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Jel Classification:H50 

Working Paper
Incumbency Disadvantage of Political Parties: The Role of Policy Inertia and Prospective Voting

We document that postwar U.S. elections show a strong pattern of ?incumbency disadvantage": If a party has held the presidency of the country or the governorship of a state for some time, that party tends to lose popularity in the subsequent election. To explain this fact, we employ Alesina and Tabellini's (1990) model of partisan politics, extended to have elections with prospective voting. We show that inertia in policies, combined with sufficient uncertainty in election outcomes, implies incumbency disadvantage. We find that inertia can cause parties to target policies that are more ...
Working Papers , Paper 19-7

Journal Article
Fiscal Sustainability: A Cross-Country Analysis

Since the global financial crisis, public debt has risen rapidly in many advanced and emerging market economies. Every country faces a fiscal limit at which taxes and spending can no longer adjust to stabilize debt. But quantifying fiscal limits can be challenging. Different countries have different capacities to service their debt. Moreover, two countries with similar debt levels may face drastically different default risks. {{p}} Huixin Bi introduces a new, country-specific framework of fiscal limits to quantify the maximum level of debt a government can sustain given its economic and ...
Economic Review , Issue Q IV , Pages 5-35

Journal Article
Secular Stagnation and Monetary Policy

This article is based on the author?s Homer Jones Memorial Lecture delivered at the Federal Reserve Bank of St. Louis, April 6, 2016.
Review , Volume 98 , Issue 2

Working Paper
Assessing the evidence on neighborhood effects from moving to opportunity

Trying to learn about neighborhood effects from the Moving to Opportunity (MTO) housing mobility experiment by focusing on its program effects obfuscates the evidence on neighborhood effects from MTO. This paper shows that using Intent-to-Treat (ITT) and Treatment-on-the-Treated (TOT) program effects from MTO to indirectly draw conclusions about neighborhood effects (1) offers no advantage for learning about neighborhood effects over directly estimating neighborhood effects, and (2) answers an ill-posed question as a result of allowing central identifying assumptions to be made implicitly. ...
Working Papers (Old Series) , Paper 12-33R

Journal Article
The Implications of Unrealized Losses for Banks

nterest rates have risen across the yield curve since the Federal Open Market Committee began tightening monetary policy in March 2022. After amassing securities during the pandemic, commercial banks saw rising interest rates erode the value of their securities portfolios by nearly $600 billion, or about 30 percent of their capital holdings. In some cases, declines in valuation of securities holdings in response to interest rate changes—known as “unrealized losses”—can mechanically reduce key regulatory capital and liquidity ratios. Should banks need to sell the securities to generate ...
Economic Review , Volume vol. 108 , Issue no. 2 , Pages 20

Working Paper
Which Way to Recovery? Housing Market Outcomes and the Neighborhood Stabilization Program

To help communities recover from the foreclosure crisis, Congress enacted a set of policies known as the Neighborhood Stabilization Program (NSP). NSP's objective was to mitigate the impact of foreclosures on neighboring properties, through reducing the stock of distressed properties and removing sources of visual blight. This paper presents evidence on production outcomes achieved through the second round of NSP funding (NSP2), and discusses the housing market context under which the program operated from 2010 to 2013. Two key findings emerge. First, local grantees undertook quite different ...
Finance and Economics Discussion Series , Paper 2015-4

Working Paper
Withstanding great recession like China

The Great Recession was characterized by two related phenomena: (i) a jobless recovery and (ii) a permanent drop in aggregate output. Data show that the United States, Europe, and even countries with lesser ties to the international financial system have suffered large permanent losses in aggregate output and employment since the financial crisis, despite unprecedented monetary injections. However, the symptoms of the Great Recession were not observed in China, despite a 45% permanent drop in its exports one of the largest trade collapses in world history since the Great Depression. Our ...
Working Papers , Paper 2014-7

Working Paper
Fiscal Stimulus under Sovereign Risk

The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign default that can account for this empirical pattern. Financing a fiscal stimulus is costly for risky countries and can render countercyclical policies undesirable, even in the presence of large Keynesian stabilization gains. We also show that imposing austerity can backfire by exacerbating the exposure to ...
Working Papers , Paper 762

Working Paper
Policy Inertia, Election Uncertainty and Incumbency Disadvantage of Political Parties

We document that postwar U.S. elections show a strong pattern of ?incumbency disadvantage?: If a party has held the presidency of the country or the governorship of a state for some time, that party tends to lose popularity in the subsequent election. We show that this fact can be explained by a combination of policy inertia and unpredictability in election outcomes. A quantitative analysis shows that the observed magnitude of incumbency disadvantage can arise in several di?erent models of policy inertia. Normative and positive implications of policy inertia leading to incumbency disadvantage ...
Working Papers , Paper 19-40

Working Paper
Incumbency Disadvantage in U.S. National Politics: The Role of Policy Inertia and Prospective Voting

We document that postwar U.S. national elections show a strong pattern of incumbency disadvantage": If the presidency has been held by a party for some time, that party tends to lose seats in Congress. We develop a model of partisan politics with policy inertia and prospective voting to explain this finding. Positive and normative implications of the model are explored.
Working Papers , Paper 17-43


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