Hartar Blog

Since the global financial crisis started there has been a debate about how much of the increase in unemployment is cyclical versus structural. Arpaia and Turrini summarize the results of their analysis of the EU labor market in a recent Vox post . They start by showing that there has been a significant shift in the relationship between vacancies and unemployment (what is known as the Beveridge curve) in many of the EU countries. This shift, combined with further analysis of how unemployment reacts to changes in labor demand leads them to conclude that there has been a decline in the matching efficiency of the labor market in these countries. From their post: "...a major drop in matching efficiency was recorded in 2009 in most countries. Unsurprisingly, matching efficiency has been falling mostly in the countries that witnessed a marked outward shift in the Beveridge curve, although some signs of stabilisation or even recovery are visible by 2013Q1" They then try to understan...

The difference between interest rate and growth rates appears as an important parameter in many macroeconomic models. It is also a key variable to assess the sustainability of public finances: higher interest rates make the cost of carrying over debt higher while high growth rates help keep the debt to GDP ratio under control. In a recent post Floyd Norris criticizes the assumptions used by the US Congressional Budget Office for its fiscal projections because they are assuming lower growth rates ahead but a return to "normal" interest rates. The point that Norris makes is that we tend to think that interest rates and growth rates are correlated, so if growth is going to be much lower going forward we should also forecast lower interest rates (and this will make the fiscal outlook look more positive). Paul Krugman initially supports Floyd Norris' arguments but later, after checking the data, he realizes that growth and interest rates are not that correlated . Here is the...

John Cochrane has a new blog post summarizing recent research by Budish, Cramton and Shim on the effects of high frequency trading. The paper shows that as high frequency trading spreads the correlation of a particular asset price across two US markets (Chicago and New York) has become higher at intervals that are very short. Any price deviations across the two markets disappear in less than one second. As Cochrane puts it, It is lovely to see the effect of "arbitrageurs" making markets "more efficient." As an academic I enjoyed reading the post as it provides a very nice example of a clean empirical test of how high frequency trading makes the comovements of two markets stronger. This is what we look for in academic papers, a clean test of a very simple theory that produces very credible and robust results. But as much as I enjoyed reading the post, it also reminded me of how limited is the ability of academic research to help us understand phenomena that really ...