· Nice discussion by John Cochrane on some of the challenges and issues in interpreting the mark-up/mark-down macro literature “Of course, you might say, if costs go up a dollar, companies charge a dollar more, not the log of a dollar more. How could you ever have thought otherwise?... But in fact proportional markups are pretty much the standard baseline adopted by people who look at this sort of thing.
We had a fun discussion. Proportional markups come from the convenient constant elasticity of substitution demand”….and on markdowns “One answer is that markdowns are just badly measured. And they are. A business hires a young person to sweep up and see if he works out. How do you measure how much extra the firm makes per hour from this employee? The authors, like everyone else in this business, does it with heroic assumptions. They write a production function at the firm level, and then estimate the marginal product of all workers. But if markdowns are badly measured, how do we know the supposed stylized fact that started this all, the notion that employees are systematically paid a lot less (60 - 80%) of their actual marginal products? That’s the message I take.” Also some good discussion of the China shock.
· Jon Hartley interviews Don Brash about the origins of inflation targeting in New Zealand, the politics of reforms, and how to attract someone like Milton Friedman to give a talk in your faraway country “…No fee required, as long as you show me around the South Island for a week. with my wife, which is what we did. We traveled that part of New Zealand, the more scenic places, and he gave 3 major speeches in New Zealand”.
· My continued appreciation to the DevPolicyBlog at ANU for continuing to provide nice update blogs on issues around the Pacific, including this recent update on trends in the workforce for the Pacific Australia Labour Mobility program; and this piece on the proliferation of regulations in Indonesia “Digitalisation, which is expected to accelerate public service delivery, instead becomes a new source of complexity. The Ministry of Administrative and Bureaucratic Reform (Kemenpan RB) reports more than 27,000 digital platforms that have been built by ministries, agencies and local governments. This shows how when problems occur, the chosen solution is often to create new systems that work in silos and are not designed to interlink with a broader data ecosystem…. Launching new regulations, taskforces or applications is considered more straightforward than improving instruments that are already in place. In an increasingly competitive political environment, novelty is often appreciated more than structural evaluation.”
· On VoxDev, an analysis of China’s solar subsidies finds that they “triggered innovation and learning-by-doing that dramatically lowered global solar costs while generating domestic economic gains large enough to outweigh the subsidy costs, showing that green industrial policy can simultaneously boost growth and help fight climate change.”….” Maybe it is no surprise that subsidising an industry leads it to grow. The conventional worry is that this growth is artificial – the government is propping up an industry that would not be viable without support, making such subsidies a poor taxpayer investment. In China’s solar sector, something different happened as the subsidies triggered innovation. As firms produced more solar panels, they got better at it – driving down costs and pushing up quality” – they use event studies and a structural macro model.
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