How effective is unconventional monetary policy in Canada?

John Deutsch Institute for the Study of Economic Policy (JDI)

michal2By Michal Ksawery Popiel, JDI Student Fellow, Queen’s University

In normal times, the Bank of Canada stimulates the economy by lowering the target for the overnight interest rate, encouraging borrowing and spending. However, interest rate movements are restricted below by an effective lower bound (ELB) — a point at which investors would withdraw their money from banks because they prefer to hold cash for a return of 0 percent. Once it is reached, central banks must turn to other, unconventional measures to influence economic conditions.Read More »

Doctoral Fellow develops methods to better understand regional recessions

John Deutsch Institute for the Study of Economic Policy (JDI)

sergei2Zooming-in without losing focus – understanding regional recessions and the importance of spatial interactions

By Sergei Shibaev, JDI Student Fellow, Queen’s University

Here is the scenario – you are an interested party (e.g. regional policy maker or researcher) in a small regional division in Canada (e.g. Central Okanagan Regional District of British Columbia).  You need to know if your region is likely to become economically at-risk or potentially distressed separately from the national economy, and to do so you require an informative assessment of any synchronicities (i.e. co-movements) with other regions in the country regarding how your small region’s economy has evolved in the last decade. Furthermore, you have existing knowledge regarding several types of connections to other regions that you know are important for your local economy (e.g. your largest regional trading partners), and you wish to explore and compare them through time. I develop and investigate a tool that is capable of learning by itself about these types of phenomena in a unified framework that collectively models a large number of small regions in a country.Read More »

Stop Tinkering with Mortgage Insurance Rules – Just Price It Right

John Deutsch Institute for the Study of Economic Policy (JDI)

indexBy Thorsten Koeppl, Queen’s University

The better way to use mortgage insurance is to use the existing system, but price the risks appropriately. There is currently no deductible on mortgage default losses, but the pricing of insurance does not fully consider the idiosyncratic default risk of the mortgage either. Risk-based premiums would increase the cost of the mortgages that add more risk to the housing system, since insurance costs for high risk mortgages are passed on by lenders to borrowers. Moreover, the government backstops mortgage insurers. A step in the right direction is to start charging a premium for this backstop to mortgage insurers up front, in order to pass on the potential cost of an extreme housing crisis to the mortgage industry. Notwithstanding, the premiums that are currently charged seem to grossly underestimate these costs.

Read the full post at the C.D. Howe Institute

Campaign finance reform and the market for access

John Deutsch Institute for the Study of Economic Policy (JDI)

img_0928By Christopher Cotton, Queen’s University

Earlier this year, the government of Ontario was involved in a campaign finance scandal, accused of selling access to ministers in exchange for campaign donations. Most people see the exchange of contributions for access to politicians as obvious evidence of corruption. But, this view is too simple. Much of my academic research has focused on how special interests influence policy making. This research has led to a number of insights.Read More »

Campaign finance reform not enough: More public research funding also needed

John Deutsch Institute for the Study of Economic Policy (JDI)

Even when one takes the most optimistic view of interest groups and lobbying, their participation in the policy making process can lead to worse policy. This doesn’t mean that campaign finance reform is not worthwhile. Just that it may not go far enough to eliminate the biases in favor of interest groups. We shouldn’t fool ourselves. Although removing private money from elections will help, it isn’t enough to fully eliminate the disproportionate influence of rich and powerful special interests on policy making. 

By Christopher Cotton, Queen’s University
Read More »

Be scared of politicians who refuse to disclose information

John Deutsch Institute for the Study of Economic Policy (JDI)

Game theory makes a clear prediction about when people will disclose information, and when they will keep it hidden. The prediction: they will disclose their information when it is better than others expect, and they will refuse to do so only when it is worse than expected. Game theory says that Clinton will choose not to release her speeches, and Trump will choose not to make public his recorded conversations or tax returns, only if they are worse than their voters anticipate.

By Christopher Cotton, Queen’s University
Read More »

Search, Monetary Theory, Policy and Housing Economics

John Deutsch Institute for the Study of Economic Policy (JDI)

amyAmy Sun, the 2014 Queen’s Economics Department Faculty Research Prize recipient, uses Search Theory to give insight into economic policy. The following article was originally published in the QED alumni newsletter. 

By Amy Sun, Queen’s University

Classical economic theory treats the transaction process as an instantaneous step. Experience from the real world, however, suggests that in many contexts this simplification is too much of an abstraction from reality.Read More »

How long campaigns can make candidates more extreme

John Deutsch Institute for the Study of Economic Policy (JDI)

By Christopher Cotton, Queen’s University

An except from an article published in The Washington Post.

As the 2016 U.S. presidential hopefuls begin announcing their candidacies, Americans are readying themselves for more than a year and a half of political campaigning.  That’s a long time. Long enough to perhaps cost $5 billion.

There are benefits to a long campaign season. As Calvin Coolidge said, “The purpose of a campaign is to send an intelligent and informed voter to the ballot box.” Campaigns may help inform voters and enable them to develop more accurate assessments of the candidates. Long campaigns have the potential to do this even more effectively.

But there is also a downside. In a new article (ungated here) Raphael Boleslavsky and I show that informative campaigns can also decrease the incentives for candidates to moderate their views. In other words, more informative campaigns encourage polarization between politicians, which tends to make voters worse off.

Keep reading at The Washington Post

The unrecognized benefits of grade inflation

John Deutsch Institute for the Study of Economic Policy (JDI)

By Raphael Boleslavsky (University of Miami) and Christopher Cotton (Queen’s University)

Grade inflation is widely viewed as detrimental, compromising the quality of education and reducing the information content of student transcripts for employers. This column argues that there may be benefits to allowing grade inflation when universities’ investment decisions are taken into account. With grade inflation, student transcripts convey less information, so employers rely less on transcripts and more on universities’ reputations. This incentivises universities to make costly investments to improve the quality of their education and the average ability of their graduates.

Read the full article at VoxEU

How corporate money will reshape politics: Help for challengers

John Deutsch Institute for the Study of Economic Policy (JDI)

By Christopher Cotton (Queen’s University)

Critics of the court’s decision in Citizens United say that deep-pocketed interests (the oil, electricity, and telecommunications businesses, for example) have been given a dangerous level of influence over election outcomes. It is true that the absence of spending limits increases the likelihood of politicians accepting campaign funding for policy favors. But the overall impact may be less harmful than critics fear.

Continue reading the original article at The New York Times