Tag: master projects

Burning Growth: Rising Temperatures in a Growth-at-Risk Approach

A case study of Colombia. Macroeconomic Policy and Financial Markets master project by Camila Camilo, Angie Rozada, and Carlos Sanz ’22

A hydroelectric plant in Colombia

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

The rise in global temperatures has been a growing source of concern for policy makers given its potential impact for sustainable economic activity. 

This paper explores the effects of a temperature shock on the distribution of economic growth in Colombia. Specifically, we focus on the impact of these shocks on economic risks. 

Our findings suggest the existence of asymmetries on the lower and upper tail of the distribution, indicating that higher temperatures leads to less optimistic outcomes for GDP growth. We also found negative and significant effects of temperature shocks on non-agricultural sectors. 

The results are obtained using quantile regressions under the growth-at-risk (GaR) approach and local projections.

Temperature shocks on climate-exposed sectors

The analysis of the effects of temperature shocks on climate-exposed sectors suggest that several components of GDP are affected by increased heating.

  • Manufacturing activity seems to be negatively affected after a temperature shock, specially on the upper tail.
  • The entire distribution of construction shows a strong response to temperature shocks, suggesting that labor productivity could be severely affected by heat stress in this sector.
  • The generation of electricity by hydro-powers in Colombia could be explaining the negative effects on the energy sector after an increase in temperatures.
  • Results for agriculture are not statistically significant, possibly capturing the national attempt to increase resilience of this sector in Colombia.

Protecting Colombia’s economy from the impacts of global warming

Colombia has taken some steps in the mitigation and adaptation of its economy to rising temperatures. Especially, it has adopted the National Adaptation Program, whose principal objective is to reduce the country’s vulnerability and increase its response capacity to the impacts of global warming on economic growth, especially for the agricultural sector.

The findings for this sector and the mitigating measures adopted suggest that these efforts could reduce the country’s vulnerability to rising temperatures. However, the country should take complementary strategies with a broader scope of sectors such as energy and construction, that appear to be more vulnerable to warming.

For example, in the energy sector some of 18 the adaptation measures that could be taken are optimization of the conventional energies and improvement of efficiency and diversification of energy sources and promotion of renewal energy.

Further research

Further analysis about the channels and causes of the effects of temperature shocks on GDP growth could be done for a regional level. The heterogeneity on temperature levels and on the reliance on climate-exposed sectors across different regions in Colombia could imply differential effects depending the geographical area analyzed.

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Camila Camilo ’22 is a Division Chief at the Central Bank of the Dominican Republic in Santo Domingo, DR.

Angie Rozada ’22 is an Expert in the Financial Stability Department at Banco de la República (Central Bank of Colombia).

Carlos Sanz Pérez ’22 is a Trainee at the European Central Bank in Frankfurt, Germany.

Author info is current as of March 2023.

About the BSE Master’s Program in Macroeconomic Policy and Financial Markets

A Short Literature Review on Workplace Discrimination

PhD Track master project by Maddalena Grignani, Wei-Liang Hsu, Jiaxun Liu, and Georgii Zherebilov ’22

People icons in a variety of colors

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

In this literature review, we focus on workplace discrimination with particular attention paid to the hiring process. We classified the hiring process into two stages: CV-screening and interview. 

Following the theoretical discussion of stereotypes supporting the existence of discrimination, two empirical pieces of research are introduced: 

  • The first paper shows that race affects applicants’ callback rate during the screening process
  • The second study shows that the probability of a female musician being hired increases with the introduction of blind auditions. 

Lastly, from a sociological aspect, we claim that cultural similarities can affect employers’ hiring decisions, from which workplace discrimination might also appear.

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All four of the authors are currently PhD students in Economics in the doctoral program organized jointly by Universitat Pompeu Fabra and the Barcelona School of Economics. (March 2023)

About the BSE Master’s Program in Economics

Migration Shocks and Occupational Downgrading: Evidence from Venezuelan Migrants in Chile

Economics master project by Sunidhi Agarwal, Ignacio Ariznavarreta, Nour Chamseddine, Ricardo Gonçalves, and Ignacio Ramón Oliva ’22

Overlapping flags of Venezuela and Chile

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

This paper examines the downgrading in job status that immigrant workers suffer when settling in a new country. We consider the massive Venezuelan exodus and the impacts this shock had on the job outcomes of migrants who settled in Chile.

Our approach is based on linear regression analysis and multinomial logistic regression models to estimate the penalty immigrants face. To this end, we use household-level data and employ two job-status indexes.

Results show that migrants who arrived before the 2015 Venezuelan crisis did not face significant downgrading. However, migrants who have arrived after 2015 do. Findings are relevant to understanding the impact of massive and sudden migratory shocks.

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The authors pose for a group photo outside the graduation venue on a sunny day in Barcelona
The authors celebrate together at their graduation ceremony in Barcelona (July 2022).

Author info is current as of February 2023.

About the BSE Master’s Program in Economics

The Impact of the 2014-2016 Russian Financial Crisis on Remittances, Consumption, and Credit: The Case of Kyrgyzstan

International Trade, Finance, and Development master project by Rachel Breaks, Clément Durif, Peiyao Sun, and Joule Voelz ’22

Life in the Kyrgyz mountains. A family works and plays outside on a vast, green plain with rolling hills and mountains in the background under a blue sky dotted with fluffy white clouds. The family is in front of a white canopy tent and a beige dome hut, and a few horses graze around them.
Photo by Oziel Gómez on Unsplash

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

In this paper we consider the negative medium-term impact of the Russian Financial Crisis of 2014-2016 on remittances, consumption patterns, and credit in the Kyrgyz Republic.

Using panel data from the Life in Kyrgyzstan survey, we show a significant drop in migration to Russia and remittances from Russia on the extensive and intensive margins.

Households with a migrant abroad in Russia just prior to the crisis experience an average fall in real per capita income and an increase in poverty, while households both with and without a migrant rebalance their consumption basket to cope with the economic downturn.

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Author info is current as of February 2023.

  • Rachel Breaks ‘22 is from Manchester, UK. She now works for the UK Government on international trade strategy with Latin America and the Caribbean.
  • Clément Durif ‘22 is from Nice, France. He now works at Asia Centre, a Paris-based think tank specializing in international relations.
  • Peiyao Sun ‘22 is from Hangzhou, ZJ (China). She is a pre-doctoral fellow at the ETH-Zurich in Zurich, Switzerland.
  • Joule Voelz ’22 is from San Francisco, CA (USA). She is a Data Science Methodology student at the Barcelona School of Economics.

About the BSE Master’s Program in International Trade, Finance, and Development

The Wisdom of the Crowd: Using ensemble machine learning techniques as an early warning indicator for systemic banking crises

Finance master project by Gabriela Lavagna, Helena Patterson, and Robizon Razmadze ’21

Blurred chart on a computer screen
Image by Pexels from Pixabay

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

We develop early warning models for systemic crisis prediction using machine learning techniques on macrofinancial data for 36 countries for quarterly data spanning 1970-2013. Machine learning models outperform logistic regression in out-of-sample predictions under the recursive window forecasting mechanism. In particular, using the ensemble random forest algorithm for both feature selection and prediction substantially outperforms the logit models. We identify the key economic and financial drivers of our models using the random forest framework by extracting each feature’s Gini impurity and corresponding information gain. Throughout the time period, the most important predictors are credit, foreign liabilities, asset prices and foreign currency reserves. 

Conclusions

  • The aim of the study was to construct a machine learning methodology to improve the predictive ability of systemic crises models. We applied these algorithms on macrofinancial data for 36 countries for quarterly data spanning 1970-2013. The results of the paper show that predictions of financial crises are more accurately obtained via machine learning algorithms as opposed to logit regression models in out-of-sample predictions (obtaining an AUC score of 0.77-0.81).
  • During the analysis, our goal was not only to be able to improve the predictive power of the models, but also to be able to select the most relevant and concise predictor variables. We applied the random forest ensemble algorithm to undertake feature selection and concluded that, over the years, the variables credit, foreign liabilities, asset prices and currency reserves were most important in predicting systemic crises.
  • The value-add derived from the models developed by us can be viewed in two main directions: Firstly, the need to use time series data as a means of predicting crises has meant many authors in the past have been unable to avoid the ‘looking to the future’ issue. We managed to alleviate this risk by using a recursive window estimation mechanism. The main benefit of this methodology is that it would allow policymakers to observe the predictors in real-time. Second, by being able to rank variables in order of importance, we were able to reveal the key economic and financial drivers which should be used by policymakers in evaluating any pressing risk of systemic crises. 
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About the BSE Master’s Program in Finance

Gender Gap and Retirement Decisions: the Maternity Pension Supplement in Spain

Economics master project by Jorge Casanova, Horia Guias, Carlos Javier López, Andrea Salvanti, and Patrick Sewell ’21

Family graphic spray painted on pavement
Photo by Sandy Millar on Unsplash

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

Embedded in the growing governmental efforts to reduce the gender income gap, in 2016 a retirement pension supplement for mothers of at least two children was introduced in Spain. Through an Oaxaca-Blinder decomposition analysis, we find that the policy had a smaller-than-expected shrinking effect in the gender gap in retirement pensions. Using a difference-in-differences approach, we identify that the trade-off between the supplement incentivizing early retirement and the penalty this retirement modality entails in Spain is the mechanism driving this result. Finally, we developed a dynamic choice model to simulate women’s behavior under alternative versions of the policy.

Summary

Our main motivation was to analyse whether the maternity supplement proposed by the Spanish government in 2016 fostered gender equality through a reduction of the gender gap in retirement income. We decompose the average monthly retirement income for both men and women into its determinants and estimate how the gender difference in returns on pension of having two or more children changes after the policy is introduced. Our result is that the policy had a smaller-than-expected shrinking effect in the gender gap in retirement pensions, as the gender gap for regular retirement closes but the gap conditional on early retirement (i.e. below 65 years) remains unaffected.

chart

Figure 1: Time Series of Average Monthly Retirement Income: negative trend reverted for women retiring at 65 after the introduction of the policy but not for women retiring at an earlier age.

Using a difference-in-differences approach, we observe that the policy has a positive effect on all retirement hazard rates – i.e. the probability of retiring at a certain age, conditional on not having done so before.

One reason for the lower income effect is due to the trade-off that women face when they consider retiring before reaching the age at which they would start receiving their full retirement pension. On the one hand, early retirement increases the value of leisure, which could be especially beneficial for women with difficult working biographies. On the other hand, early retirement entails a penalty on the pension. For this group of women, early retirement reduces this penalty and hence, changes the trade-off in favour of early retirement, making the substitution of retirement income for more leisure more appealing.

Finally, we develop a dynamic choice model that depicts the trade-off between income and leisure that women face in retirement decisions, which can be used in a next step to simulate different retirement policies and compare their outcomes.

Future research on the maternity benefit ought to shed light on the different effects it produced between women who were and were not in a couple, and how much agents value leisure relative to money.

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The role of pensions: Exploring the link between pension funds, monetary policy and economic performance

Macroeconomic Policy and Financial Markets master project by Diljá Matthíasardóttir and Lara Zarges ’21

A grandmother and granddaughter sit on a park bench talking happily about what they see on a mobile phone
Photo by Andrea Piacquadio on Pexels

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

Shocks to the European Central bank’s unconventional monetary policy trigger Dutch pension funds to search for yield: A structural VAR analysis shows that the pension funds reallocate their asset holdings from bonds towards equity and alternatives. The latter suggests the existence of a portfolio-rebalancing channel through institutional investors in the euro area. Moreover, we emphasize that the portfolio reallocation induced by monetary policy has increased the overall riskiness of the funds’ investments, which has potentially systemic risk implications. As the pension sector has evolved into a key player in the Dutch financial market, we additionally investigate the domestic real effects of a further increase in its size. In this context, a second SVAR approach shows that an expansive shock to total asset holdings boosts economic growth. As this link also works in the reverse direction, we point out the potential problems of a sudden dissaving of pension funds. Our results are of general interest for the aging societies in Europe as they improve the understanding of pension funds’ potential importance for economic policy in a period of demographic change. This paper hence urges future research to contribute to a better understanding of the link between demographic change, growing pension systems and central bank policies.

Conclusions

We infer that the change in the portfolio composition following a monetary shock to the ECB shadow rate after 2008 is driven by unconventional monetary policy succeeding in lowering the long-term interest rates. The resulting rise in equity and alternatives in the pension fund’s asset holdings can therefore be interpreted as evidence for the existence of a portfolio rebalancing transmission channel of quantitative easing in the euro area.

These findings also imply that due to unconventional monetary policy the riskiness of Dutch pension funds’ portfolios has been increasing gradually. Together with the sheer size of the Dutch pension sector and the funds’ tendency to herd-behavior this might be affecting local financial stability and with it the safety of Dutch pensions.

We further show that the size of the pension sector is a factor influencing economic growth and unemployment in the Netherlands.

Due to structural drivers such as demographic change, interest rates are likely to be lower for longer. We therefore stress the importance of future research on demographic effects such as the evolution of the size of funded pension systems on monetary policy conduction. This is e.g. important considering that the change of the Dutch pension system towards a full DC system in 2027 will most likely alter the consumption and saving patterns of citizens. The importance of bank deposits could shrink, impeding the supply of bank loans to the corporate sector. Firms would then likely turn towards financial securities to finance their operations. This would imply an overall decline in the importance of the credit channel for monetary policy transmission regardless of unconventional times. Therefore, a deeper understanding of the influence of central bank policies on institutional investors and insurers is required. This is especially important since the number of private, complementary pension schemes has been growing in many member states following the European Directive 2003/41/EC.

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About the BSE Master’s Program in Macroeconomic Policy and Financial Markets

Extreme Weather and Health Outcomes in Women: Evidence from Colombia and Peru

Economics of Public Policy master project by Melina Aliayi, Manohar Gannavarapu, and André López ’21

A pregnant woman in a warm sweater places her hands on her belly, forming a heart shape with her fingers
Image by StockSnap from Pixabay

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

This paper investigates the relationship between health outcomes during delivery and extreme temperatures in Colombia and Peru. 

We used geo-coded household survey data from the Demographic and Health Survey Program (DHS), allowing us to construct an index accounting for the incidence of pregnancy complications in women during labor. Matching these health outcomes indicators with monthly-temperature data at a grid-cell level, we find that experiencing extreme temperatures during pregnancy, particularly cold temperatures, increases the probability of suffering pregnancy complications in the case of Colombia. Contrary to majority of the literature on health outcomes and temperature, we find no effect of experiencing extreme high temperatures. Interestingly, we find no significant effects in Peru.

Conclusions

  • We identify that experiencing at least one month of extreme cold temperatures during pregnancy increases the incidence of pregnancy complications by 2.5%.  
  • Shifting the analysis to the trimester level, we find that experiencing extreme cold temperatures during the first and third trimester of pregnancy increases the probability of pregnancy complications. 
  • Furthermore, we find an additional effect by wealth. Being poor increases the probability of experiencing pregnancy complications due to extreme cold temperatures by an additional 5%.
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About the BSE Master’s Program in Economics of Public Policy

Save The Euro Policy: European Debt Crisis and Covid-19 Pandemic

Economics master project by Kadir Özen and Hirotaka Ito ’21

Euro bills and face masks

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

The 2008-2009 Global Financial Crisis led to European debt crisis leaving the periphery of euro zone with very high borrowing costs compared to core countries. When Covid-19 Pandemic Crisis hit the economies, monetary policy tools of European Central Bank prevented a similar debt crisis. We identify the underlying factor of the ECB monetary policy that is active during the 2011-2012 debt crisis and Covid-19 Pandemic periods operated through sovereign spreads preventing the contagion of fragmentation risk of euro area. We call this new factor, save-the-euro with which we shed light on the monetary policies of this unusual periods.

Conclusions

  • Identified the new dimension of the ECB Policy, save-the-euro policy, that captures stabilization policy of ECB that works through euro zone sovereign yields
  • This policy addresses euro area fragmentation risk 
  • An expansionary save-the-euro policy leads to a highly statistically significant appreciation of Euro against US dollar: Sharp contrast with the standard textbook treatment
  • Document the reversal of flight-to-safety flows in the euro area

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About the BSE Master’s Program in Economics

Green Agreement in the Electricity Market

An ex-post evaluation of the 2013 Dutch Coal Power Plants Closure Agreement by Ilaria Noviello and Shaun Tey ’21

Smoke stacks
Photo by Andreas Felske on Unsplash

The full title of this project is “Green Agreement in the Electricity Market: An ex-post evaluation of the 2013 Dutch Coal Power Plants Closure Agreement.”

Editor’s note: This post is part of a series showcasing Barcelona School of Economics master projects. The project is a required component of all BSE Master’s programs.

Abstract

There has been much theoretical discussion on whether Green Agreements can be a cost efficient means of improving the sustainability of products, but no empirical studies have been done on what the cost and benefits of past Green Agreements have been. 

In order to provide a substantive contribution to this discussion, we have undertaken an ex-post analysis of an agreement in the Netherlands to close five aging coal power plants in 2016 and 2017. First, we evaluated the ACM’s assumption that the plant closures would result in an increase of the Dutch wholesale electricity price in the Netherlands by undertaking a before-and-after analysis. Second, we examined how the ACM quantification of the benefits deriving from emissions reductions would have changed if it used its same methodology a year after the plants closed (in mid-2018). Third, we considered how the quantification of the benefits would have changed if the ACM used an alternative evaluation technique based on estimating consumers’ willingness to pay for Green Electricity.

Our findings indicate that the ACM was likely incorrect to oppose the agreement to close the coal power plants.

Conclusions

  • The before-and-after analysis indicates that the agreement to close the coal power plants did not result in any increase in the wholesale price of electricity in the Netherlands. This implies that this Green Agreement had no cost, while still producing a benefit of reduced emissions.
  • Our examination of the ACM’s method for quantifying the benefits derived from reduced emissions finds it to be volatile. In particular, due to subsequent changes to the methods used by the Dutch Government for valuing reduced emissions, the benefit of the Closure Agreement would be regarded as far higher if evaluated today. 
  • We find that it is unviable to use an alternative evaluation technique based on estimating consumers’ willingness to pay for Green Electricity.

Our conclusion suggests that those working on ex-ante assessments of Green Agreements should recognise that the volatility of their government’s approach to environmental policy can alter the accuracy of their assessments. As a result of this, regulators should coordinate better across government departments, in order to understand which methodologies are currently subject to scrutiny and could possibly change in the future.

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About the BSE Master’s Program in Competition and Market Regulation