The Benjamin H. Griswold III, Class of 1933, Center for Economic Policy Studies funds policy-related research projects within Princeton’s Department of Economics. During the academic year, the Griswold Center for Economic Policy Studies (GCEPS) supports the economic policy-related research of a number of faculty members.
Alan Blinder‘s Advice and Dissent: Why America Suffers When Economics and Politics Collide was published in 2018. As a spinoff from that book, Blinder wrote a paper on why economists have been unable to “sell” the theory of comparative advantage despite 200 years of trying: “The Free Trade Paradox: The Bad Politics of a Good Idea,” Foreign Affairs, 2019. “What does Jerome Powell know that William McChesney Martin didn’t—and what role did academic research play in that?” was a keynote lecture at the Money, Macro and Finance 50th Anniversary conference at the LSE and is forthcoming in a special issue of The Manchester School. Blinder’s main project has been working on a lengthy scholarly tome on the history of monetary and fiscal policy, tentatively titled, A Monetary and Fiscal History of the United States, 1961-2019.
William Dudley‘s recent research themes include:
• Lessons of the financial crisis. The financial crisis of 2007-09 was extraordinarily severe, yet, by most, unanticipated. Moreover, the crisis changed how the U.S. financial system is structured and regulated. “Nonbank Financial Institutions: New Vulnerabilities and Old Tools,” First Responders: Inside the U.S. Strategy for Fighting the 2007-09 Global Financial Crisis, 2020.
• The importance of effective multilateral institutions such as the BIS, IMF, and the World Bank. “The Bank for International Settlements: If It Didn’t Exist, It Would Have to Be Invented,” Revitalizing the Spirit of Bretton Woods: 50 Perspectives on the Future of the Global Economic System, Bretton Woods@75 Compendium, 2019. As part of this, Dudley assumed a leadership role for the Bretton Woods Committee, an NGO that supports the multinational institutions that underpin the globalized economy and financial system.
• The conduct of U.S. monetary policy. This includes focusing on how the Federal Reserve’s implementation framework has changed and why the new framework provides significant advantages from a financial stability perspective and an ongoing analysis of the Fed’s monetary policy framework review.
• Analysis of the policy response to the global pandemic, with a particular focus on the role of the Federal Reserve.
• Comparing and contrasting the response during the current crisis with the response during the Financial Crisis. What lessons were learned from the prior crisis? What lessons weren’t learned, successfully? What important similarities and differences are there between the two episodes. What policy/regulatory/supervisory changes should be implemented on a going forward basis?
Ilyana Kuziemko‘s research focuses on economic inequality (and how it is mediated by race and gender) and redistribution. Recent work includes the role of the labor movement in shaping the U.S. income distribution over the twentieth century, the effect of the Civil Rights movement on political realignment in the U.S. South, how parenthood shapes gender norms, and how individuals form preferences over tax policy.
Adrien Matray‘s research explores the causes and consequences of misallocation of capital in developed and developing countries. Using French credit registry data, he established that formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. On developing countries (India), he showed that foreign capital liberalization reduces capital misallocation and increases aggregate productivity by roughly 6% over the period 1995-2010. The simple liberalization of access to foreign capital for Indian firms can therefore accounts for a third of the overall increase in the country productivity during the period. Matray continues to explore the effect of financial frictions in India and in particular provides an in-depth analysis of the redistributive effects across places and workers and financial liberalization. He also studies the consequences of a government intervention in Brazil that led to a sharp decrease in the number of unbanked households in poor cities. Preliminary results show a sharp increase in employment and wages for skilled workers, suggesting that limited access to banking services is an important hurdle for development and that it cannot be left to the private sector only. Follow up on this research plans to explore what frictions are preventing private banks to serve these markets initially and why government intervention was needed to initiate the “push.”
Christopher Sims‘ research is on macroeconomic theory and policy, and monetary-fiscal coordination. His recent paper, “Optimal Fiscal and Monetary Policy with Distorting Taxes,” discusses government debt finance when interest rates are low. It shows that there can be a substantial fiscal cost from expanding debt, even when the rate of growth of the economy exceeds the interest rate. The cost comes through the likelihood that debt expansion will raise rates. Even if this leaves the interest rate below the growth rate, the increased interest expense can be burdensome. A second strand of his research examines the relation among aggregate private debt, spreads of risky over less risky interest rates, and economic activity. He explored this, with three co-authors, in the paper “Feedbacks: Financial Markets and Economic Activity,” with US monthly data. A current project extends to an international panel of quarterly data. Disturbances originating in the financial sector are an important source of business cycle variation, but they seem to be characterized initially by rises in spreads. Credit aggregates react passively to these disturbances, rather than generating them.
Leeat Yariv’s research focuses on political economy, market design, social and economic networks, and experimental economics. One of her recent papers, “Top of the Batch: Interviews and the Match” (with Federico Echenique, Ruy González, and Alistair Wilson), shows that decentralized interactions preceding the match—namely, interviews—may dramatically impact ultimate outcomes. Interactions outside of a matching clearinghouse may be at least as important as the matching protocol prescribed by the clearinghouse itself. The National Resident Matching Program (NRMP; or “The Match”) has matched millions of doctors to residency programs. In 2019 alone, there were over 38,000 active applicants matched to over 35,000 positions. In 2019, 47.1% of applicants were matched to their first-ranked choice, and 72.5% were matched to one of their three top-ranked choices.
Owen Zidar‘s work focuses on tax policy and inequality. One strand of his recent research uses full-population tax return data to study the role of firms in generating inequality. Nearly half of the rise of reported income of the top 1 percent since 1980 and the decline in the aggregate labor share results from business profit growth of closely-held private firms. The prominence of these private firm-owners at the top of the income distribution motivated further exploration of the nature of top incomes and top wealth. Another strand of his recent work has focused on evaluating state and local tax policies and how they affect the location and scale of economic activity in the United States. Zidar continues working on topics related to capital taxation and state and local economic policy. In one project, he is investigating the links between entrepreneurship and opportunity using U.S. tax data. In a second project, he is evaluating the tax cuts and jobs act as well as prior tax reforms. His goal is to research the efficiency and equity impacts of different proposals to try to inform policymakers about the design of the U.S. tax system.