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Hutchins Roundup: Secular stagnation, stress tests, and more


Studies in this week’s Hutchins Roundup find that countries undergoing more rapid aging have grown faster in recent decades, European bank stress tests are good predictors of the banks’ actual losses from adverse macroeconomic shocks, and more.

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Population aging does not seem to slow down economic growth

Daron Acemoglu of MIT and Pascual Restrepo of Boston University challenge the argument that economies with aging populations grow more slowly and are prone to “secular stagnation.” Examining advanced economies between 1990 and 2015, they find no negative relationship between aging and lower GDP per capita; indeed, in many cases the relationship is positive. More rapid adoption of automation technologies by countries with aging populations may be one explanation, they suggest.

EU banks’ stress tests are good predictors of realized losses from adverse shocks

Since 2014, more than 120 major banks in the EU have been subject to stress tests – exercises administered by regulators in which banks estimate potential losses from hypothetical adverse shocks. Comparing predicted to actual losses at times of macroeconomic news announcements, Thomas Philippon of New York University and Pierre Pessarossi and Boubacar Camara of Banque de France find that the stress tests are good predictors of banks’ realized losses and equity returns. However, they add, exposures may be underestimated in countries that had weaker banking systems before the shocks.

Blacks who took more math in high school earn more as adults; not so for whites.

During the 1980s, 40 states introduced minimum high school math requirements. Exploiting variation in the timing of these policy changes, Joshua Goodman of Harvard concludes that the new requirements induced black students to complete 0.35 additional math courses, on average, and that raised their earnings by 3.3 percent. In other words, the return to an additional year-long math course was about 10 percent. The reforms closed most of the black-white gap in the number of math courses completed and reduced by roughly one-tenth the black-white gap in annual earnings. The introduction of minimum math requirements didn’t produce any change in earnings for white students whose math coursework remained mostly unchanged.

Chart of the week: Deficits as a percentage of gross domestic product are projected to exceed their 50-year average

Total deficits and surpluses

Quote of the week: “With the unemployment rate near its longer-run normal level and likely to move a bit lower this year, a natural question is whether monetary policy has fallen behind the curve,” says Fed’s Chair Janet Yellen.

“The short answer, I believe, is ‘no.’ It is true that many employers report difficulties in finding qualified workers in selected occupations, and that more workers are comfortable quitting jobs to take or look for better positions. But this is to be expected in a healthy labor market and not evidence that the economy as a whole is experiencing a serious worker shortage… Of course, even if the labor market is not overheated currently, one might worry that overheating could rapidly emerge as labor market conditions strengthen further, causing inflation to surge. I consider this unlikely.”

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