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#1489.

Jonathan Chiu, Thorsten V. Koeppl, Charles M Kahn

Grasping De(centralized) Fi(nance) through the Lens of Economic Theory

In this viewpoint article, we provide an analysis of the value proposition of De(centralized) Fi(nance) and its limitations using a simple stylized model of collateralized lending. DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms of a lending contract and safeguard the collateral. DeFi can lower the costs associated with intermediated lending and improve nancial inclusion. Limitations are the volatility of crypto collateral and stablecoins used for settlement, the possible incompleteness of smart contracts and the lack of a reliable oracle. A…

#1488.

James McNeil, Gregor W. Smith

The All-Gap Phillips Curve

The all-gap Phillips curve (PC) explains inflation by expected inflation and an activity variable such as output or the unemployment rate, but with both inflation and the activity variable measured relative to their stochastic trends and thus as gaps. We study this relationship with minimal auxiliary assumptions and under rational expectations (RE). We show restrictions on an unobserved-components model that identify the Phillips curve parameters, first with an autonomous…

#1487.

Alina Garnham, Derek G. Stacey

Fighting for Fares: Uber and the Declining Market Price of Licensed Taxicabs

In this paper, we study how the emergence of Uber in a large North American city affects the financial value of taxicab licenses. A taxicab license provides a claim to a stream of dividends in the form of rents generated by operating the taxicab or leasing the license. The introduction of Uber undoubtedly affects the anticipated stream of dividends because Uber drivers capture part of the farebox revenue that might otherwise go to the owners/drivers of licensed taxicabs. At the same time, the launch of Uber's innovative technology-driven approach to the provision of ride-hailing services…

#1486.

Brant Abbott, Nam Van Phan

Should wages be subsidized in a pandemic?

We use a labor search model with heterogenous households and firms to study the efficacy of a wage subsidy during a pandemic, relative to enhancing unemployment benefits. A large proportion of the economy is forced to shut down, and firms in that sector choose whether to lay off workers or keep them on payroll. A wage subsidy encourages firms to keep workers on payroll, which speeds up labor market recovery after the pandemic ends. However, a wage subsidy can be costlier than enhancing unemployment benefits. If the shutdown is long or profit margins are low then a wage subsidy is…

#1485.

James G. MacKinnon, Morten Ø. Nielsen, Matthew D. Webb

Fast and Reliable Jackknife and Bootstrap Methods for Cluster-Robust Inference

We provide new and computationally attractive methods, based on jackknifing by cluster, to obtain cluster-robust variance matrix estimators (CRVEs) for linear regression models estimated by least squares. These estimators have previously been computationally infeasible except for small samples. We also propose several new variants of the wild cluster bootstrap, which involve the new CRVEs, jackknife-based bootstrap data-generating processes, or both. Extensive simulation experiments suggest that the new methods can provide much more reliable inferences than existing ones in cases…

#1484.

Charles Beach

Better Off or More Apart? Empirically Testing Welfare and Inequality Dominance Criteria

This paper provides the tools and procedures for empirically implementing several dominance criteria for social welfare comparisons and broad income inequality comparisons. Dominance criteria are expressed in terms of vectors of quantile ordinates based on income shares or quantile means. Statistical properties of these sample ordinates are established that allow a framework for statistical inference on these vectors. And practical empirical criteria are forwarded for using formal statistical inference tests to reach conclusions about ranking social welfare and inequality between…

#1483.

James G. MacKinnon, Morten Ø. Nielsen, Matthew D. Webb

Leverage, Influence, and the Jackknife in Clustered Regression Models: Reliable Inference Using summclust

Cluster-robust inference is widely used in modern empirical work in economics and many other disciplines. The key unit of observation is the cluster. We propose measures of "high-leverage'' clusters and "influential'' clusters for linear regression models. The measures of leverage and partial leverage, and functions of them, can be used as diagnostic tools to identify datasets and regression designs in which cluster-robust inference is likely to be challenging. The measures of influence can provide valuable information about how the results depend on the data in the various clusters. We…

#1482.

James G. MacKinnon

Using Large Samples in Econometrics

As I document using evidence from a journal data repository that I manage, the datasets used in empirical work are getting larger. When we use very large datasets, it can be dangerous to rely on standard methods for statistical inference. In addition, we need to worry about computational issues. We must be careful in our choice of statistical methods and the algorithms used to implement them.

#1481.

Allen Head, Timothy Kam, Sam Ng, Isaac Pan

Money, Credit and Imperfect Competition Among Banks

Using micro-level data for the U.S., we provide new evidence—at national and state levels—
of a positive (negative) relationship between the standard deviation (coefficient of variation)
and the average in bank lending-rate markups. In a quantitative theory consistent with these
empirical observations, banks’ lending market power is determined in equilibrium and is a novel
channel of monetary policy. At low inflation, banks tend to extract higher markups from existing
loan customers rather than competing for additional loans. As a result, banking activity need…