Open Economies Review
Abstract:
Why do estimates of the European Monetary Union (EMU) effect on trade vary so greatly? Rose (2017) shows that the largest factor determining the size of EMU trade
estimates is the choice of sample, with studies using only European or rich countries finding smaller impacts than those using more complete trade datasets. I push this
question one step further, asking instead: what is the appropriate comparison group with which to study the euro's trade impact? Using a first stage estimation of selection
into the EMU and a robust propensity score weighting estimator, I extend the work of Millimet and Tchernis (2009) to a larger dataset of countries and years, showing that
gravity estimates of the euro effect on trade are smaller when sample truncation and weighting brings the differences in observable characteristics between EMU and non-
EMU pairs close to zero. Utilizing a Poisson pseudo-maximum likelihood approach, I find that estimates using this more robust estimator reflect the same pattern, but
with significantly less initial upward bias. My work suggests that policy analysis in trade should be more careful to consider the comparability of "treated" and "control"
observations, and more readily utilize propensity score methods as a data driven approach to rebalancing samples when differences across these groups are large.
Emerging Markets Finance and Trade
Abstract:
A large literature estimates the impact of currency unions on trade. Often ignored in these estimates are the dramatic differences in the characteristics of countries adopting common currencies, hidden by aggregation into a single currency union effect. I show that currency unions have substantial differences in their observable characteristics, relative to non-unions, making them a poor comparison group for estimation of policy treatment. Further, these differences are heterogeneous across individual currency unions, making one aggregate estimate likely inappropriate. Using inverse propensity score methods, I find that adjusting these gravity equation estimates to account these differences, both via weighting and via sample adjustment, meaningfully impacts the estimated policy effects. I find a wide range of currency union effects across individual, disaggregated, currency unions. My results suggest that future work on currency unions, and other macroeconomic policies, should be careful to check for such underlying heterogeneity when estimating policy effects.
Journal of Economic Studies
Abstract:
This paper explores the empirical relationship between population age structure and
bilateral trade. I include age structure in both log and PPML formulations of the gravity equation of
trade. I study relative age effects, using differences in the demographic structure of
each country-pair. I find that a relatively larger share of population in working age increases bilateral
exports. This is robust to various estimation models, as well as to changes in the
method of specifying the demographic controls. Old-age shares have a negative, but
less robustly estimated impact on trade. Estimating instead the balance of trade
between trading partners produces similar results, with positive effects of age structure
peaking later in working life. Global populations are poised to undergo a massive transition. Trade a crucial way
that the demographic deficits of one country may be offset by the dividends of another
as comparative advantages shift along with the size and strength of their underlying
workforce. My work is among the first to quantify the effect of relative age structure between two
countries and their bilateral trade flows. Focusing for the on aggregate flows, relative
age shares, and PPML estimates of the trade relationship, this paper provides the most comprehensive picture to date on how age structure affects trade.
Journal of the Economics of Ageing
Abstract:
A large literature has reopened the secular stagnation hypothesis, first proposed near
the end of the great depression as a warning for anemic growth resulting from long run
trends in population aging. In this paper, I explore the relationship between population
age structure and growth in: investment, consumption and output, in a long run panel
of advanced economies. The evidence is largely consistent with proposed channels for
secular stagnation. Investment growth, in its level and as a fraction of GDP, appears
much stronger in young populations, while facing demographic headwinds in older
economies. Consumption and output growth are positively associated with late career
workers, with a negative relationship coming from both young and old dependents.
Consistent with the recent secular stagnation literature, interest rate channels appear to
have strong interactions with population age structures. I find that for investment and
output growth, estimated impacts of age-structure are more pronounced in low interest
rate environments, with high rates mitigating some of their effect.
Journal of Macroeconomics
Abstract:
Advanced economies face two important trends: population aging and rising debt. In the coming years, it will be critical to understand how policies undertaken by governments interact with their changing age structures. In a panel of advanced economies, I show that fiscal deficit consolidation multipliers are highly sensitive to changes in population age. The demographic transmission of fiscal shocks differs between spending cuts and tax hikes, with important variation within working age and across dependent groups. Tax increases lead to weaker output response in relatively young economies, strengthening as population weights move to middle age, and falling again with large shares of retirees. Output response to spending, on the other hand, shows little change with demographics. The transmission of both policies to fiscal deficits suggests significant age dependence, with important impacts on multipliers when constructed as the ratio of cumulative output and deficit effects. Projecting forward, my estimates expect smaller multipliers as the baby boomer cohort fully retires, with demographics accommodating both tax and spending consolidations in terms of stronger deficit improvements, with tax policy displaying weaker output response.
Macroeconomic Dynamics
Abstract:
What determines the strength of the relationship between money growth and inflation? A large literature suggests that it has weakened since the 1980s, without a definitive explanation of the cause. I explore how population age structure explains changes in the pass through of money growth rates to inflation. I show that the quantity theory of money holds over long time horizons, with sizable estimates of the impact of money growth on inflation in the short to medium term. Various measures of population age structure have significant impact on the strength of this relationship. These demographics account for an increase in the transmission of money growth to prices in the 1970s and a weakening throughout the great moderation. The baby boomer cohort, now in the age groups around retirement, may exert upward pressure on this money transmission to prices at present, with ambiguous implications in the future as low fertility and rising longevity persist.