On the Macroeconomic Consequences of Over-Optimism

Analyzing International Monetary Fund (IMF) data, we find that overly optimistic growth expectations for a country induce economic contractions a few years later. To isolate the causal effect, we take an instrumental variable approach—exploiting randomness in the country allocation of IMF mission chiefs. We first document that IMF mission chiefs differ in their individual degrees of forecast optimism, yielding quasi-experimental variation in the degree of forecast optimism at the country level. The mechanism appears to run through excessive accumulation of debt (public and private). Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects. (JEL C53, E23, E27, E32, F33, H63)

The Demographic Effects of Colonialism: Forced Labor and Mortality in Java, 1834–1879

We investigate the demographic effects of forced labor under an extractive colonial regime: the Cultivation System in nineteenth-century Java. Our panel analyses show that labor demands are strongly positively associated with mortality rates, likely resulting from malnourishment and unhygienic conditions on plantations and the spread of infectious diseases. An instrumental variable approach, using international market prices for coffee and sugar for predicting labor demands, addresses potential endogeneity concerns. Our estimates suggest that without the abolition of the Cultivation System average overall mortality in Java would have been between 10 and 30 percent higher by the late 1870s.

Retirement, happiness, and health in Japan

While health effects of retirement have been well studied so far, previous findings remain inconclusive, and mechanisms underlying the linkage between retirement and health are unclear. This can be driven by regional or cohort heterogeneity as well as methodological differences, such as outcome measures and identification strategies; thus, much evidence needs to be accumulated. Utilising a national household survey conducted every year in 2004-2019 in Japan (the Japan Household Panel Survey), we evaluate the effects of retirement among Japanese adults aged 50-75 on their happiness and health in addition to other outcomes that could attribute to happiness or health changes (e.g. health behaviours, time use for some activities, and the expenses by item). As outcomes are not measured every year, we analyse 4,340-7,902 person-year observations by 756-1,389 individuals with the necessary information from 2009. To deal with the potential endogeneity of retirement, we adopt an instrumental variable approach utilising changes in retirement policy and public pension eligible age. Consequently, instruments seem valid only for men, and we find that retirement increases male retirees’ happiness and decreases psychological stress while effects on other health measures are not observed. Although their satisfaction with their income decline, perhaps because of the loss of their wage income, they tend to increase the proportion of expenses for cultural and recreational activities. Enhancement in personal life quality by more leisure activities and stress reduction from work, rather than improvements in health behaviours and physical health, may be key to understanding health benefits in retirement.

The role of social capital in private placement: evidence from Rule 144A debt issuances

PurposeThe purpose of this paper is to investigate the role of social capital in the issuances of Rule 144A debt. Using a sample of 1,378 debt offerings from 1997 to 2015 in the US, this paper provides empirical evidence on whether and to what extent social capital affects the cost of Rule 144A debt.Design/methodology/approachThis paper employs a county-level measure of social capital and links social capital to the yield spreads of Rule 144A debt. A Heckman selection model is sued to address the sample selection bias, and an instrumental variable approach and propensity score matching methodology are implemented to deal with the potential endogeneity issue. The authors check for robustness using an alternative measure of social capital.FindingsThe results of the analysis provide evidence that issuers headquartered in the counties with higher levels of social capital experience lower yield spreads in their Rule 144A debt offerings. The findings are robust to a Heckman selection model, an instrumental variable approach and propensity score matching. Furthermore, the analysis reveals the marginal effect of social capital that the effect of social capital is more pronounced for the issuing firms with higher agency cost of debt and lower institutional ownership. The effect of social capital is more prominent after financial crisis.Originality/valueThis paper provides novel evidence of the effect of social capital on the cost of privately placed debt. The issuances of Rule 144A debt are subject to significant information asymmetry and are targeted at sophisticated institutional investors. This paper sheds further light on how institutional investors incorporate the regional social capital in their pricing scheme of private placement of Rule 144A debt.

Immigrant supply of marketable child care and native fertility in Italy

The availability of child-care services has often been advocated as one of the instruments to counter the fertility decline observed in many high-income countries. In the recent past, large inflows of low-skilled migrants have substantially increased the supply of child-care services. In this paper, we examine if immigration has actually affected fertility exploiting the natural experiment occurred in Italy in 2007, when a large inflow of migrants—many of them specialized in the supply of child care—arrived unexpectedly. With a difference-in-differences method, we show that immigrant female workers have increased native births by a number that ranges roughly from 2% to 4%. We validate our result by the implementation of an instrumental variable approach and several robustness tests, all concluding that the increase in the supply of child-care services by immigrant women has positively affected native fertility.

The paradox of poor representation: How voter–party incongruence curbs affective polarisation

Research on the relationship between ideology and affective polarisation highlights ideological disagreement as a key driver of animosity between partisan groups. By operationalising disagreement on the left–right dimension, however, existing studies often overlook voter–party incongruence as a potential determinant of affective evaluations. How does incongruence on policy issues impact affective evaluations of mainstream political parties and their leaders? We tackle this question by analysing data from the British Election Study collected ahead of the 2019 UK General Election using an instrumental variable approach. Consistent with our expectations, we find that voter–party incongruence has a significant causal impact on affective evaluations. Perceived representational gaps between party and voter drive negative evaluations of the in-party and positive evaluations of the opposition, thus lowering affective polarisation overall. The results offer a more nuanced perspective on the role of ideological conflict in driving affective polarisation.

CEO media coverage and corporate investment

We examine how the tone of news articles about CEOs affects corporate investment at the CEOs’ firms. Using unique Chinese media coverage data, we show that positive CEO news articles are significantly associated with increased corporate investment, and the total number of articles does not matter. To establish causality, we use a Granger lead-lag test approach, as well as an instrumental variable approach that uses type of news outlets (state-controlled vs. non-state-controlled). Our identification strategies suggest a positive causal effect of CEO news tone on the level of corporate investment. We further identify two underlying economic mechanisms: CEO overconfidence and investor sentiment. We find that the relation between CEO news tone and corporate investment is mainly driven by the overinvestment aspect of investment inefficiency. Our work contributes to prior literature by examining the effects of specific news types (i.e., CEO coverage) and by highlighting a behavioral perspective underlying corporate investment.