Data Science master project by Eduard Gimenez Funes ’21
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
Normalizing flows are an elegant approximation to generative modelling. It can be shown that learning a probability distribution of a continuous variable X is equivalent to learning a mapping f from the domain where X is defined to Rn is such that the final distribution is a Gaussian. In “Glow: Generative flow with invertible 1×1 convolutions,” Kingma et al introduced the Glow model. Normalizing flows arrange the latent space in such a way that feature additivity is possible, allowing synthetic image generation. For example, it is possible to take the image of a person not smiling, add a smile, and obtain the image of the same person smiling. Using the CelebA dataset we report new experimental properties of the latent space such as specular images and linear discrimination. Finally, we propose a mathematical framework that helps to understand why feature additivity works.
Conclusions
Generative Models for Deep Fake generation sit in between Engineering, Mathematics and Art. Trial and error is key to finding solutions to these types of problems. Theoretical grounding might only come afterwards. But when it does, it is simply amazing. By experimenting with normalizing flows we found properties of the latent space that have helped us create a mathematical model that explains why feature additivity works.
The full title of this project is “The Macroeconomics of Fighting Climate Change: Estimating the Impact of Carbon Taxes, Public and Private R&D Investment in Low-Carbon Technologies on the Scandinavian Economy.”
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
The worldwide lockdowns and slowdown of the global economy in the past two years induced a significant overall decrease in CO2 emissions by 8.8% – the largest observed decrease since World War II. In that sense, COVID-19 emphasized the important trade-off between the emissions reductions necessary to fight climate change and economic welfare, which also constitutes a major political stumbling block to introducing policies aimed at halting climate change in normal times.
In order to further our understanding of this trade-off, we evaluate the macroeconomic impact of three policies that are commonly regarded as crucial to meeting national emissions targets:
Carbon taxes
Public Investment in low-carbon R&D
Private Investment in the R&D of low-carbon technologies, proxied by the number of patents for environmentally friendly applications
In our paper, we develop a novel approach to identifying the long-term impact of these policies using an Structural Vector Autoregression (SVAR) model. We use a Blanchard-Quah long-run identification scheme and a Cholesky short-run identification respectively to recover a one-standard deviation shock of carbon tax and low-carbon R&D, and investigate their impact on the evolution of GDP, employment and CO2 emissions. In an extension, we include both public and private low-carbon R&D in an SVAR to uncover how public and low-carbon R&D incentivize and complement each other.
Conclusions
We evaluate the effect of carbon taxes, public low-carbon R&D and private low-carbon R&D on GDP, employment and CO2 emissions in Finland, Norway, Denmark and Sweden. We find that carbon taxes do not significantly affect GDP and employment in the long run, but we also do not observe a significant reduction in CO2 emissions. Our results might be shaped by the fact that the first carbon taxes were introduced in 1990 and consequently data is still relatively limited.
Furthermore, our results indicate a significant negative effect of public and private low-carbon R&D on emissions in Denmark and Finland. However, the effect on GDP and employment is ambiguous and depends on the individual country.
To the best of our knowledge, this is a first empirical indication of the relevance of R&D into low-carbon technologies in reducing CO2 emissions in Northern Europe.
The implications of our result can fruitfully contribute to the debate about the adequate policy instruments for fighting climate change on at least three dimensions:
We find no evidence supporting the political concern that carbon taxes might negatively impact jobs and growth.
We provide evidence for the effectiveness of low-carbon R&D – public and private – in reducing CO2 emissions. However, country specific crowding in and crowding out effects of public and private investment in low-carbon technologies should be taken into account when deciding for example on appropriate innovation policies.
Our paper underlines the idea that revenues from carbon taxes might potentially be employed for financing low-carbon R&D which in turn could spur long-run, emission free economic growth.
In any case, as for the planet time is of the essence, the Economics profession should focus ever more efforts on understanding the macroeconomics of climate change.
Publication in the European Journal of Health Economics by Lukas Schuelke ’21 (ITFD)
Photo: iStock.com/VictorHuang
Last year I worked on the article, “Estimating the additional costs of living with a disability in the United Kingdom between 2013 and 2016,” which was based on my undergraduate dissertation and which just got published in the European Journal of Health Economics.
My co-authors Luke Munford and Marcello Morciano are affiliated with the School of Health Sciences at the University of Manchester.
Abstract
In the United Kingdom, more than 20% of the population live with a disability. Past evidence shows that being disabled is associated with functional limitations that often cause social exclusion and poverty. Therefore, it is necessary to analyse the connection between disability and poverty. This paper examines whether households with disabled members face extra costs of living to attain the same standard of living as their peers without disabled members. The modelling framework is based on the standard of living approach which estimates the extra income required to close the gap between households with and without disabled members. We apply an ordered logit regression to data from the Family Resources Survey between 2013 and 2016 to analyse the relationship between standard of living, income, and disability, conditional on other explanatory variables. We find that households with disabled members face considerable extra costs that go beyond the transfer payment of the government. The average household with disabled members saw their weekly extra costs continually increase from £293 in 2013 to £326 in 2016 [2020 prices]. Therefore, the government needs to adjust welfare policies to address the problem of extra costs faced by households with disabled members.
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
The purpose of this paper is to examine aggregate and cross-sector allocations of foreign aid flows in the aftermath of epidemics and to determine whether latent effects can be observed in the following year.
Using data from the Organization for Economic Cooperation and Development (OECD) on Bilateral commitments of Official Development Assistance (ODA) from 2005-2019, we employ an Ordinary Least Squares (OLS) model based on the structural gravity framework to account for spatial interactions between donor and recipient countries.
Our results show that epidemics have a positive and significant effect on bilateral foreign aid across all sectors and that aid to the Humanitarian sector is less conditional on pre-existing relationships than others. Results for latent effects on aid vary by sector.
We further find that isolating epidemics in our analysis suggests that certain diseases prompt a different aid response wherein aid to non-health sectors falls.
Conclusions
We find that epidemics do indeed engender changes in foreign aid behavior.
To be specific, epidemics have a positive and significant effect on foreign aid commitments to all sectors. Our results are unable to shed light on the hypothesis of reallocation between sectors. However, they do illustrate that aid to both health-related and non-health-related sectors increases.
Aid in this context is also persistent. That is, our results, robust to numerous checks, show that the positive effects of epidemics may be observed not only in the year of the outbreak but also in the following year.
By analyzing each disease independently, we further find that certain diseases prompt a different aid response and may suggest the presence of a foreign-aid reallocation due to epidemics.
However, our study does not measure the effectiveness of aid which is necessary for the design of productive policy measures that could save countless lives. Naturally, this presents new opportunities for research and raises important questions regarding the optimal allocation of aid given shocks to global health. That is, does increasing aid to all sectors serve as an effective one-size-fits-all solution? Or would a more efficient policy consist of donors reallocating aid across sectors to account for short and long-term changes in the demand for healthcare caused by an epidemic?
Best paper award for Inês Xavier (Economics ’15, UPF PhD ’21)
Congratulations to @Ines_MXavier for winning the @ITAXjournal Best PhD student paper award for her paper "Wealth Inequality in the US: The Role of Heterogenous Returns".
— International Tax and Public Finance (@ITAXjournal) August 26, 2021
Paper abstract
Why is wealth so concentrated in the United States? In this paper, I investigate the role of return heterogeneity as a source of wealth inequality. Using household-level data from the Survey of Consumer Finances (1989-2019), I provide new empirical evidence on returns to wealth in the United States, and find that wealthier households earn, on average, higher returns: moving from the 20th to the 99th percentile of the wealth distribution raises the average yearly return from 3.6% to 8.3%. To understand how these return differences shape the distribution of wealth, I introduce realistic return heterogeneity in a partial equilibrium model of household saving behavior. This exercise suggests that considering both earnings and return heterogeneity can fully account for the top 10% wealth share observed in the data (76%), which cannot be explained by earnings differences alone.
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
Vector autoregression (VAR) models are a popular choice for forecasting of macroeconomic time series data. Due to their simplicity and success at modelling the monetary economic indicators VARs have become a standard tool for central bankers to construct economic forecasts. Impulse response functions can be readily retrieved and are used extensively to investigate the monetary transmission mechanism. In light of the recent advancements in computational power and the development of advanced machine learning and deep learning algorithms we propose a simple way to integrate these tools into the VAR framework.
This paper aims to contribute to the time series literature by introducing a ground-breaking methodology which we refer to as DeepVector Autoregression (Deep VAR). By fitting each equation of the VAR system with a deep neural network, the Deep VAR outperforms the VAR in terms of in-sample fit, out-of-sample fit and point forecasting accuracy. In particular, we find that the Deep VAR is able to better capture the structural economic changes during periods of uncertainty and recession.
Conclusions
To assess the modelling performance of Deep VARs compared to linear VARs we investigate a sample of monthly US economic data in the period 1959-2021. In particular, we look at variables typically analysed in the context of the monetary transmission mechanism including output, inflation, interest rates and unemployment.
Our empirical findings show a consistent and significant improvement in modelling performance associated with Deep VARs. Specifically, our proposed Deep VAR produces much lower cumulative loss measures than the VAR over the entire period and for all of the analysed time series. The improvements in modelling performance are particularly striking during subsample periods of economic downturn and uncertainty. This appears to confirm or initial hypothesis that by modelling time series through Deep VARs it is possible to capture complex, non-linear dependencies that seem to characterize periods of structural economic change.
Credit: the authors
When it comes to the out-of-sample performance, a priori it may seem that the Deep VAR is prone to overfitting, since it is much less parsimonious that the conventional VAR. On the contrary, we find that by using default hyperparameters the Deep VAR clearly dominates the conventional VAR in terms of out-of-sample prediction and forecast errors. An exercise in hyperparameter tuning shows that its out-of-sample performance can be further improved by appropriate regularization through adequate dropout rates and appropriate choices for the width and depth of the neural. Interestingly, we also find that the Deep VAR actually benefits from very high lag order choices at which the conventional VAR is prone to overfitting.
In summary, we provide solid evidence that the introduction of deep learning into the VAR framework can be expected to lead to a significant boost in overall modelling performance. We therefore conclude that time series econometrics as an academic discipline can draw substantial benefits from further work on introducing machine learning and deep learning into its tool kit.
We also point out a number of shortcomings of our paper and proposed Deep VAR framework, which we believe can be alleviated through future research. Firstly, policy-makers are typically concerned with uncertainty quantification, inference and overall model interpretability. Future research on Deep VARs should therefore address the estimation of confidence intervals, impulse response functions as well as variance decompositions typically analysed in the context of VAR models. We point to a number of possible avenues, most notably Monte Carlo dropout and a Bayesian approach to modelling deep neural networks. Secondly, in our initial paper we benchmarked the Deep VAR only against the conventional VAR. In future work we will introduce other non-linear approaches to allow for a fairer comparison.
Code
To facilitate further research on Deep VAR, we also contribute a companion R package deepvars that can be installed from GitHub. We aim to continue working on the package as we develop our research further and want to ultimately move it onto CRAN. For any package related questions feel free to contact Patrick, who authored and maintains the package. The is also a paper specific GitHub repository that uses the deepvars package.
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
In recent years, large platforms have raised concerns that they may engage in anti-competitive practices that affect market competition. Therefore, analyzing the competition structure inside platforms is a relevant issue that has not been treated in much empirical research.
This study analyzes how a platform’s owner could affect the degree of competition among members of one group in the platform through biasing search results using rating classifications. In this paper, we perform an application to Airbnb‘s market in Barcelona given the particularity of rating is an unavailable searching filter to guests.
We found evidence that listing’s rating classification represents an important market segmentation in the Airbnb’s market in Barcelona that could imply a possible practice of biasing search results. Moreover, we found that the intensity of competition is differentiated by the rating-related segments, which means that these segments are concentrating competition.
Conclusions
We found an inelastic demand for Airbnb’s listings in Barcelona in a market that is divided by rating classification. In particular, our empirical results show the following two points:
First, the majority of hosts face an inelastic demand. These results are consistent under the two main models we used. From the nested logit model under rating segmentation, we found that when there is a 10% increase in price of available nights, there is an expected decrease in booked nights of 4.5%. These results imply that there is room to increase the price without reducing the revenues of the hosts.
Second, even though the rating is not available as a filter in the Airbnb web page, it creates an important market segmentation. This means that the competition between two listings that belong to the same segment is different from the competition faced by two listings that belong to different rating classifications. Moreover, we found differences in intensity of competition faced by listings that belong to different segments.
Finally, these results show that the existence of segmentation suggests that Airbnb is performing a rating-based market division. Yet the rating segmentation does not show a clear pattern of competition intensity in each group.
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
We construct a theoretical Overlapping Generations (OLG) model to describe how sovereign debt crises can propagate in the economy under certain financial constraints.
In the model, households work when young and deposit their savings in exchange for a dividend, banks invest deposits in assets and government bonds. Banks, subject to legal and market requirements, invest a fixed fraction of deposits and own equity in assets. When prices of bonds fall due to perceived sovereign debt risks, banks can invest less on capital goods directly affecting the business cycle. This paper simulates the deviations from steady-state produced by a shock to government securities and provides insights into macro-prudential policy implications.
We find that a sovereign debt crisis affects young and old generations differently, with the latter facing higher fluctuations in consumption. We also find that the macro-prudential policy can be effective only at very high levels on the old, but ineffective for the younger generation.
Conclusions
This paper draws three main conclusions about the impact of a sovereign debt crisis on the business cycle within the proposed OLG theoretical framework:
A decline in government bond prices leads to lower output, wages and dividend negatively affecting present and future consumption. However, this effect is different for young and old generations. In particular, the old seem to face more sudden changes and higher deviations from steady-state values when a sovereign debt crisis takes place.
The proposed macro-prudential policy does not seem to offset the impact of a fall in government bonds prices on the business cycle. In fact, almost all the macroeconomic variables of interest in our theoretical model do not change significantly, relative to their steady-state values, when the supervising authority modifies the capital requirements for banks.
A very aggressive policy on capital requirements (i.e. x=0.9 for the whole period) can compensate for the negative shock bonds prices have on dividends and, therefore, consumption for the old.
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
Mental health outcomes significantly deteriorated in the United Kingdom as a result of the Covid-19 pandemic, particularly for younger individuals. This paper uses data from the Millennium Cohort Study to investigate the heterogeneity of mental health effects of the Covid-19 pandemic on adolescents by both personality types and personality traits. Using two-step cluster analysis we find three robust personality clusters: resilient, overcontrolled, and undercontrolled.
Conclusions
We surprisingly find that resilient individuals, who generally have better mental health, reported larger decreases in mental health during the pandemic than both undercontrollers and overcontrollers
The effect seems to be driven by the neuroticism trait, such that those with higher neuroticism scores fared better than those with lower scores during the pandemic
Our findings highlight that personality traits are important factors in identifying stress-prone individuals during a pandemic.
Finance master project by Lapo Bini and Daniel Mueck ’21
Editor’s note: This post is part of a series showcasing BSE master projects. The project is a required component of all Master’s programs at the Barcelona School of Economics.
Abstract
In order to analyse whether financial conditions are relevant downside risk predictors for the 5% Growth at Risk conditional quantile, we propose a Dynamic Factor- GARCH Model, comparing it to the two most relevant approaches in the literature. We conduct an out-of sample forecasting analysis on the whole sample, as well as focusing on a period of increased European integration after the 2000s. Always, including the national financial conditions index, term structure and housing prices for 17 European countries and the United States, as down side risk predictors. We find evidence of significant predicting power of financial conditions, which, if exploited correctly, becomes more relevant in times of extraordinary financial distress.
Conclusions
We propose a Dynamic Factor-GARCH model which computes the conditional distribution of the GDP growth rates non-parametrically, exploiting the dimensions of a panel of national financial conditions and compare it to the models of Adrian, Boyarchenko, and Giannone (2016 )and Brownlees and Souza (2021) out-of-sample.
Contrasting to our in-sample results, the out-of sample results exhibit a higher degree of heterogeneity across countries. While our model performs at least as good or better as the AR(1)-GARCH(1,1) specification of Brownlees and Souza (2021) in the long run, it produces unsatisfactory results for the one-step forecast horizon.
However, by focusing our out-of-sample analysis on a smaller sample around the period of the Great Recession, we not only outperform the other two models analysed, but also obtain strong indication of increased importance and predictive power of financial conditions.
We provide evidence that by correctly modelling financial conditions, they not only exhibit predictive ability for GDP downside risk, but also improve in-sample GaR predictions. Further, we show that they are relevant out-of-sample predictors in the long run. Finally, when focusing on periods of extraordinary financial distress, like the Great Recession, financial conditions become even more relevant. However, the right model needs to be applied in order to exploit that predictive power.
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