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December 08, 2010
Questions (and some potential answers) on immigration and remittances
Immigration is a topic that raises many questions from both policymakers and the public, and researchers work to offer perspective. Some questions currently being posed are
- Does immigration into the United States have a positive impact on native-born employment opportunities?
- If remittance fees (that is, fees immigrants pay to send money home) are reduced, how much more money do migrants send home?
- How does sponsorship of family members' immigration into the United States change immigration patterns?
Unskilled immigrant labor and offshoring
Some highlights from the research presented at the conference include a paper by University of California, Davis professor Giovanni Peri that was recently profiled in the New York Times. Peri argues that unskilled immigrant labor helps prevent U.S. firms from relocating offshore.
The paper cites evidence indicating that less-educated immigrants are employed in jobs that require more manual and routine-intensive tasks and on average do not compete for jobs in which the bulk of native workers are employed. Those jobs tend to be more cognitive and nonroutine-intensive type of work. In other words, immigrants and low-skilled native workers are not substitutes but complements. In fact, unskilled immigrants compete more with offshore workers. The paper concludes that immigration generates cost-savings for U.S. firms and thus a corresponding increase in productivity, so immigration's aggregate effect on the level of low-skilled native employment in the United States is positive.
This finding is in contrast to research conducted by George Borjas of Harvard University, who also participated in the conference. His work suggests that rather than being complements, immigrants with similar skill levels tend to be substitutes for native workers.
In 2008, immigrants sent $336 billion to their relatives in developing countries, and in many countries remittances are often greater than private capital flows and official development aid combined. Remittance flows also generate billions of dollars in fees.
Dean Yang, from the University of Michigan, quantifies the impact of money transfer fees on remittances flows. Using a unique field experiment among Salvadoran migrants in the Washington, D.C., area, migrants were randomly assigned discounts on remittance transactions fees. Surprisingly, minor reductions in remittance fees led to large increases in total transfers. For instance, a $1 reduction in transaction costs generated $25 more remitted dollars per person per month. This finding suggests that a reduction in transaction costs can lead to very sizable gains in recipient countries.
Sponsorship of family members
Although countries such as Canada and Australia prioritize the entry of young, skilled foreign workers, the U.S. immigration system strongly emphasizes family reunification, which is a method where naturalized immigrants can sponsor relatives (spouse, children, parents, and siblings) in their immigration to the United States. Sponsoring new immigrants means that migrants not only are a major source of remittances, but they can fundamentally shape the flow of immigration by assisting migration of their relatives.
Until now, researchers had limited data on sponsors' behavior. Using a new immigration survey, Yale University professor Mark Rosenzweig presented research that for the first time explores the role of sponsorship. He shared preliminary results showing that while immigrant children who are less educated tend to receive remittances from their relatives who have immigrated to the United States, children with more schooling are able to take better advantage of the U.S. job market and are the first ones to be sponsored.
Other papers included research aimed at quantifying the effect of female migration on children left behind, the impact of immigrants on the educational attainment on natives, the productivity gains from skilled migration into the United States, and the role of seasonal migration in mitigating famine in Bangladesh. All of the conference papers are available.
By Stephen Kay, senior economist and coordinator of the Atlanta Fed's Americas Center, and Federico Mandelman, research economist and assistant policy adviser, both of the Atlanta Fed's research department
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August 17, 2005
Did I (And My Kind) Cause Argentina's Tailspin?
Another Econ Journal Watch article comes my way, this one implicating U.S. economists in the truly painful travails of the Argentine people around the millennial turn. According to the Kurt Schuler, the article's author:
Economists whose work in other areas I admire failed to do the research necessary for understanding Argentina’s situation accurately. As a result, their analysis was faulty. When Argentina followed the main recommendations of the consensus, the economy’s rate of decline accelerated...
A review of what U.S. economists said about Argentina shows that many failed to define key terms in their arguments; most ignored readily available data that contradicted the consensus view about Argentina’s economy; and nearly all neglected to examine the legal and statistical material, available for free online, necessary for understanding how Argentina’s monetary system worked. The episode is important because it raises the question of whether the public can trust economists who claim expertise on controversial issues of economic policy.
Yikes! If legitimate, this is a stinging indictment indeed. But I have some doubts, at least about part of the Schuler argument. I, and my co-author Owen Humpage, are fingered for an Economic Commentary article we published in 1999 titled "Dollarization and Monetary Sovereignty: The Case of Argentina." Here, according to Schuler is where we went awry:
... among the 100 most active commentators on Argentina, 91 of 94 who mentioned the topic called the convertibility system a currency board. Yet examination reveals important differences between the convertibility system and an orthodox currency board. The system was a central bank that mimicked some currency board features; it is perhaps best termed a currency board-like system, or even a pseudo currency board.
I don't know about the other 91 on the list -- a list that includes Brad DeLong, Nouriel Roubini, and Brad Setser, for example -- but I have to enter a plea of "not guilty." Here is what Owen and I wrote:
Although the new monetary institution created by the Convertibility Law is not a pure currency board, such an unadulterated arrangement is a useful benchmark from which to begin thinking about Argentina’s monetary structure.
To be fair, Schuler provides a footnote to a table the admits we "Occasionally mentioned that the convertibility system was not an orthodox currency board, but on balance seemed to consider the system a currency board." But I still argue that this is not quite true to the plain message of our article. We followed up our description of this "useful benchmark" with a section describing the actual institutional monetary arrangement in Argentina, which we titled "Argentina's Almost Pure Currency Board". Maybe the "almost pure" qualifier is not sufficient for Mr. Schuler's tastes, but the main point of our article was that it was precisely the special non-currency-board-like provisions of the Convertibility Law that provided a response to critics who claimed that a currency board arrangement, or even dollarization, was too rigid for Argentina's own good.
Schuler refers to several other "mistakes" made by others -- opinions on whether the currency was overvalued, whether exports from Argentina were uncompetitive, was dollarization technically feasible. He treats the answers to these questions, the last two especially, as definitive, but it seems to me that there is more room for honest disagreement than the author's views allow.
The advice given by economists may have been good or bad, and the record on that score is well worth exploring. Furthermore, it is hard to argue with Schuler's plea that those who proffer such advice make the effort to truly understand the institutional arrangements (and socio-political realities) with which the targets of their attentions must deal. But my suspicion is that a close and objective reading of the record will reveal a better score on along this dimension than he claims.
UPDATE: Brad Setser pleads not guilty as well, and if I was the jury he'd walk. Be sure to read his thoughts in the comment section below.
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June 10, 2005
Capital Controls In Argentina -- On Inflows!
Most of us probably associate restrictions on financial transactions with governments trying to keep funds from fleeing their countries (often because their currency is under attack). The opposite is the case in Argentina these days. From the Financial Times:
Argentina on Thursday announced stricter controls on capital inflows in an attempt to discourage “speculative” funds and protect the peso from strengthening further against the dollar.
The measure, which is expected to come into force on Friday, obliges investors bringing capital into the country to lock away 30 per cent of the total amount for 12 months. The decision, to be enforced by decree, adds to existing rules that force inflows to remain in the country for at least one year.
However, Roberto Lavagna, the economy minister, said on Thursday that there would be exemptions for trade finance and direct foreign investment in productive sectors as well as investment in primary issues of bonds and shares.
He said the main objective was to prevent the peso from strengthening further, and added that maintaining a competitive exchange rate had been one of the keys to Argentina's economic recovery since it devalued the peso in January 2002...
Argentina's economic recovery since its financial collapse in December 2001 has made the task of keeping a competitive peso much harder. For example, private-sector capital flows switched from net outflows to net inflows towards the end of last year, which has placed further upward pressure on the local currency...
Vladimir Werning, an economist at JP Morgan in New York, said: “This is not something that investors will look at from the perspective of state intervention versus free market economics. Instead, they will see it as a signal of the government's emphasis on keeping a competitive exchange rate policy.”
If you are interested in the path to reform in Argentina (and elsewhere) Nouriel Roubini and Brad Setser have a book just for you.
UPDATE: You can find Brad's latest on Argentina here.
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May 10, 2005
Meanwhile, In Mexico...
From the Wall Street Journal (page A14 in the print edition):
Signs of higher inflation in Brazil and Mexico dimmed hopes of a break in interest-rate increases.
In Mexico, inflation rose 0.36% in April, and 4.6% for the 12 months through April. That was higher than the 4.39% recorded for the year through March. The latest increase, largely coming from a jump in vegetable prices, has put inflation even further beyond the bank's target range of 2% to 4% a year.
Core inflation, which excludes fresh fruit and vegetables, energy and education, rose only 0.21% in April, however, bringing annual core inflation down to 3.46% from 3.61% at the end of March. It was the sixth straight month of declines in annual core inflation.
Some economists think that given the decline in core inflation, the Bank of Mexico will hold off further monetary tightening this month. Others, however, are forecasting further tightening from Mexico's central bank Friday.
"The figure is high," said Eduardo Avila, an economist with consulting firm Prognosis. "Given that mid-term inflation projections are still far from the [central bank's] target, I think monetary policy will be tightened on Friday."
A year of monetary tightening by the central bank, coupled with rising U.S. rates, has led Mexican overnight rates to practically double in the past year to about 9.8%.
In Brazil, meanwhile, inflation expectations continued to nudge higher yesterday. According to a central-bank survey, markets now expect Brazil's benchmark IPCA inflation index to rise 6.3% in 2005 and 5.85% over the rolling 12-month period ahead. The central bank's target for 2005 inflation is 5.1% with a tolerance band up to 7%.
The central bank has raised its benchmark Selic rate to 19.5% in a bid to contain inflation. Analysts now believe the bank may have to maintain higher interest rates for longer than expected.
The news wasn't all bad, however.
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April 04, 2005
Lessons From The Good News From Brazil
So, if all goes to plan, Brazil will repay the IMF (in full) after six years. That is a longer than the three years that the IMF demands (in theory) for large-scale loans made through its crisis response facility (that facility is called the SRF). Brazil would not have been able to repay the IMF on the 3 to 5 year time frame associated with the IMF's normal "lending facility " for smaller-scale lending (a "Stand-by arrangement or SBA) either...
So why couldn't Brazil repay the IMF more quickly, on something like the terms of the IMF's crisis response facility? Simple: Brazil has lots of debt, mostly domestic, and relatively low reserves for an economy of its size -- it needed the IMF's money to allow it time to grow out of an (almost) unsustainable debt burden, and to allow it time to rebuild its reserves. It was never realistic to think that Brazil only needed a very short-term loan...
This is one of the issues Nouriel and I tried to highlight in our book on responding to financial crises in emerging economies: if the IMF to going to be used to help out (or bail out, depending on your point of view) emerging economies with far more debt than Mexico or Korea, the IMF -- realistically -- is not going to get repaid all that quickly, even when everything works well.
You can find out about the Roubini and Setser book via this link.
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March 29, 2005
Some Good News From Brazil
From the Wall Street Journal Online (subscription may be required):
In another milestone in Brazil's comeback from the brink of financial collapse, the government said it won't renew its standby-credit accord with the International Monetary Fund...
...Finance Minister Antonio Palocci announced yesterday that Brazil's strong recent economic performance made renewing the pact unnecessary. In 2004, Brazil posted its fastest economic growth in a decade, a record trade surplus, a strong budget surplus and the first drop in its level of debt-to-gross domestic product since 2000.
Not only that,
Brazilian Treasury Secretary Joaquim Levy said the nation owes the IMF $23.2 billion, and said all money owed is "currently available in government reserves." He added that Brazil is due to repay the money in full by 2007.
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More Hurrahs For Free Trade
Creating a new kind of caveman economics in their published paper, they argue early modern humans were first to exploit the competitive edge gained from specialization and free trade. With more reliance on free trade, humans increased their activities in culture and technology, while simultaneously out-competing Neanderthals on their joint hunting grounds, the economists say.
Archaeological evidence exists to suggest traveling bands of early humans interacted with each other and that inter-group trading emerged, says Shogren. Early humans, the Aurignations and the Gravettians, imported many raw materials over long ranges and their innovations were widely dispersed. Such exchanges of goods and ideas helped early humans to develop “supergroup social mechanisms.” The long-range interchange among different groups kept both cultures going and generated new cultural explosions, Shogren says.
Pretty cool. Moving to a more modern example, the Dallas Fed reviews recent economic successes in Mexico, putting free trade front and center:
The success of Mexican macroeconomic policy can be seen in the course of recent history. Together with the North American Free Trade Agreement and the opening of Mexican markets to trade, it contributed to the rapid recuperation of the Mexican economy after 1994–95. And it was essential in limiting the 2001 Mexican downturn to a mild recession, a landmark in a country where every downturn of the prior 30 years had been accompanied by a financial crisis.
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December 28, 2004
Why Did Argentina's Economy Improve?
Continuing with the theme of great blogging on the Sunday New York Times, Brad Setser reacts to an article noting "Argentina's Economic Rally Defies Forecasts." Setser sees a pretty conventional route out of the meltdown in 2001-2002.
The number one reason for Argentina's financial and economic stabilization is its belated conversion to fiscal discipline -- or what in the old days might have been called a conservative fiscal policy. Why no hyper-inflation after Argentina's default? The government matched revenues and expenditures, avoiding the need to print money. Hardly radical.
... the government has not ran an expansionary fiscal policy after its default. The initial impetus for Argentina's recovery came from the devaluation, which led to a surge in export revenues (measured in local currency terms), not government policies to spur consumption. Government spending initially had to fall to match falling revenue.
The strongest indictment of the IMF is that an Argentine government that explicitly defines its policy in opposition to the IMF has adopted a far more conservative fiscal stance than any Argentina government that embraced the IMF in the 1990s.
Brad goes on to further critique the IMF strategy and generally cast some doubt on the wisdom of fixed exchange rate policies (by dollarization, or otherwise). Read this one too.
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November 26, 2004
Argentina, Chile, And Other Case Studies In Social Security Reform
Tyler Cowen at Marginal Revolution offers a cautionary tale on Social Security reform from Argentina.
This link, also provided in the Cowen post is another good source of information about the experience of other countries with public pension reform (as of 1999).
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- Thoughts on a Long-Run Monetary Policy Framework, Part 2: The Principle of Bounded Nominal Uncertainty
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