Public Policy
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Item The Language of Central Banking: Probing Global Monetary Policy Communications Spillovers and Central Bank Shocks with Natural Language Processing Tools and a Novel Text Database(2024) Baird, Cory; Swagel, Phillip; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)The discipline of macroeconomics relies mainly on structured data for empirical research, despite unstructured text data being vastly more abundant. This text data, particularly central bank communications, holds untapped potential for monetary economics research due to their influence on market expectations and policy outcomes like inflation. To help guide monetary policy researchers in exploring the growing universe of text data, this research lays out a foundational framework, both in terms of coding infrastructure and Natural Language Processing (NLP) methods. The first step in building out this infrastructure is through the creation of a new open-source central bank text database consisting of monetary policy communications from 14 countries consisting of 2,418 monetary policy statements. I leverage this novel database to explore the literature on "information effects," which has mainly relied on structured data for empirical analysis despite the possibility that the phenomenon itself is attributable to the linguistic elements or sentiment expressed via central bank communications. Chapter 1 (The Anatomy of a Central Bank Statement and Information Shocks) details the steps necessary to create a reproducible and scalable database of monetary policy statements from a diverse group of countries using the latest open source technologies and modern data science practices. I find that positive co-movement between policy rates and equities (what the literature defines as an "information shock") is a common event, with almost half of all policy rate increases (decreases) occurring alongside higher (lower) equity prices. With linguistic regressions and part-of-speech annotations, I provide novel linguistic evidence that information shocks are likely related to both the future state of the economy \parencite{nakamura2018high} and inflation expectations \parencite{boehm2021beyond}. Chapter 2 (Sentiment Analysis-From Past to Present) develops a novel approach for extracting sentiment at the sentence level using cutting-edge transformers models, the architecture behind many large language models (LLMs). My research demonstrates that transformer models as well as the traditional lexical methods employed in the economic literature, can produce starkly divergent results when applied to the same monetary policy statement. This highlights the critical need to utilize multiple sentiment measures to ensure the robustness of any findings derived from textual analysis. Reinforcing the linguistic evidence from Chapter 1, I show that positive (negative) sentiment is associated with positive (negative) information shocks providing further evidence the shocks are driven by the language of the statement itself. I also show that positive sentiment is associated with higher GDP growth in the quarters following a monetary policy statement. Chapter 3 (Central Bank Shocks and Global Spillovers), aggregates sentiment measures from the previous chapter to produce what I call the Global Policy Stance (GPS). I find that the GPS, led by the U.S., Japan, and Switzerland, tends to co-move with the global financial cycle (Global Asset Prices Factor from \textcite{miranda2020global}). I also find that domestic sentiment, rather than U.S. or global sentiment, is predictive of future policy rate changes suggesting that markets may be more sensitive to the communications of the home country's central bank. This thesis sets a rigorous standard for database transparency and code reproducibility above and beyond what is standard practice in the economics literature today. I will publicly release the codebase encompassing data retrieval, cleaning processes, figure generation, model development, all of which were produced utilizing the open-source Python programming language. Through this public release, I will provide researchers with valuable coding infrastructure that supports the operationalization of best practices in data management, enabling (1) the creation of open-source databases fostering collaboration and automation, as well as (2) the development of reproducible, scalable algorithms for text classification and text cleaning processes. In the future, I intend to further build out the central bank database to include other types of monetary policy communications (e.g., minutes and speeches) while also separately maintaining a repository of text classification algorithms (e.g. positive and negative sentiment) including lexical dictionaries from the literature as well as fine-tuned transformer models.Item Income Inequality and Household Debt: Assessing the Relationship Using Household Panel Data(2022) Brauer, Max; Graham, Carol; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Is income inequality positively associated with household debt? Previous scholarship suggests that widening income inequality could stimulate household debt, particularly in advanced economies. Furthermore, this potential link could be associated with negative consequences including reduced GDP and secular stagnation, financial fragility and crisis, and decreased capabilities, mobility, and well-being. Yet, until recently, this “income inequality/household debt” link has been understudied. The first chapter discusses two theoretical bases for the link and synthesizes the burgeoning empirical research to identify gaps. Theoretically, income inequality could bolster credit supply because marginal propensity to save increases with income. But income inequality could also stimulate credit demand through the relative income hypothesis. Empirically, income inequality is positively associated with rising debt-to-income ratios (DTI) in developed countries. However, this empirical research generally lacks controls for an important omitted variable (financial deregulation) and an alternative explanation (wealth effects). Moreover, few studies explore changes in the intensive margin of household DTI, which has been the largest contributor to rising overall DTI and is most likely linked to negative consequences. The second chapter examines the relative impacts of various measures of state-level income inequality, financial deregulation, and wealth effects on both the intensive margin and overall DTI of United States households using household panel data from the Panel Study of Income Dynamics (PSID). Results indicate that income inequality is significantly, positively associated with household DTI, but only for the Gini coefficient and the top 10 percent income share. Yet for these measures, income inequality has the strongest and most significant impact on the intensive margin of household DTI as compared to alternative explanations. The third chapter explores a potential microfoundation for the income inequality/DTI link: whether subjective well-being is associated with household DTI. A long literature notes how income inequality and relative income preferences affect subjective well-being. If subjective well-being also affects debt, it could function as a measure of credit demand. Again using data from the PSID and a fixed effects method, results show that subjective well-being has a positive, significant, contemporaneous association with household DTIs. Such a positive association could indicate a “tunnel effect” -- that households with a positive, aspirational outlook take on increasing amounts of debt. However, reverse causality is a potential issue, and additional models designed to address reverse causality with a two-year lag do not find significant results, perhaps due to data limitations for lag specifications. The key finding of this dissertation is that income inequality is positively associated with household DTI, and, in fact, contributes more to driving indebted households deeper into debt than alternative explanations. Yet when viewed from the lens of subjective well-being, happier households are more likely to take on additional debt. These findings suggest that, in the United States, income inequality may lead some households to go deeper into debt as they ostensibly chase the “American dream” and aspire to the same living standards as higher income earners.Item Investment and Economic Performance in Europe: The Role of the Investment Climate(2020) Schwarzenberg Zilberstein, Andres; Swagel, Phillip L; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation investigates how investment, the investment climate, and economic integration affect the economic performance of 31 European countries. A major contribution is the development of two new composite indicators—the European Investment Attractiveness Index (IAI) and the European Union (EU) Economic Integration Index (EEI). The study conceptualizes the investment climate both as a multidimensional construct and as a framework for understanding how political, economic, and social factors interact and affect the attractiveness of a country for foreign and domestic investment. In addition, it considers how trade, financial, monetary, and value chain relationships have shaped the process of economic integration at the EU level. The study then uses the indices to examine the impact of foreign and domestic investment on gross domestic product (GDP). The results from cross-country regression and dynamic panel data analyses reveal that both types of investment have a positive and significant impact on economic growth in Europe (although, notably, exports seem to have a larger impact than either foreign or domestic investment). Moreover, this study finds that the investment climate matters for economic performance. Attractive investment climates and higher levels of economic integration—particularly among the Central and Eastern European economies—are associated with higher per capita GDP levels and growth rates. Finally, the dissertation examines the relationship between foreign direct investment (FDI), exports, and GDP in 11 countries in Central and Eastern Europe (CEE). While the goal is not to establish “true” causality, the results show that links between foreign investment, exports, and GDP differ significantly across these countries. While for many of them there is a reinforcing relationship between foreign investment and GDP, there does not seem to be a “causal” relationship between their exports and GDP. These findings challenge the validity of policy guidelines that emphasize—often almost exclusively—attracting foreign investment and boosting exports for development under the assumption that FDI or exports “cause” growth. Thus, policies aimed at improving the fundamentals of these economies (i.e., the investment climate) might be key in generating and sustaining economic growth.Item RISK AND COMMITMENT: CRITICAL DIMENSIONS FOR DEVELOPMENT ASSISTANCE TO COUNTER INSURGENCIES(2019) Glubzinski, Andrew Joseph; Swagel, Phillip L; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Studies of development assistance in Afghanistan have found the impact of such assistance for reducing violence and countering insurgents to be weaker than in Iraq, not connected to improvements in Afghan perceptions of the quality of their governance, and inconsequential in the long term. While these previous results seem disappointing, existing frameworks offer only a limited perspective on why development assistance has not been more impactful in Afghanistan. My research analyzes development assistance in contexts that are more closely related to the reality of how insurgents fight within the geographic environment in Afghanistan compared to the existing literature, while also focusing on the longer-term effects of assistance rather than the short-term impacts previously examined. My framework identifies the concepts of risk and commitment as critical factors for countering insurgents. Risk refers to the risk tolerance for counterinsurgents, specifically the degree to which counterinsurgents emplace development assistance in areas that favor insurgent control. Commitment refers to the persistence of efforts aimed at development assistance, capturing the period of time over which counterinsurgents make investments in a local area. My empirical work coupled with qualitative interviews indicate that counterinsurgents must be willing to take risk and demonstrate commitment for development assistance to contribute to stabilizing a local area. An implication is that the weakness of development assistance for countering insurgents in Afghanistan reflects the typical situation in which development assistance has high commitment but low risk. Even when development assistance has taken risk, sporadic commitment might be constraining the effects. A hopeful implication of my research is that when development assistance involves sufficient risk and commitment, it has the potential to reduce violence in an adjoining area. In particular, I find that more risky rural development has a consistent association with less urban violence, while less risky urban development has a consistent association with more urban violence. However, the requirements of risk and commitment are steep in practice. It is possible for development assistance to reduce violence and improve stability, but the institutional headwinds are great and the costs—no matter the dimension in which they are measured—are substantial.Item AN ESSAY ON THE POLITICAL ECONOMY OF INDUSTRIAL POLICY IN ETHIOPIA(2018) Tolina, Eyob Tekalign; Crocker, David A; Destler, Mac M; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I present a political economy analysis of the post-1991 industrial policy (IP) in Ethiopia. In Chapter one, I set the context for the study and present the research methodology. In the second chapter, I present a comprehensive overview of the literature. After introducing key concepts and reviewing old and new debates on IP, I justify why a political economy framework is a promising way to analyze industrial policy. In Chapter three, I present the historical and current political and economic profile of Ethiopia. I emphasize Khan’s (2005) notion of a “political settlement” as a way of understanding the political economy of a nation in relation to its industrial policy outcomes. I also employ as a main analytic lens Whitfield et al.’s (2015) framework for the politics of industrial policy in Africa. This lens offers three conditions – mutual interest, pockets of efficiency and learning for productivity – as necessary for successful implementation of industrial policy. The Whitefield framework argues that the emergence of these three conditions is shaped by the type of clientelist (donor/client) political organizations that exist in a nation. As such, the model places strong emphasis on material incentives and constraints. In Chapters four and five, I test the relevance of this model to explain and evaluate Ethiopia’s IP. The analysis therein is divided into three politically significant time periods. The focus is to investigate the relations between the dominant clientelist political organization in each time period and the existence or absence of the three Whitfield conditions. The study shows that the Whitfield model neither adequately explains IP results nor guides Ethiopia toward better results. In a bid to establish a more credible and complete version of political economy, the study builds on and supplements the Whitfield model by defending an additional condition necessary for IP success, namely, the political and moral power of concerned citizens. Such an alternative approach I develop in Chapter six, which highlights the importance of such notions as fairness and equity, citizen rights, participatory institutions and civil society in the theory and practice of moral economy.Item Psychological Well-being and Health Gains in the Developing World: Evidence from Peru and Malawi(2018) Dickerson, Sarah; Graham, Carol; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I assess the relationship between psychological well-being and health gains in Peru and Malawi. The first chapter consists of a comprehensive and systematic examination of research that frames the quantitative analyses found in the second and third chapters. It investigates literature on the relationship between maternal well-being and multiple dimensions of health in children and adolescents. It also explains how maternal depression may interact with poverty to worsen offspring’s outcomes. Then, it explores literature on the association between catastrophic health expenditure in Malawi and two of its potential predictors: unexplained happiness and access to antiretroviral therapy (ART), a treatment regimen for people living with HIV/AIDS. The second chapter assesses the impacts of maternal depression and life satisfaction on children in Peru. Using panel data from rounds three (2009-2010) and four (2013-2014) of Young Lives Peru, I find that children’s self-reported life satisfaction and health positively correlate with maternal life satisfaction and negatively associate with maternal depression. Furthermore, maternal life satisfaction predicts whether a female adolescent smokes, while maternal depression predicts smoking behavior and misinformation on pregnancy amongst male adolescents. The third chapter investigates the relationships between household catastrophic health expenditure in Malawi and two predictors, antiretroviral therapy (ART) and unexplained happiness. Using data from round two (2004-2005) and round three (2010-2011) of Malawi’s Integrated Household Survey, I find that proximity to ART-providing clinics and higher levels of psychological well-being associate with reduced likelihood of catastrophic health expenditure.Item Income Inequality, Government Welfare Effort, and Subjective Well-Being: Three Essays(2017) Livani, Talajeh; Graham, Carol; Swagel, Phillip; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation consists of three essays on the relations of income inequality and government welfare effort with subjective well-being. The first essay introduces the concepts, reviews the literature linking income inequality and government welfare effort to subjective well-being, and identifies the research gaps. The paper concludes that the relationship between income inequality and subjective well-being is determined by how inequality is defined and what it signals. Similarly, the relationship between government welfare effort and subjective well-being is determined by factors such as ideology, quality of governance, and the magnitude of social assistance “stigma” effects. The second essay examines whether the relationship between life satisfaction and income inequality or government welfare effort differs by country income group, that is, low-income, lower middle-income, upper middle-income, and high-income countries. It further provides insight into the role of governance in mediating the relationship between inequality and life satisfaction. The essay concludes that the relationship between inequality and life satisfaction is similar (significant and negative) across all country income groups when inequality is perceived as or signals inherent unfairness. Similarly, the association between government welfare effort and life satisfaction is similar (significant and positive) across all country income groups when the government is perceived to be doing enough for the poor. Finally, it appears that confidence in national institutions and leaders may reduce the adverse effects of inequality. The final essay examines whether social protection spending is predictive of life satisfaction in Iraq, a conflict-affected and resource-rich developing country. The main finding is that there is a negative association between life satisfaction and the receipt of most types of public transfers. This negative association is mitigated and, in some cases, becomes positive for individuals in the lowest income quintiles. These patterns are also observed for families considered to be vulnerable based on region of residence and the gender of the household head. A noteworthy finding is that income assistance from private sources is also associated negatively with life satisfaction while income from property ownership and assets is associated positively with life satisfaction. This supports the idea that the source of income matters to individuals, even in the context of a conflict-affected resource-rich developing country like Iraq. This research aims to contribute to the current base of knowledge and to policy questions of interest to academia, research institutions, developing country governments, donors, and the public at large. The findings shed light on how socio-economic contexts are predictive of life satisfaction as well as on how social policies can be designed or modified to improve welfare in developing countries.Item From the 1996 Welfare Law to the Great Recession: Essays on the Effect of Safety Net Changes on Employment and Income Trends(2016) Trisi, Danilo Leandro; Graham, Carol; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)The United States safety net has undergone significant changes over the last three decades. In the early 1990s the Earned Income Tax Credit was expanded. The 1996 welfare law dramatically reduced access to cash assistance. SNAP (formerly food stamps) declined in the aftermath of the 1996 welfare law but rebounded during the 2000s. This dissertation analyzes how these safety net changes have affected the employment trends of single mothers and the income trends of families with children. The first essay examines different ways of measuring how cash assistance changed after the 1996 law. It reviews previous approaches and introduces two measures that meet the objectives of capturing the benefit level and accessibility of a safety net program independent of economic conditions and allowing for variation by year, state, and family size. The essay concludes by discussing how this methodology can be adapted to measure changes in SNAP and EITC policies. The second essay examines the employment trends of single mothers. The descriptive analysis shows how single mothers with the least educational attainment and those with the youngest children increased their employment the most between 1992 and 1999. The econometric analysis uses the safety net measures developed in the first essay to analyze the effect of safety net changes on the employment of single mothers. It finds that the EITC accounted for 36 percent of the employment increase among single mothers with a high school education or less between 1992 and 1999. The economy accounted for 20 percent, changes in cash assistance for 10 percent, and SNAP changes for 4 percent. The third essay examines how the level and composition of incomes of families with children changed between 1993 and 2012. These data show how the safety net has become more focused on supporting families with earnings and less helpful to families during periods of joblessness. Changes in the safety net drove a 16 percent decline in post-tax post-transfer family income of the poorest five percent of children between 1995 and 2005. The paper concludes by looking at the characteristics of children at different points in the income distribution.Item From Cash to Electronic Payments: Microeconomic, Macroeconomic, and Policy Aspects of Retail Payment Systems(2016) Banka, Holti; Swagel, Phillip; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation explores three aspects of the economics and policy issues surrounding retail payments (low-value frequent payments): the microeconomic aspect, by measuring costs associated with retail payment instruments; the macroeconomic aspect, by quantifying the impact of the use of electronic rather than paper-based payment instruments on consumption and GDP; and the policy aspect, by identifying barriers that keep countries stuck with outdated payment systems, and recommending policy interventions to move forward with payments modernization. Payment system modernization has become a prominent part of the financial sector reform agenda in many advanced and developing countries. Greater use of electronic payments rather than cash and other paper-based instruments would have important economic and social benefits, including lower costs and thereby increased economic efficiency and higher incomes, while broadening access to the financial system, notably for people with moderate and low incomes. The dissertation starts with a general introduction on retail payments. Chapter 1 develops a theoretical model for measuring payments costs, and applies the model to Guyana—an emerging market in the midst of the transition from paper to electronic payments. Using primary survey data from Guyanese consumers, the results of the analysis indicate that annual costs related to the use of cash by consumers reach 2.5 percent of the country’s GDP. Switching to electronic payment instruments would provide savings amounting to 1 percent of GDP per year. Chapter 2 broadens the analysis to calculate the macroeconomic impacts of a move to electronic payments. Using a unique panel dataset of 76 countries across the 17-year span from 1998 to 2014 and a pooled OLS country fixed effects model, Chapter 2 finds that on average, use of debit and credit cards contribute USD 16.2 billion to annual global consumption, and USD 160 billion to overall annual global GDP. Chapter 3 provides an in-depth assessment of the Albanian payment cards and remittances market and recommends a set of incentives and regulations (both carrots and sticks) that would allow the country to modernize its payment system. Finally, the conclusion summarizes the lessons of the dissertation’s research and brings forward issues to be explored by future research in the retail payments area.Item The Effect of Stress on Developmental Trajectories: Empirical Evidence from Peru(2015) Bendini, Maria Magdalena; Graham, Carol; Public Policy; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation I examine the relationship between early childhood development (ECD) and stress. In the first chapter I conduct a comprehensive and systematic analysis of the various streams of research that have pushed the frontier of knowledge on the formation of human development in recent decades to compose a holistic portrayal of development that takes place during early life, analyze the role of quality parental care and stimulation as enabler or inhibitor of ECD, and discuss how stress can set children on sub-optimal developmental trajectories. The essay highlights the direct and indirect channels through which stress can affect ECD and the extent to which poor children are particularly vulnerable to it. The second chapter investigates empirically the link between maternal depression and children’s physical growth during early life in Peru. I find suggestive evidence that maternal depression negatively affect childhood growth, and that the size of such effect is not trivial. Evidence in this essay suggests that maternal depression hinders maternal engagement, which in turn could lead to sub-optimal care practices that lead to worse nutritional outcomes. The third chapter is concerned with the relationship between maternal depression and child cognitive development in Peru. Results indicate that while the effect of temporary cases of maternal depression in the sample is negligible and statistically insignificant, the effect of chronic cases of depression is sizable and statistically significant, and persists over time. When the impact of maternal depression is analyzed separately by gender and maternal education level, there is evidence of worse effects for boys, as well as for children of mothers with incomplete primary school. All three chapters discuss the policy implications of the current knowledge of the effect of stress on ECD, which, even if incomplete, is compelling enough to warrant intensifying efforts to shelter children from stress, particularly during early childhood and in low-income settings.