to household heads (generally a male) or mothers, at municipality level. We show that women who were offered the transfer on average have stronger measured empowerment, and IV estimations confirm that targeted transfers empower women according to our measure. We further show that this elicitation is in line with theoretical predictions from standard models of household decision making.
with Britta Augsburg (Economic Development & Cultural Change, forthcoming)
Abstract: This paper revisits recent claims that poor households owning cattle in developing countries settings do not behave according to the tenets of capitalism. We point out that the discussion was based on evidence from one single year only, while cows and buffalos are assets whose return varies through time. In drought years, when fodder is scarce and more expensive, milk production is lower and profits are low. In nondrought years, when fodder is abundant and cheaper, milk production is higher and profits can be considerably higher. Therefore, the return on cows and buffalos, like that of many stocks traded on Wall Street, is positive in some years and negative in others. The fact that in a given year the observed return on a risky asset is negative could certainly not be used as a contradiction of one of the basic tenets of capitalism. We report evidence from 3 years of data on the return on cows and buffalos in the district of Anantapur and show that in one of the 3 years returns are very high, while in drought years they are predominantly negative.
with M.Rubio-Codina, C. Araujo, P. Muñoz and S. Grantham-McGregor (PLoS ONE, Vol. 11(8), August 2017)
Abstract: In low- and middle-income countries (LIMCs), measuring early childhood development (ECD) with standard tests in large scale surveys and evaluations of interventions is difficult and expensive. Multi-dimensional screeners and single-domain tests (‘short tests’) are frequently used as alternatives. However, their validity in these circumstances is unknown. We examined the feasibility, reliability, and concurrent validity of three multi-dimensional screeners (Ages and Stages Questionnaires (ASQ-3), Denver Developmental Screening Test (Denver-II), Battelle Developmental Inventory screener (BDI-2)) and two single-domain tests (MacArthur-Bates Short-Forms (SFI and SFII), WHO Motor Milestones (WHO-Motor)) in 1,311 children 6–42 months in Bogota, Colombia. The scores were compared with those on the Bayley Scales of Infant and Toddler Development (Bayley-III), taken as the ‘gold standard’. The Bayley-III was given at a center by psychologists; whereas the short tests were administered in the home by interviewers, as in a survey setting. Findings indicated good internal validity of all short tests except the ASQ-3. The BDI-2 took long to administer and was expensive, while the single-domain tests were quickest and cheapest and the Denver-II and ASQ-3 were intermediate. Concurrent validity of the multi-dimensional tests’ cognitive, language, and fine motor scales with the corresponding Bayley-III scale was low below 19 months. However, it increased with age, becoming moderate-to-high over 30 months. In contrast, gross motor scales’ concurrence was high under 19 months and then decreased. Of the single-domain tests, the WHO-Motor had high validity with gross motor under 16 months, and the SFI and SFII expressive scales showed moderate correlations with language under 30 months. Overall, the Denver-II was the most feasible and valid multi-dimensional test and the ASQ-3 performed poorly under 31 months. By domain, gross motor development had the highest concurrence below 19 months, and language above. Predictive validity investigation is needed to further guide the choice of instruments for large scale studies.
with Katja Kaufmann (Journal of Economic Behaviour & Organization, Vol. 140, August 2017, pp35-55)
Abstract: In this paper we analyze the role of expected labor and marriage market returns as determinants of the college enrollment decisions of Mexican high school graduates. Moreover, we investigate whether the (relative) weights of these factors differ by gender. We use data on individuals’ expectations regarding future labor market outcomes which we directly elicited from the youths, and two different measures of marriage market returns. First, marriage market returns are proxied by the (net-)supply of potential partners in the youths’ local marriage markets. Second, we use data which elicits youths’ beliefs about their future spouse’s earnings conditional on their own education level. We find that labor market as well as marriage market returns are important determinants of the college enrollment decision. However, boys’ and girls’ preferences differ in terms of the relative role of the two determinants, in that the relative weight of labor market versus marriage market returns is larger for boys than for girls.
with Arlen Guarín, Carlos Medina, and Costas Meghir (American Economic Journal: Applied Economics, Vol.9(2), April 2017, pp131-43)
Abstract: We evaluate the long-term impacts of a randomized Colombian training and job placement program. Following the large short-term effects, we now find that the program effects persist, increasing formal participation and earnings contributions to social security and working in larger firms. By using a large administrative source we are also able to establish that the program improved both male and female labor market outcomes by a similar amount–a result that was not apparent with the smaller evaluation sample. The results point to a cost-effective approach to reducing informality and improving labor market outcomes in the long run.
with Costas Meghir, Emily Nix, and Francesca Salvati (Review of Economic Dynamics, Vol. 25, April 2017, pp234-259)
Abstract: In this paper we use high quality data from two developing countries, Ethiopia and Peru, to estimate the production functions of human capital from age 1 to age 15. We characterize the nature of persistence and dynamic complementarities between two components of human capital: health and cognition. We also explore the implications of different functional form assumptions for the production functions. We find that more able and higher income parents invest more, particularly at younger ages when investments have the greatest impacts. These differences in investments by parental income lead to large gaps in inequality by age 8 that persist through age 15.
with Alison Andrew, Emla Fitzsimons and Marta Rubio-Codina (SSM – Population Health, Vol. 2, December 2016, pp95-104)
Abstract: In Colombia’s bottom socio-economic strata, 46.6% of children under two are anaemic. A prevalence of above 20% falls within the WHO guidelines for daily supplementation with multiple micronutrient powder (MNP). To evaluate the effect of daily MNP supplementation on anaemia amongst Colombian children aged 12–24 months we ran a cluster RCT (n=1440). In previous work, we found the intervention had no impact on haemoglobin or anaemia in this population. In this current paper, we investigate this null result and find it cannot be explained by an underpowered study design, inaccurate measurements, low adoption of and compliance with the intervention, or crowding out through dietary substitution. We conclude that our intervention was ineffective at reducing rates of childhood anaemia because MNP itself was inefficacious in our population, rather than poor implementation of or adherence to the planned intervention. Further analysis of our data and secondary data suggests that the evolution with age of childhood anaemia in Colombia, and its causes, appear different from those in settings where MNP has been effective. Firstly, rates of anaemia peak at much earlier ages and then fall rapidly. Secondly, anaemia that remains after the first year of life is relatively, and increasingly as children get older, unrelated to iron deficiency. We suggest that factors during gestation, birth, breastfeeding and early weaning may be important in explaining very high rates of anaemia in early infancy. However, the adverse effects of these factors appear to be largely mitigated by the introduction of solid foods that often include meat. This renders population wide MNP supplementation, provided after a diet of solid foods has become established, an ineffective instrument with which to target Colombia’s childhood anaemia problem.
with M. Rubio-Codina and S. Grantham McGregor (International Journal of Behavioral Development, Vol. 40(6), June 2016, pp483-491)
Abstract: Research has previously shown a gap of near 0.5 of a standard deviation (SD) in cognition and language development between the top and bottom household wealth quartile in children aged 6–42 months in a large representative sample of low- and middle-income families in Bogota, using the Bayley Scales of Infant and Toddler Development. The gaps in fine motor and socio-emotional development were about half that size. Developmental deficits increased with age. The current study explored the associations amongst child development, household socio-economic status (SES), and a set of potential mediating variables—parental characteristics, child biomedical factors, and the quality of the home environment—in this sample. We ran mediation tests to quantify the contribution of these variables to the SES gap, and explored the role of age as a moderator. Parental education, particularly maternal education, and the quality of the home environment mediated the SES gap in all outcomes examined. Height-for-age mediated a small amount of the deficit in language scales only. More educated mothers provided better home stimulation than less educated mothers and the home environment partly mediated the effect of maternal education. These results suggested that in interventions aimed at promoting child development, those focusing on the quality of the home environment should be effective.
with Laura Abramosky, Kay Barron, Pedro Carneiro and George Stoye (forthcoming in Economia, Journal of LACEA)
Abstract: We evaluate the large scale pilot of an innovative and major welfare intervention in Colom- bia, which combines homes visits by trained social workers to households in extreme poverty with preferential access to social programs. We use a randomized control trial and a very rich dataset collected as part of the evaluation to identify program impacts on the knowledge and take-up of social programs and the labor supply of targeted households. We find no consistent impact of the program on these outcomes, possibly because the way the pilot was implemented resulted in very light treatment in terms of home visits. Importantly, administrative data in- dicates that the program has been rolled out nationally in a very similar fashion, suggesting that this major national program is likely to fail in making a significant contribution to re- ducing extreme poverty. We suggest that the program should undergo substantial reforms, which in turn should be evaluated.
with Luigi Pistaferri (Journal of Economic Perspectives, Vol. 30(2), pp3-28)
Abstract: In this essay, we discuss the importance of consumption inequality in the debate concerning the measurement of disparities in economic well-being. We summarize the advantages and disadvantages of using consumption as opposed to income for measuring trends in economic well-being. We critically evaluate the available evidence on these trends, and in particular discuss how the literature has evolved in its assessment of whether consumption inequality has grown as much as or less than income inequality. We provide some novel evidence on three relatively unexplored themes: inequality in different spending components, inequality in leisure time, and intergenerational consumption mobility.
with B. Augsburg (Economica, Vol. 83(331), July 2016, pp416-442)
Abstract: This paper uses unique primary data on directly elicited individual subjective expectations to analyse and characterize the process that generates the income of poor, rural Indian households. We validate and use responses to subjective expectations questions and a parametric assumption to fit a household-specific probability distribution for future income. Combining computed moments from this distribution with data for actual current income, we specify and estimate a dynamic model of household income. We find that our households face a very persistent income process. Our paper is one of the first that uses subjective expectations data to model income processes.
(Journal of the European Economic Association, Vol 13(6), December 2015, pp949-997)
Abstract: This paper is based on my presidential address for the European Economic Association meetings held in Toulouse in August 2014. In it, I discuss a research agenda on the study of human capital accumulation in the early years, with a particular focus on developing countries. I discuss several methodological issues, from the use of structural models, to the importance of measurement and the development of new measurement tools. I present a conceptual framework that can be used to frame the study of human capital accumulation and view the current challenges and gaps in knowledge within such an organizing structure. I provide an example of the use of such a framework to interpret the evidence on the impacts of an early years intervention based on Randomized Controlled Trial.
(Economic Journal, Vol. 125(583), March 2015, pp269-294)
: In 1928, Frank Ramsey, a British mathematician and philosopher, at the time aged only 25, published an article (Ramsey, 1928
) whose content was utterly innovative and sowed the seeds of many subsequent developments. Beside the theory of optimal growth, as developed in Cass (1965
) and Koopmans (1965
), one could argue that the essence of several subsequent influential theories, such as the permanent income/life cycle theory of consumption to model individual saving choices, were already contained in that seminal article.
In this note, I first summarise the content of Ramsey’s paper and then relate it to subsequent developments in economics. Before starting, however, I cannot help mentioning the modernity and originality one perceives in Ramsey’s writings when going through the original texts. His papers and contributions are astonishingly ahead of their time. This is true for his article on optimal taxation, (Ramsey, 1927), which is reviewed elsewhere in this issue and for his article on ‘Truth and probability’ (Ramsey, 1926), in which he discusses choices under uncertainty decades ahead of Von Neumann and Morgenstern (1944) and even proposes an experimental way to disentangle preferences and probability assessments from choices. In this note, I discuss how the article on saving and optimal growth anticipated several branches of the literature that followed in subsequent decades. The treatment of individual consumption and saving choices, for instance, is a very modern one. Interestingly, Ramsey’s article refers explicitly to conversations with John Maynard Keynes, who was Ramsey’s colleague at Cambridge and the Economic Journal‘s editor, in formulating part of the main proposition. And yet, in his General Theory, Keynes (1936) used a much more simplistic and stylised theory of consumption, which had profound implications for the working of his model of the macroeconomy.
with L. Pellerano and S. Polania-Reyes (Journal of Economic Behavior and Organization, Vol. 118, October 2015, pp22-39)
Abstract: Many conditional cash transfer (CCT) programs have important social components and, therefore, can have an effect on social capital. In 2007, we conducted a field experiment with 1451 subjects in Cartagena, Colombia. We interpret the behavior in the game as a measure of what in the literature has been called social capital. We played the game in two similar and adjacent neighborhoods. The ‘treatment’ neighborhood, Pozón, had been targeted for over 2 years by a CCT program, Familias en Acción; the ‘control’ neighborhood, Ciénaga, had not. In 2008, with the program being implemented in both neighborhoods, we played the same public goods game, and were therefore able to implement a difference in differences strategy to estimate the impact of the CCT on our measure of social capital. In 2007, the level of cooperation we observed in the treatment neighborhood was considerably higher than that in the control one. Although similar in many dimensions, the two groups turned out to be significantly different in some observable variables; the positive result was robust to controls for these differences. In 2008, we found that the level of cooperation was statistically identical across the two neighborhoods, and similar to the levels observed in 2007 in the treatment one. We conclude that the CCT program did improve cooperation. In analyzing the effect of the CCT on cooperation we also look at other (individual and group) determinants of individual behavior in the game, and we compare our measure based on behavior in the game to more traditional measures of social capital used in the literature that we collected in a context-specific survey.
with Marta Rubio-Codina, Costas Meghir, Natalia Varela, and Sally Grantham-McGregor (Journal of Human Resources, Vol. 50(2), Spring 2015, pp464-483)
Abstract: We study the socioeconomic gradient of child development on a sample of low- and middle-income children aged 6–42 months in Bogota using the Bayley Scales of Infant and Toddler Development. We find an average difference of 0.53, 0.42, and 0.49 standard deviations (SD) in cognition, receptive, and expressive language respectively, between children in the top and bottom quartile of the wealth distribution. These gaps increase substantially to 0.81 SD (cognition), 0.76 SD (receptive language), and 0.68 SD (expressive language) for children aged 31–42 months. These robust findings can inform the design and targeting of interventions promoting early childhood development.
with Veruska Oppedisano and Marcos Vera-Hernandez (AEJ: Applied, Vol. 7(2), April 2015, pp35-52)
Abstract: We study a Conditional Cash Transfer program in which the cash transfers to the mother only depend on the fulfillment of the national preventive visit schedule by her children born before she registered in the program. We estimate that preventive visits of children born after the mother registered in the program are 50 percent lower because they are excluded from the conditionality requirement. Using the same variation, we also show that attendance to preventive care improves children health.
with Britta Augsburg, Ralph De Haas, Emla Fitzsimons and Heike Hamgart (American Economic Journal: Applied Economics, Vol. 7(1), January 2015, pp90-122)
Abstract: We present evidence from a randomized field experiment in rural Mongolia to assess the poverty impacts of a joint-liability microcredit program targeted at women. We find a positive impact of access to group loans on female entrepreneurship and household food consumption but not on total working hours or income in the household. A simultaneously introduced individual-liability microcredit program delivers no significant poverty impacts. Additional results on informal transfers to families and friends suggest that joint liability may deter borrowers from using loans for noninvestment purposes with stronger impacts as a result. We find no difference in repayment rates between both types of microcredit.
with M Borella (International Economic Review, Vol. 55(4), November 2014, pp959-991)
Abstract: We characterize the time-series properties of group-level consumption, income, and interest rates using microdata. We relate the coefficients of moving average representations to structural parameters of theoretical models of consumption behavior. Using long time series of cross sections to construct synthetic panel data for the United Kingdom, we find that for high-educated individuals the Euler equation restrictions are not rejected, the elasticity of intertemporal substitution is higher than one, and there is evidence of “excess smoothness” of consumption. Low-educated individuals, conversely, exhibit excess sensitivity of consumption to past income, and the elasticity of intertemporal substitution is not statistically different from zero.
with J Hamadani, F. Tofail, S. Huda, D. Alam, D. Ridout, and S. Grantham-McGregor (Pediatrics, Vol. 134(4), October 2014)
Abstract: We aimed to determine the timing and size of the cognitive deficit associated with poverty in the first 5 years of life and to examine the role of parental characteristics, pre- and postnatal growth, and stimulation in the home in Bangladeshi children. We hypothesized that the effect of poverty on cognition begins in infancy and is mainly mediated by these factors. We enrolled 2853 singletons, a subsample from a pregnancy supplementation trial in a poor rural area. We assessed mental development at 7, 18, and 64 months; anthropometry at birth, 12, 24, and 64 months; home stimulation at 18 and 64 months; and family’s socioeconomic background. In multiple regression analyses, we examined the effect of poverty at birth on IQ at 64 months and the extent that other factors mediated the effect. A mean cognitive deficit of 0.2 (95% confidence interval –0.4 to –0.02) z scores between the first and fifth wealth quintiles was apparent at 7 months and increased to 1.2 (95% confidence interval –1.3 to –1.0) z scores of IQ by 64 months. Parental education, pre- and postnatal growth in length, and home stimulation mediated 86% of the effects of poverty on IQ and had independent effects. Growth in the first 2 years had larger effects than later growth. Home stimulation had effects throughout the period. Effects of poverty on children’s cognition are mostly mediated through parental education, birth size, growth in the first 24 months, and home stimulation in the first 5 years.
with A. Ruiz Linares et al. (PLOS Genetics, Vol. 10(9), September 2014)
Abstract: The current genetic makeup of Latin America has been shaped by a history of extensive admixture between Africans, Europeans and Native Americans, a process taking place within the context of extensive geographic and social stratification. We estimated individual ancestry proportions in a sample of 7,342 subjects ascertained in five countries (Brazil, Chile, Colombia, México and Perú). These individuals were also characterized for a range of physical appearance traits and for self-perception of ancestry. The geographic distribution of admixture proportions in this sample reveals extensive population structure, illustrating the continuing impact of demographic history on the genetic diversity of Latin America. Significant ancestry effects were detected for most phenotypes studied. However, ancestry generally explains only a modest proportion of total phenotypic variation. Genetically estimated and self-perceived ancestry correlate significantly, but certain physical attributes have a strong impact on self-perception and bias self-perception of ancestry relative to genetically estimated ancestry.
with C. Fernndez, E. Fitzsimons, S. M Grantham-McGregor, C. Meghir and M. Rubio-Codina (British Medical Journal, 349:g5785, September 2014)
To assess the effectiveness of an integrated early child development intervention, combining stimulation and micronutrient supplementation and delivered on a large scale in Colombia, for children’s development, growth, and hemoglobin levels.
Design Cluster randomized controlled trial, using a 2×2 factorial design, with municipalities assigned to one of four groups: psychosocial stimulation, micronutrient supplementation, combined intervention, or control.
Setting 96 municipalities in Colombia, located across eight of its 32 departments.
Participants 1420 children aged 12-24 months and their primary carers.
Intervention Psychosocial stimulation (weekly home visits with play demonstrations), micronutrient sprinkles given daily, and both combined. All delivered by female community leaders for 18 months.
Main outcome measures Cognitive, receptive and expressive language, and fine and gross motor scores on the Bayley scales of infant development-III; height, weight, and hemoglobin levels measured at the baseline and end of intervention.
Results Stimulation improved cognitive scores (adjusted for age, sex, testers, and baseline levels of outcomes) by 0.26 of a standard deviation (P=0.002). Stimulation also increased receptive language by 0.22 of a standard deviation (P=0.032). Micronutrient supplementation had no significant effect on any outcome and there was no interaction between the interventions. No intervention affected height, weight, or hemoglobin levels.
Conclusions Using the infrastructure of a national welfare program we implemented the integrated early child development intervention on a large scale and showed its potential for improving children’s cognitive development. We found no effect of supplementation on developmental or health outcomes. Moreover, supplementation did not interact with stimulation. The implementation model for delivering stimulation suggests that it may serve as a promising blueprint for future policy on early childhood development.
with L Pistaferri (American Economic Review, Volume 104, Number 5, May 2014, pp122-126)
Abstract: This paper contributes to the debate regarding trends in consumption inequality in the United States. We present a new measure of consumption inequality based on the redesigned 1999–2011 PSID. We impute consumption to the families observed before 1999 using the more comprehensive consumption data available from 1999 onward. One advantage of this procedure is in sample verification of the quality of the imputation procedure; another is that it yields a long time series (1967–2010). Consumption inequality was stable in the 1970s, as was income inequality. It increased significantly after 1980. The Great Recession was associated with a decline in consumption inequality.
with V. Lechene (Journal of Political Economy, Vol. 122(1), February 2014, pp178-222)
Abstract: We estimate and test the restrictions of a collective model of household consumption, using z-conditional demands, in the context of a large conditional cash transfer program in rural Mexico. The model can explain the impacts of the program on the structure of food consumption. We use two plausible and novel distribution factors: the random allocation of a cash transfer to women and the relative size and wealth of the husband’s and wife’s family networks. Our structure does better at predicting the effect of exogenous increases in household income than an alternative, unitary, structure. We cannot reject efficiency of household decisions.
with Katja Kaufmann (Journal of Development Economics, Vol. 109(C), July 2014, pp203-216)
Abstract: In this paper we investigate the role of expected returns to schooling and of perceived risks (of unemployment and earnings) as determinants of schooling decisions. Moreover, our data also allow us to shed light on the intrahousehold decision making process by analyzing whose expectations matter in schooling decisions, youths’ or parents’, and whether this depends on the age and gender of the youth. In particular, we use Mexican data that contain labor market expectations of both parents and youths. We find that expected returns and risk perceptions are important determinants of schooling decisions. Regarding youths’ role in the decision-making process, our results show that while both boys and girls expect high returns to schooling, only boys’ expectations matter in the decision, but not the ones of girls. Parents’ role depends on gender and age of the youths.
with V di Maro and M Vera-Hernandez (Economic Journal, Vol 123 (9), September 2013, pp1025-1058)
Abstract: We use two different data sets and three different instruments to estimate the impact of a long-established pre-school nursery programme on children’s nutritional status. We use variables related to cost (fee, distance to the nursery) and programme availability (capacity of the programme in the town) as instruments. One of our data sets is representative of very poor individuals living in rural areas of Colombia, while the other focuses in urban areas and includes individuals relatively less poor. We find that programme participation increases children’s height, with the size of the effect being consistent across the three instruments and the two data sets.
with V. DiMaro, V. Lechene and D. Phillips (Journal of Development Economics, Vol. 104(C), February 2013, pp136-151)
Abstract: This paper presents an analysis of the welfare consequences of recent increases in food prices in Mexico using micro-level data. We estimate a QUAIDS model of demand for food, using data collected to evaluate the conditional cash transfer program Oportunidades. We show how the poor have been affected by the recent increases and changes in relative prices of foods. We also show how a conditional cash transfer program provides a means of alleviating the problem of increasing staple prices, and simulate the impact of such a policy on household welfare and consumer demand. We contrast this policy with alternative policy responses, such as price subsidies, which distort relative prices and are less well-targeted.
with M Angelucci (American Economic Journal: Economic Policy, Vol 5(1), February 2013, pp146-78)
Abstract: We use Oportunidades, a conditional cash transfer to women, to show that standard demand models do not represent the sample’s behavior: Oportunidades increases eligible households’ food budget shares, despite food being a necessity; demand for food and high-protein food changes over time only in treatment areas; the treatment effects on food and high-protein food consumption are larger than the prediction from the Engel curves at baseline; and the curves do not change in eligible households with high baseline bargaining power for the transfer recipient. Thus, handing transfers to women is a likely determinant of the observed nutritional changes.
with M. Angelucci and V. DiMaro (Fiscal Studies, Vol. 33(3), September 2012, pp305-334)
Abstract: In this paper, we estimate the effect of the Mexican conditional cash transfer programme, Oportunidades, on transfers, savings and consumption for treated households. We find positive effects on consumption of non-durable and durable goods, an increase in savings coupled with a drop in the number and values of loans, and a reduction of in-kind transfers received by households in treatment areas. These results are consistent with the existing evidence that conditional cash transfer programmes have beneficial effects in both the short and medium term, but that they partly crowd out private transfers.
with A Barr, JC Cardenas, G Genicot and C Meghir (American Economic Journal: Applied Economics, Vol. 4(2), April 2012, pp134–67)
Abstract: Using data from an experiment conducted in 70 Colombian communities, we investigate who pools risk with whom when trust is crucial for enforcing risk pooling arrangements. We explore the roles played by risk attitudes and social networks. Both empirically and theoretically, we find that close friends and relatives group assortatively on risk attitudes and are more likely to join the same risk pooling group, while unfamiliar participants group less and rarely assort. These findings indicate that where there are advantages to grouping assortatively on risk attitudes those advantages may be inaccessible when trust is absent or low.
with E. Battistin and A. Mesnard (Economic Journal , Vol. 122(559), March 2012, pp92-124)
Abstract: We study food Engel curves amongst the poor population targeted by a conditional cash transfer programme in Colombia. After controlling for the endogeneity of total consumption and for the price variability across villages, our estimates imply that an increase in consumption by 10% would lead to a decrease of 1% in the share of food. However, quasi-experimental estimates of the impact of the programme show that the share of food increases. This result is not inconsistent with the hypothesis that the programme could increase the bargaining power of women, inducing a more than proportional increase in food consumption.
with R. Bottazzi, H. Low, L. Neisham and M. Wakefield (Review of Economic Dynamics, Vol. 15(1), January 2012, pp1-18)
Abstract: We model individual demand for housing over the life cycle, and show the aggregate implications of this behaviour. Individuals delay purchasing their first home when incomes are low or uncertain. Higher house prices lead households to downsize, rather than to stop being owners. Fixed costs (property transactions taxes) have important impacts on welfare (a wealth effect) and house purchase decisions (substitution effect). In aggregate, positive house price shocks lead to consumption booms among the old but falls in consumption for the young, and reduced housing demand; positive income shocks lead to consumption booms among the young and increased housing demand.
with C. Meghir and A. Santiago (The Review of Economic Studies, Vol. 79 (1), January 2012, pp37-66)
Abstract: In this paper we use an economic model to analyse data from a major randomised social experiment, namely PROGRESA in Mexico, and to evaluate its impact on school participation. We show the usefulness of using experimental data to estimate a structural economic model as well as the importance of a structural model in interpreting experimental results. The availability of the experiment also allow us to estimate the program’s general equilibrium effects, which we then incorporate into out simulations. Our main findings are : (i) the program’s grant has a much stronger impact on school enrolment than an equivalent reduction in child wages; (ii) the program has a positive effect on the enrollment of children, especially after primary school; this result is well replicated by the parsimonious structural model; (iii) there are sizeable effects of the program on child wages, which, however, reduce the effectiveness of the program only marginally; (iv) a revenue neutral change in the program that would increase the grant for secondary school children while eliminating for the primary school children would have a substantially larger effect on enrollment of the latter, while having minor effects on the former.
with Bertha Briceo and Laura Cuesta (Journal of Development Effectiveness, Vol. 3(4), December 2011, pp470-501)
Abstract: As more resources are being allocated to impact evaluation of development programmes, the need to map out the utilisation and influence of evaluations has been increasingly highlighted. This paper aims at filling this gap by describing and discussing experiences from four large impact evaluations in Colombia on case- study basis. On the basis of learning from our prior experience in both managing and conducting impact evaluations, desk review of available documentation from the monitoring and evaluation system, and structured interviews with government actors, evaluators and programme managers, we benchmark each evaluation against 11 standards of quality. From this benchmarking exercise, we derive five key lessons for conducting high-quality and influential impact evaluations: investing in preparation of good terms of reference and identification of evaluation questions; choosing the best methodological approach to address the evaluation questions; adopting mechanisms to ensure evaluation quality; laying out the incentives for involved parties in order to foster evaluation buy-in; and carrying out a plan for quality dissemination.
with I Forde, T. Chandola, S. Garcia and M. Marmot (International Journal of Obesity, Vol. 36(9), December 2011, pp1209-1214)
Introduction Prevalence of obesity is rising in Latin America and increasingly affecting socially disadvantaged groups, particularly women. Conditional cash transfers are recently established welfare interventions in the region. One, Familias en Accion, transfers ?20% of average monthly income to women in Colombia’s poorest families. Previous work has found that families buy more food as a result. We tested the hypothesis that participation in Familias would be associated with increasing body mass index (BMI) in participating women.
Methods Women from participating areas and control areas (matched on environmental and socioeconomic criteria) were surveyed in 2002 and 2006. Pregnant, breast-feeding or women aged <18 or with BMI <18.5?kg?m(-2) were excluded. The sample comprises 835 women from control and 1238 from treatment areas. Because some treatment areas started Familias shortly before baseline data collection, a dummy variable was created that identified exposure independent of time point or area. Follow-up was 61.5%. BMI was measured by trained personnel using standardized techniques. Overweight was defined as BMI ? 25?kg?m(-2) and obesity as ? 30?kg?m(-2). The effect of Familias was estimated using linear regression (or logistic regression for dichotomous outcomes) in a double-difference technique, controlling for several individual, household and area characteristics, including parity and baseline BMI, using robust standard-errors clustered at area-level in an intention-to-treat analysis.
Results At baseline, women’s mean age was 33.3 years and mean BMI 25.3?kg?m(-2); 12.3% women were obese. After adjustment, exposure to Familias was significantly associated with increased BMI (?=0.25; 95% confidence interval (CI) 0.03, 0.47; P=0.03). Age (?=0.09; 95% CI 0.06, 0.13; P<0.001) and household wealth (?=0.78; 95% CI 0.41, 1.15; P<0.001) were also positively associated with BMI. Familias was also associated with increased odds of obesity (odds ratio (OR)=1.27; 95% CI 1.03, 1.57; P=0.03), as was age (OR=1.04; 95% CI 1.02, 1.06; P=0.001).
Conclusion Conditional cash transfers to poor women in Colombia are independently associated with increasing BMI and obesity risk. Although conditional cash transfers are generally regarded as popular and successful schemes, parallel interventions at individual, household and community level are needed to avoid unanticipated adverse outcomes.
with Emma Aguila and Costas Meghir (Review of Economics and Statistics, Vol. 93(3), August 2011, pp1094-1099)
Abstract: Previous empirical literature has found a sharp decline in consumption during the first years of retirement, implying that individuals do not save enough for their retirement. This phenomenon is called the retirement consumption puzzle. We find no evidence of the retirement consumption puzzle using panel data from 1980 to 2000. Consumption is defined as nondurable expenditure, a more comprehensive measure than only food used in many of the previous studies. We find that food expenditure declines at retirement, which is consistent with previous studies.
with Adriana Kugler and Costas Meghir (American Economic Journal: Applied Economics, Vol. 3(3), July 2011, pp188-220)
Abstract: This paper evaluates the impact of a randomized training program for disadvantaged youth introduced in Colombia in 2005. This randomized trial offers a unique opportunity to examine the impact of training in a middle income country. We use originally collected data on individuals randomly offered and not offered training. The program raises earnings and employment for women. Women offered training earn 19.6 percent more and have a 0.068 higher probability of paid employment than those not offered training, mainly in formal-sector jobs. Cost-benefit analysis of these results suggests that the program generates much larger net gains than those found in developed countries.
with Nicola Pavoni (Econometrica, Vol. 79(4), July 2011, pp1027-68)
Abstract: We study testable implications for the dynamics of consumption and income of models in which first-best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment, agents typically achieve more insurance than that obtained under self-insurance with a single asset. Consumption allocations exhibit “excess smoothness,” as found and defined by Campbell and Deaton (1989). We argue that excess smoothness, in this context, is equivalent to a violation of the intertemporal budget constraint considered in a Bewley economy (with a single asset). We also show parameterizations of our model in which we can obtain a closed-form solution for the efficient insurance contract and where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem. We present tests of excess smoothness, applied to U.K. microdata and constructed using techniques proposed by Hansen, Roberds, and Sargent (1991) to test the intertemporal budget constraint. Our theoretical model leads us to interpret them as tests of the market structure faced by economic agents. We also construct a test based on the dynamics of the cross-sectional variances of consumption and income that is, in a precise sense, complementary to that based on Hansen, Roberds, and Sargent (1991) and that allows us to estimate the same structural parameter. The results we report are consistent with the implications of the model and are internally coherent.
with Andrew Leicester and Matthew Wakefield (Journal of the European Economic Association, Vol. 9(3), July 2011, pp399-435)
Abstract: This paper uses a realistic structural lifecycle model of consumption and housing decisions to understand how data might distinguish different mechanisms that explain the correlation between house prices and consumption. The model includes price and earnings shocks estimated from data (the latter including aggregate and idiosyncratic components), and incorporates realistic features of the UK mortgage market. We simulate the model using more than 30 years of realized shocks and under counterfactual scenarios. Our results confirm the intuition of earlier studies: house price shocks should have a larger effect on the consumption of older households and earnings shocks on young households.
with Monica Paiella (Journal of Applied Econometrics, Vol. 26(2), March 2011, pp322-343)
Abstract: This paper builds a unifying framework based on the theory of intertemporal consumption choices that brings together the limited participation-based explanation of the Consumption Capital Asset Pricing Model’s poor empirical performance and the transaction costs-based explanation of incomplete portfolios. Using the implications of the consumption model and observed household consumption and portfolio choices, we identify the preference parameters of interest and a lower bound for the costs rationalizing non-participation in financial markets. Using the US Consumer Expenditure Survey and assuming isoelastic preferences, we estimate the coefficient of relative risk aversion at 1.7 and a cost bound of 0.4% of non-durable consumption. Our estimate of the preference parameter is theoretically plausible and the bound sufficiently small to be likely to be exceeded by the actual total (observable and unobservable) costs of participating in financial markets.
with Guglielmo Weber (Journal of Economic Literature, Vol. 48(3) September 2010, pp693–751)
Abstract: This paper provides a critical survey of the large literature on the life cycle model of consumption, both from an empirical and a theoretical point of view. It discusses several approaches that have been taken in the literature to bring the model to the data, their empirical successes and failures. Finally, the paper reviews a number of changes to the standard life cycle model that could help solve the remaining empirical puzzles.
with I Forde, T Chandola and M Marmot (Journal of Epidemiology and Community Health, Vol. 64, September 2010, ppA58)
Abstract: Conditional cash transfer schemes (CCTS) are relatively new policies in low and middle income countries which aim to improve the health and welfare of poor families by investing in their knowledge, skills and resources. Families are offered regular cash as long as they comply with certain conditions. One of these is that mothers/carers attend workshops where parenting and children’s healthcare issues are discussed. We hypothesised that presence of a CCTS in Colombia would be associated with an increase in women’s healthcare knowledge.
with Chiara Binelli (Review of Economic Dynamics, Vol. 13(1), January 2010, pp238-264)
Abstract: This paper describes the main cross-sectional facts on individual and household earnings, labor supply, income, consumption and wealth in Mexico in the decade of the 1990s. We use two different data sources: the Mexican Employment Survey (ENEU) and the Mexican Income and Expenditure Survey (ENIGH). The contribution of this paper is twofold. First, we integrate the two surveys to provide a complete characterization of the changes in employment, wages, income, consumption and wealth in the 1990s. Second, we highlight some distinctive features that characterize the Mexican economy in this decade. In particular, we focus on the changes in the size of the informal sector and we study the relationship between changes in informality and changes in wage inequality.
with Emla Fitzsimons, An Gomez, Marta I. Rodriguez, Costas Meghir and Alice Mesnard (Economic Development and Cultural Change, Vol. 58(2), January 2010, pp181-210)
Abstract: The paper studies the effects of Familias en Acción, a conditional cash transfer program implemented in rural areas in Colombia since 2002, on school enrollment and child labor. Using a difference?in?difference framework, our results show that the program increased school participation of 14–17?year?old children quite substantially, by between 5 and 7 percentage points and had lower effects on the enrollment of younger children, in the region of 1–3 percentage points. The effects on work are largest in the relatively more urbanized parts of rural areas and particularly for younger children, whose participation in domestic work decreased by around 13 percentage points after the program, as compared to a decrease of 10 percentage points for older children in these same areas. The program had no discernible impacts on children’s work in more rural areas. Participation in income?generating work remained largely unaffected by the program. We also find evidence of school and work time not being fully substitutable, suggesting that some, but not all, of the increased time at school may be drawn from children’s leisure time.
with Luca Pellerano and Sandra Polania-Reyes (Fiscal Studies, Vol. 30(2), June 2009, pp139–177)
Abstract: In this paper, we propose a measure of social capital based on behaviour in a public goods game. We conducted a public goods game within 28 groups in two similar neighbourhoods in Cartagena, Colombia, one of which had been targeted for over two years by a conditional cash transfer programme that has an important social component. The level of cooperation we observe in the ‘treatment’ community is considerably higher than that in the ‘control’ community. The two neighbourhoods, however, although similar in many dimensions, turn out to be significantly different in other observable variables. The result we obtain in terms of cooperation, however, is robust to controls for these observable differences. We also compare our measure of social capital with other more traditional measures that have been used in the literature.
with Manuela Angelucci (Economic Development and Cultural Change, Vol. 57(3), April 2009, pp479-506)
Abstract: In this paper we estimate the effect of the Mexican conditional cash transfer program, Oportunidades, on consumption, and we explore some issues related to participation to the program and to the estimation of treatment effects. We discuss the comparability of treatment and control areas, provide evidence that the expected transfer may not be sufficiently high to induce many eligible households to participate, and find positive effects on consumption.
with S. Alan and M. Browning (Journal of Applied Econometrics, Vol. 24(2), March 2009, pp309-324)
Abstract: In this paper we exploit the specific structure of the Euler equation and develop two alternative GMM estimators that deal explicitly with measurement error. The first estimator assumes that the measurement error is log-normally distributed. The second estimator drops the distributional assumption at the cost of less precision. Our Monte Carlo results suggest that both proposed estimators perform much better than conventional alternatives based on the exact Euler equation or its log-linear approximation, especially with short panels. An empirical application to the PSID yields plausible and precise estimates of the coefficient of relative risk aversion and the discount rate.
with L. Blow, R. Hamilton and A. Leicester (Economica, Vol. 76(301), February 2009, pp20-50)
Abstract: Over much of the past 25 years, house price and consumption growth have been closely synchronized. Three main hypotheses for this have been proposed: increases in house prices raise household wealth and so their consumption; house price growth reduces credit constraints by increasing the collateral available to homeowners; and house prices and consumption are together influenced by common factors. Using microeconomic data, we find that the relationship between house prices and consumption is stronger for younger than older households, contradicting the wealth channel. We suggest that common causality has been the most important factor linking house prices and consumption.
with Hamish Low and Virginia Sánchez-Marcos (American Economic Review, Vol. 98(4), September 2008, pp1517-52)
Abstract: This paper studies the life-cycle labor supply of three cohorts of American women, born in the 1930s, 1940s, and 1950s. We focus on the increase in labor supply of mothers between the 1940s and 1950s cohorts. We construct a lifecycle model of female participation and savings, and calibrate the model to match the behavior of the middle cohort. We investigate which changes in the determinants of labor supply account for the increases in participation early in the life-cycle observed for the youngest cohort. A combination of a reduction in the cost of children alongside a reduction in the wage-gender gap is needed.
with Penelopi Goldberg and Ekaterini Kyriazidou (International Economic Review, Vol. 49(2), May 2008, pp401-436)
Abstract: We investigate the significance of borrowing constraints in the market for consumer loans. Using data from the Consumer Expenditure Survey on auto loan contracts we estimate the elasticities of loan demand with respect to interest rate and maturity. We find that, with the exception of high income households, consumers are very responsive to maturity and less responsive to interest rate changes. Both elasticities vary with household income, with the maturity elasticity decreasing and the interest rate elasticity increasing with income. We argue that these results are consistent with the presence of binding credit constraints in the auto loan market.
with Alice Mesnard (Fiscal Studies, Vol. 27(4), December 2006, pp421-442)
Abstract: This paper studies the impact of a conditional cash transfer programme in Colombia on the total consumption of very poor households and on its components. Our evaluation methodology involves comparing household expenditures in areas in which the programme was not implemented (control) and those in which it was (treated). We use a quasi-experimental approach, as the Familias en Acción programme was not randomly assigned across localities, for political reasons. We condition on a large range of household- and municipality-level characteristics, and also control for pre-programme differences in the outcomes of interest using a differences-in-differences methodology. We find that the programme has been effective at greatly increasing total consumption and its main component, food consumption, in both rural and urban areas. The programme has also contributed to improvements in the quality of food consumed, in particular of items rich in proteins (milk, meat and eggs) and of cereals. Furthermore, the programme has created redistributive effects in favour of children through expenditure on education and children’s clothing, while it has not significantly affected consumption of adult goods such as alcohol and tobacco or adults’ clothing.
with Sagiri Kitao and Giovanni Violante (The B.E. Journal of Macroeconomics, Vol. 6(1), April 2006)
Abstract: This paper evaluates quantitatively the impact of the observed demographic transition on aggregate variables (factor prices, saving rate, output growth), and on inter-generational welfare in developing economies. It does so by developing a large-scale two-region equilibrium overlapping generations model calibrated to the North (more developed countries) and the South (less developed countries). The paper highlights that the effects of the demographic trends for less developed regions may depend on the degree of international capital mobility and on the extent to which the large Pay-As-You-Go systems in place in the more developed world will be reformed.
with L.C. Gomez, A. Gomez and M. Vera-Hernandez (Journal of Economics and Human Biology, Vol. 2(3), December 2004, pp411-438)
Abstract: We study the determinants of child anthropometrics on a sample of poor Colombian children living in small municipalities. We focus on the influence of household consumption, and public infrastructure, taking into account the endogeneity of household consumption using two different sets of instruments: household assets and municipality average wage. We find that both household consumption and public infrastructure are important determinants of child health. We have also found that the coverage of the piped water network positively influenced child health if the parents have some education.
with Pinelopi Goldberg and Nina Pavcnik (Journal of Development Economics, Vol. 74(2), August 2004, pp331-366)
Abstract: We investigate the effects of the drastic tariff reductions of the 1980s and 1990s in Colombia on the wage distribution. We identify three main channels through which the wage distribution was affected: increasing returns to college education, changes in industry wages that hurt sectors with initially lower wages and a higher fraction of unskilled workers, and shifts of the labor force towards the informal sector that typically pays lower wages and offers no benefits. Our results suggest that trade policy played a role in each of the above cases. The increase in the skill premium was primarily driven by skilled-biased technological change; however, our evidence suggests that this change may have been in part motivated by the tariff reductions and the increased foreign competition to which the trade reform exposed domestic producers. With respect to industry wages, we find that wage premiums decreased by more in sectors that experienced larger tariff cuts. Finally, we find some evidence that the increase in the size of the informal sector is related to increased foreign competition—sectors with larger tariff cuts and more trade exposure, as measured by the size of their imports, experience a greater increase in informality, though this effect is concentrated in the years prior to the labor market reform. Nevertheless, increasing returns to education, and changes in industry premiums and informality alone cannot fully explain the increase in wage inequality we observe over this period. This suggests that overall the effect of the trade reforms on the wage distribution may have been small.
with Hamish Low (Review of Economic Dynamics, Vol. 7(2), April 2004, pp406-435)
Abstract: In this paper we consider conditions under which the estimation of a log-linearized Euler equation for consumption yields consistent estimates of the preference parameters. When utility is isoelastic and a sample covering a long time period is available, consistent estimates are obtained from the log-linearized Euler equation when the innovations to the conditional variance of consumption growth are uncorrelated with the instruments typically used in estimation. We perform a Monte Carlo experiment, consisting in solving and simulating a simple life cycle model under uncertainty, and show that in most situations, the estimates obtained from the log-linearized equation are not systematically biased. This is true even when we introduce heteroskedasticity in the process generating income. The only exception is when discount rates are very high (e.g. 47% per year). This problem arises because consumers are nearly always close to the maximum borrowing limit: the estimation bias is unrelated to the linearization and estimates using non-linear GMM are as bad. Across all our situations, estimation using a log-linearized Euler equation does better than nonlinear GMM. Finally, we plot life cycle profiles for the variance of consumption growth, which, except when the discount factor is very high, is remarkably flat. This implies that claims that demographic variables in log-linearized Euler equations capture changes in the variance of consumption growth are unwarranted.
with Miguel Székely (Journal of Development Economics, Vol. 73(1), February 2004, pp1-25)
Abstract: This paper presents evidence on the relationship between shocks to relative male wages and changes in household consumption in Mexico during the 1990s decade, which is a period characterized by high volatility. Apart from performing analysis of this type for Mexico for the first time, the paper has mainly two contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: nondurable goods, durable goods, education, and health. Our results for nondurable goods consumption reject the hypothesis that Mexican households are able to ensure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represents longer run investment in human capital, which makes them more vulnerable in the future.
with Susann Rohwedder (American Economic Review, Vol. 93(5), December 2003, pp1499-1521)
Abstract: Using three major U.K. pension reforms as natural experiments we investigate the relationship between pension saving and discretionary private savings. Unlike most differences-in-differences approaches which rely on average differences between control and treatment group, we use economic theory to model the response of each individual household. The empirical analysis, based on the Family Expenditure Survey, uses both time-series and cross-sectional variation to identify the behavioral response. The earnings-related tier of the pension scheme is found to have a negative impact on private savings with relatively high substitution elasticities; the impact of the flat-rate tier is not significantly different from zero.
with A. Brugiavini (Quarterly Journal of Economics, Vol. 118(3), August 2003, pp1075-1120)
Abstract: This paper provides new evidence on the substitutability between private and pension wealth by exploiting the Italian pension reform of 1992. We use a difference-in-difference estimator that exploits the differential effects of the reform on individuals belonging to several year-of-birth cohorts and different occupational groups. We find convincing evidence that saving rates increase as a result of a reduction in pension wealth. By allowing for the possibility that substitutability changes with age, we find that substitutability is particularly high (and precisely estimated) for workers between 35 and 45.
with C Emmerson (Journal of the European Economic Association, Vol. 1(4), June 2003, pp821-850)
Abstract: In this paper we use the two waves of the British Retirement Survey (1988/1989 and 1994) to quantify the relationship between socioeconomic status and health outcomes. We find that, even after conditioning on the initial health status, wealth rankings are important determinants of mortality and the evolution of the health indicator in the survey. For men aged 65 moving from the 40th percentile to the 60th percentile in the wealth distribution increases the probability of survival by between 1.0 and 1.9 percentage points depending on the measure of wealth used. A similar effect is found for women of between 1.1 and 1.3 percentage points. In the process of estimating these effects we control for nonrandom attrition from our sample.
with Pedro Albarran (Economic Journal, Vol. 113(486), March 2003, ppC77–C85)
Abstract: This paper studies some empirical implications of models with limited risk sharing due to the imperfect enforceability of contracts. We test whether the amount by which public transfers reduce private transfers is affected by features of the economy, such as the variance of income and its persistence. These implications are unique to models with imperfect enforceability. We use data from Mexico collected to evaluate a public transfer programme. It included a randomised component that we exploit as a source of exogenous variation. Our results support the theoretical model in that the crowding out of private transfers is larger in villages where the variance of income is smaller.
with V. Lechene (Review of Economic Dynamics, Vol. 5(4), October 2002, pp720-48)
Abstract: Using the Progresa data from Mexico, we investigate intrahousehold decision making using a variety of outcomes. We exploit both the experimental nature and the (short) panel dimension of the data to measure the impact of exogenous changes in the intrahousehold distribution of resources on household decisions. We test for global pooling of resources within households, which would correspond to the unitary model of household decision making. We also exploit a set of questions about power and the decision making process in the household to investigate aspects of strategic interactions between household members. Our findings confirm previous rejections of income pooling. We also cannot reject that the wife’s relative income share is a significant determinant of the wife’s decision making power in the household, with a higher share of income associated with more decision making power.
with James Banks and Sarah Tanner (Journal of Political Economy, Vol. 110(4), August 2002, pp771-792)
Abstract: Using the Progresa data from Mexico, we investigate intrahousehold decision making using a variety of outcomes. We exploit both the experimental nature and the (short) panel dimension of the data to measure the impact of exogenous changes in the intrahousehold distribution of resources on household decisions. We test for global pooling of resources within households, which would correspond to the unitary model of household decision making. We also exploit a set of questions about power and the decision making process in the household to investigate aspects of strategic interactions between household members. Our findings confirm previous rejections of income pooling. We also cannot reject that the wife’s relative income share is a significant determinant of the wife’s decision making power in the household, with a higher share of income associated with more decision making power.
with T. Deleire (Economic Journal, Vol. 112(481), July 2002, pp504-38)
Abstract: A major debate exists on whether expanding tax-favoured savings accounts such as Individual Retirement Accounts (IRAs) will increase national savings. Much of the empirical debate has centred on whether IRA contributions before the Tax Reform Act of 1986 represented new savings or merely reshuffled assets. We find no evidence that households financed their IRA contributions from reductions in consumption, at least initially. We find evidence that households financed their IRA contributions from existing savings or from saving that would have been done anyway. Our results indicate that, at most, 9% of IRA contributions represented net additions to national saving.
with Luigi Guiso and Tullio Jappelli (Journal of Political Economy, Vol. 110(2), April 2002, pp317-351)
Abstract: We use microeconomic data on households to estimate the parameters of the demand for currency derived from a generalized Baumol‐Tobin model. Our data set contains information on average currency, deposits, and other interest‐bearing assets; the number of trips to the bank; the size of withdrawals; and ownership and use of ATM cards. We model the demand for currency accounting for adoption of new transaction technologies and the decision to hold interest‐bearing assets. The interest rate and expenditure flow elasticities of the demand for currency are close to the theoretical values implied by standard inventory models. However, we find significant differences between individuals with an ATM card and those without. The estimates of the demand for currency allow us to calculate a measure of the welfare cost of inflation analogous to Bailey’s triangle, but based on a rigorous microeconometric framework. The welfare cost of inflation varies considerably within the population but never turns out to be very large (about 0.1 percent of consumption or less). Our results are robust to various changes in the econometric specification. In addition to the main results based on the average stock of currency, the model receives further support from the analysis of the number of trips to and average withdrawals from the bank and the ATM.
with G. Berloffa, R. Blundell and I. Preston (The Economic Journal, Vol. 112(478), March 2002, ppC52-C59)
Abstract: This paper studies the paths from inequality in earnings to inequality in household consumption. We show that careful study of the evolution of the variances and covariances of earnings and consumption within cohorts across time can identify permanent and transitory shocks. We present an application to the evolution of inequality in the United Kingdom. We extend previous results to recognise separate earnings of partners in couples.
with T. Jappelli (Review of Economic and Statistics, Vol. 83(1), February 2001, pp13-58)
Abstract: The theory of intertemporal choice predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach circumvents the necessity to identify a pure age profile of the cross-sectional variance of consumption and yields a well-specified statistical test. This test is applied to data from the United States, the United Kingdom, and Italy. The results are remarkably consistent with the restrictions implied by the theory of intertemporal consumption choices.
(The Review of Economic Studies, Vol. 67(4), October 2000, pp667-696)
Abstract: This paper presents an (S,s) model for automobile consumption and estimates it using a data set of US households. The model allows for unobserved heterogeneity in both the target level and the band width, takes into account the possibility of a zero desired level, constrains the band to be non negative and allows asymmetric bands. The model is estimated on a novel data set which contains information on both stock values and automobile expenditure for a large number of households observed over a period of a year. The (S,s) rule is specified in terms of the ratio of car stock to non durables. The shortcuts usually employed in the empirical literature on (S,s) rules can be avoided thanks to the richness of the data set and the rigorous specification of the stochastic model. Having estimated the model and considered `goodness of fit’ measures, aggregation issues are considered. First, the paper presents a number of negative results. Then, several simulations aimed at evaluating the effects induced by inertial behavior on aggregate dynamics are considered.
with V. José-Víctor Ríos-Rull (European Economic Review, Vol. 44(7), June 2000, pp1225-1258)
Abstract: In this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment. We show that this type of insurance can improve the wellbeing of private situations, but it can also deteriorate it. We also describe how different characteristics of the environment affect the role of public insurance. Using data on the Mexican PROGRESA program, we document the impact that some government programs have in crowding out private transfers.
with L. Picci and A. Scocu (The Review of Economics and Statistics, Vol. 82(2), May 2000, pp182-211)
Abstract: This paper provides a descriptive analysis of the long- and short-run correlations among saving, investment, and growth rates for 123 countries over the period 1961-94. Three results are robust across data sets and estimation methods: i) lagged saving rates are positively related to investment rates; ii) investment rates Granger cause growth rates with a negative sign; iii) growth rates Granger-cause investment with a positive sign.
with Hilary Hoynes (The Journal of Human Resources, Vol. 35(1), Winter 2000, pp1-29)
Abstract: In this paper, we examine the role played by differential mortality in estimates of life cycle wealth profiles. Our study makes three contributions. First, we show that the Survey of Income and Program Participation (SIPP) provides reliable data on mortality as compared to the US life table data. Second, we provide estimates of the relationship between mortality and wealth and show strong evidence of differential mortality. Lastly, and most importantly, we show that the differences in mortality by wealth are large enough to substantially affect the etimated wealth-age profiles.
with James Banks, Costas Meghir and Guglielmo Weber (Journal of Business & Economic Statistics, Vol. 17(1), January 1999, pp22-35)
Abstract: In this article we argue that the life-cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump-shaped consumption profiles over age that are very similar to those observed in household-level data sources and, in particular, match the differences in shape across education groups. Liquidity constraints or myopia are not required to explain the empirical features of observed life-cycle patterns.
with James Banks (Economic Policy, 1998, Vol. 13(27), October 1998, pp548–583)
Abstract: Despite diverse trends in household saving in OECD countries, many governments are introducing tax incentives designed to boost saving by particular groups. Such schemes have been justified by many trends, including increasing income inequality, ageing populations, and greater cross‐border competition. It is dangerous, however, to base policy on what is happening to aggregate household saving alone. First, personal saving should be viewed within a lifecycle context. Saving may look inadequate today, but households may already have made plans to redress this in future. Second, data on aggregate saving conceal significant differences between different household groups. Only disaggregation yields reliable inferences on which policy can be based. In particular, it is impossible to assess the consequences of demographic changes without analysis that distinguishes between different generations. We reassess household saving by computing the evolution of lifetime profiles of consumption, income and saving of different cohorts over time, and then analyse the effect of demographic and other changes. We find little evidence for the assertion that tax incentives to promote national saving are needed now to stave off a future drought in household saving.
(The Journal of Human Resources, Vol. 33(3), Summer 1998, pp575-609)
Abstract: The aim of this paper is to shed some light in the decline in personal saving rates in the United States in the 1980s. For a such a purpose the paper analyses the only U.S. data set containing information on consumption and income at the household level: the Consumer Expenditure Surveys (CEX) from 1980 to 1991. Because the CEX is not a panel, most of the analysis is conducted using average cohort techniques. The paper identifies a “typical age profile” for saving rates. Such a profile is “hump shaped” and peaks around age 57. The paper also argues that such a profile was “shifted down” for the cohorts born between 1920 and 1939 relative to the younger and older cohorts considered. These cohorts are the parents of the baby boom generation. The paper also argues that these “cohort effects” can account for a nonneglible proportion of the decline in aggregate saving because these cohorts were, during the 1980s, in the ages when saving rates are typically highest. The result is robust to the consideration of several controls and holds for several definitions of consumption. The only exception is when durable expenditure is considered as saving rather than consumption.
(Fiscal Studies, Vol. 18(1), February 1997, pp23–47)
: This paper illustrates recent trends in household consumption and personal savings in the UK and the US and discusses some theoretical models that can be used to interpret them. The trends in these two countries are interesting for several reasons. The decline in personal saving rates in the US during the 1980s is an unresolved puzzle. The corresponding variable in the UK has undergone large fluctuations, as have several other variables ranging from projected demographic trends to female labour supply. This paper stresses the need to analyse individual data to shed some light on these aggregate trends. It also stresses the need to have a sound structural model to interpret observed patterns in the data.
The theoretical framework discussed throughout the paper is the life-cycle model, which views consumption and saving decisions as part of a dynamic optimisation process. The development of the model and the current research agenda and ways that it can be enriched with various degrees of sophistication are discussed. Particular attention is devoted to the discussion of the most recent developments.
with Steven J. Davis (Journal of Political Economy, Vol. 104(6), December 1996, pp1227-1262)
Abstract: We analyze how relative wage movements among birth cohorts and education groups affected the distribution of household consumption and economic welfare. Our empirical work draws on the best available cross-sectional data sets to construct synthetic panel data on U.S. consumption, labor supply, and wages during the 1980s. We find that low-frequency movements in the cohort-education structure of pretax hourly wages among men drove large changes in the distribution of household consumption. The results constitute a spectacular failure of between-group consumption insurance, a failure not explained by existing theories of informationally constrained optimal consumption behavior. A welfare analysis indicates that the cost of between-group consumption variability is larger than the cost of aggregate consumption variability by two orders of magnitude.
with Martin Browning (The American Economic Review, Vol. 85(5), December 1995, pp1118-1137)
Abstract: We assess the empirical validity of the life-cycle model using a time series of cross sections and a novel parametrization of preferences. The main findings are as follows: (i) The excess sensitivity of consumption growth to labor income disappears when we control for demographic variables. (ii) The elasticity of intertemporal substitution (EIS) is a function of several variables, including the level of consumption. The EIS increases with the level of consumption. (iii) The variables that change the EIS are also important in explaining excess sensitivity over the business cycle. We are able to reconcile our results with those in the macro and micro literature.
with Guglielmo Weber (Journal of Political Economy, Vol. 103(6), December 1995, pp1121-1157)
Abstract: In this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in U.S. household-level data. We propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations. We estimate preference parameters using the only U.S. micro data set with complete consumption information. We show that previous rejections can be explained by the simplifying assumptions made in previous studies. We also show that results obtained using good consumption or aggregate data can be misleading.
with Guglielmo Weber (Economica, Vol. 62(248), November 1995, pp565-576)
Abstract: If consumers have finite lives, the aggregate consumption growth equation is affected by entries and exits (births and deaths). We use two-and three-period overlapping-generations (OLG) models to show that entries and exits produce a relationship between aggregate consumption growth and the interest rate that is fundamentally different from the individual Euler equation for consumption. If aggregate data are used to estimate an `aggregate’ Euler equation, under plausible assumptions we show that the estimate of the elasticity of intertemporal substitution is downward biased and that consumption growth exhibits excess sensitivity to labor income.
with Guglielmo Weber (The Economic Journal, Vol. 104(427), November 1994, pp1269-1302)
Abstract: Two competing explanations of the UK consumer boom in the late 1980s are the financial liberalisation-imperfect housing market hypothesis of Muellbauer and Murphy and the expectations hypothesis of King. We use 15 years of Family Expenditure Surveys, and cohort analysis, to investigate to what extent these two hypotheses agree with observed changes in consumption patterns. We find that the housing markets explanation accounts for much of the increase by older cohorts, but cannot be reconciled with the marked rise in expenditure levels of younger households. A simple simulation exercise shows instead that the expectations hypothesis can generate increases of expenditure by young consumers of the magnitude observed in our data.
with Martin Browning (Investigaciones Economicas, Vol. 18(3), September 1994, pp433-63)
Abstract: In this paper we analyze the implications of the life cycle model for consumption and consider the possibility of testing the model using macro and micro data. We conclude that the implications of the model cannot be tested with macro data. We provide some evidence from the US and UK micro datasets which shows that the life cycle model, at first glance, is not inconsistent with the data.
(Ricerche Economiche, 1993)
(The Review of Economic Studies, Vol. 58(3), May 1991, pp479-494)
Abstract: The paper addresses two topics. First, it nests the consumption and static CAPM in a unified framework. Second, it tests for market efficiency. The first test is based on the idea that different models price risk on the basis of the covariance with different benchmark portfolios. The test of market efficiency is based on the idea that excess returns should be predictable only if risk, and therefore second moments, are predictable. The empirical results show that the static CAPM performs better than the consumption CAPM and that the former model accounts for the effects of dividend yields on expected returns.
(Economics Letters, Vol. 33(2), June 1990, pp159-164)
Abstract: In this paper the hypothesis that asymmetric information in financial markets can increase asset price volatility is examined. Within the framework of the Grossman and Stiglitz (1980) model, a sufficient condition for such a hypothesis to hold is derived. The intuition is that, while uninformed agents react in a ‘damped’ way to signals (which reduces volatility), they react to noise as well. This latter effect can become dominant.
– Time Varying Volatility and Foreign Exchange Risk. An Empirical Study
with Guglielmo Weber (The Economic Journal, Vol. 99(395), Supplement: Conference Papers 1989, pp59-73)
with Giancarlo Marini (Rivista Internazionale di Scienze Sociali, Anno 96(3), Luglio-Settembre 1988, pp371-381)
– Output and Employment Effects of Countercyclical Policy: Empirical Evidence for OECD Countries
with G. Marini (Economic Notes, 1988)
– A Pitfall in the use of Lagrange Multiplier Test in Multivariate ARCH Models
Please see my CV for a list of books, chapters, and invited papers.