Studies in this week’s Hutchins Roundup find Stockholm’s congestion pricing program reduced air pollution and improved child health, countries with aging workforces move faster to adopt robots, and more.
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Following a seven-month trial between January and July 2006, Stockholm introduced a permanent charge on most vehicles entering the city center in August 2007. Emilia Simeonova of Johns Hopkins, Janet Currie of Princeton University, and co-authors compare pollution levels and asthma in children up to age five in Stockholm between 2004 and 2010 to those in 102 Swedish municipalities that did not implement a congestion charge. They find that levels of nitrogen dioxide and particulate matter—both common traffic pollutants—fell by 5 to 7.5 percent and 15 to 20 percent, respectively, in central Stockholm as a result of the congestion charges. Visits to inpatient and outpatient facilities for childhood asthma also declined, with the effect increasing over time. After the implementation of the permanent congestion charge, asthma rates fell to 46.5 percent of the pre-trial baseline level, they find. The authors conclude that short-run analysis of pollution reduction programs may significantly understate the long-run health benefits, since these take time to develop, and that even relatively low pollution levels can negatively impact children’s health.
Middle-aged workers are more likely to work in blue-collar jobs that are amenable to robotization than older workers, so adopting robots becomes more attractive as populations age. Using data on the stock of robots and population demographics for 52 countries from 1993 to 2014, Daron Acemoglu of MIT and Pascual Restrepo of Boston University show that more rapidly aging countries are quicker to adopt robots. In fact, aging alone explains close to 40 percent of the cross-country variation in the adoption of robots, they say. Similar results hold across U.S. commuting zones and for other automation technologies. Additionally, they find that countries experiencing greater demographic change produce more robotics-related patents and export more industrial automation technologies. The authors note that the effects of aging on productivity are ambiguous: older workers may be less productive for a given level of technology, but the increase in automation associated with aging raises productivity.
A broader view of leverage would enhance understanding of global systemic risk in the financial system
Commonly used leverage metrics for banks, such as the ratio of total assets to capital, rely primarily on on-balance sheet data. Manmohan Singh and Zohair Alam of the International Monetary Fund argue that these metrics do not fully capture non-bank funding to banks because they miss pledged collateral transactions. For example, if Walmart wants to expand in Texas and needs a loan from a bank to do so, the bank can either fund the loan from on-balance sheet items, such as household deposits and wholesale funding, or by pledging collateral it has received off-balance sheet in exchange for funding from another bank. A large share of pledged collateral transactions occur across borders and cannot be attributed to any jurisdiction, and are therefore not captured by balance sheet reporting at a national level. By examining data from 15 global systematically important banks, Singh and Alam find that pledged collateral funding is large and growing relative to on-balance sheet funding. Fully accounting for these transactions could increase estimates of bank leverage by a third for these banks, they find, suggesting that the omission of off-balance sheet items implies a substantial underestimation of bank leverage.
Quote of the week:
“[C]rypto-assets do not pose risks to global financial stability at this time. This is in part because they are small relative to the financial system. Even at their recent peak, their combined global market value was less than 1 percent of global GDP. In comparison, just prior to the global financial crisis, the notional value of credit default swaps was 100 percent of global GDP,” says Mark Carney, governor of the Bank of England.
“Their small size, and the fact that they are not substitutes for currency and with very limited use for real economy and financial transactions, has meant the linkages to the rest of the financial system are limited. The market continues to evolve rapidly, however, and this initial assessment could change if crypto-assets were to become significantly more widely used or interconnected with the core of the regulated financial system.”