Publications / Forthcoming Papers

Explaining Inflation in India: The Role of Food Prices, (with Devesh Roy, IFPRI), forthcoming, Brookings-NCAER India Policy Forum.

This paper conducts a forensic examination of inflation in India with a focus on food price inflation, using a disaggregated high-frequency commodity level dataset spanning the last two decades. First, we document stylized facts about the behavior of overall inflation in India. We establish that low inflation has historically been a rare occurrence in the Indian economy in the last two decades; the long-term trend in the inflation rate exhibits a U-shaped pattern with a structural break in the trend in 2000 and an inflection point in 2002. The long-term trend in food inflation has followed a pattern similar to overall inflation. Domestic and international food price inflation rates have been moderately correlated, though there is significant variation across commodities based on their tradability. Furthermore, we find
food price inflation to be consistently higher than non-food, quite persistent, and having a significant pass-through to non-food inflation. Further, the price of food relative to non-food co-moves strongly with aggregate inflation rate. Next, we explicitly quantify the contribution of specific commodities to food price inflation. We find that animal source foods (milk, fish), processed food (sugar, edible oils), fruits and vegetables (e.g. onions) and cereals (rice and wheat) are the primary drivers of food price inflation. Finally, we conduct case studies of some of the top contributors to food price inflation. Combining the insights from macro as well as micro analyses, the paper suggests specific policy implications.

Exchange Rates and Wages in an Integrated World, (with Antonio Spilimbergo, IMF) (CEPR DP No. 7167), American Economic Journal, Macroeconomics, 3, October, 2011, pp. 1-33.

Abstract: We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981-2005, we find that the elasticity of domestic wages to real exchange rate is 0.15 after a year for countries with high barriers to external labor mobility, but about 0.40 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.

A Fistful of Dollars: Lobbying and the Financial Crisis , (with Deniz Igan and Thierry Tressel, IMF) (IMF WP No. 7194, NBER WP No. w17076), NBER Macroeconomics Annual, 2011, Volume 26.

Abstract: Has lobbying by financial institutions contributed to the financial crisis?  We use detailed information on financial institutions’ lobbying and mortgage lending to answer this question, and find that lobbying was associated with more risk-taking during 2000-07 and worse outcomes in 2008.  Lobbying lenders originated riskier mortgages, securitized at faster intensity, and expanded more.  They suffered from higher delinquencies, experienced negative returns during key bank failures, but positive returns with the bailout announcement, and had a higher bailout probability.  These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the crisis.

Do Interest Groups Affect US Immigration Policy?, (with Giovanni Facchini, Essex and Anna Maria Mayda, Georgetown) (CEPR DP No.6898,  IZA DP No. 3183,IMF WP No.08/244), Journal of International Economics, 2011, Volume 85, Issue 1, September, pp. 114-128. (supplemental appendix).

Abstract:  While anecdotal evidence suggests that interest groups play a key role in shaping immigration policy, there is no systematic empirical analysis of this issue. In this paper, we construct an industry-level dataset for the United States, by combining information on the number of temporary work visas with data on lobbying activity associated with immigration. We find robust evidence that both pro- and anti-immigration interest groups play a statistically significant and economically relevant role in shaping migration across sectors. Barriers to migration are lower in sectors in which business interest groups incur larger lobby expenditures and higher in sectors where labor unions are more important.

Policies, Enforcement, and Customs Evasion: Evidence from India, March, 2008 (with Arvind Subramanian, Peterson Institute for International Economics and Petia Topalova, IMF), Journal of Public Economics, 2008, Vol 92, Pages 1907-1925 (IMF WP No. 07/60)

Abstract: We examine the effect of tariff policies on evasion of customs duties, in the context of the trade reform in India of the 1990s. By exploiting the variation in tariff rates across time and products, we identify a robust positive elasticity of evasion with respect to tariffs. A second contribution of the paper is to provide some evidence on the impact of enforcement. While we cannot identify the direct impact of enforcement on evasion, we can establish the extent to which enforcement-related factors, such as product characteristics that determine the ease of detection of evasion, affect the evasion elasticity. The results render support to the hypothesis that improvements in enforcement can reduce the responsiveness of evasion to tariffs.

Working Papers:

Three’s Company: Washington, Wall Street and K Street, supplemental appendix, November, 2011 (with Deniz Igan, IMF),

Abstract: This paper explores the link between the political influence of the financial industry and financial regulation in the run-up to the global financial crisis. We construct a detailed database documenting the lobbying activities, campaign contributions, and political connections of the financial industry from 1999 to 2006 in the United States. We find strong evidence that spending on lobbying by the financial industry and network connections between lobbyists and the legislators were positively linked to the probability of a legislator changing positions in favor of deregulation. The evidence also suggests that hiring connected lobbyists who had worked for legislators in the past enhanced the effectiveness of lobbying activities.

Dynamics of Firm Lobbying, October, 2011 (with William Kerr, Harvard Business School and William Lincoln, University of Michigan),( NBER Working Paper No. w17577 )

Abstract: We study the determinants of the dynamics of …rm lobbying behavior using a panel data set covering 1998-2006. Our data exhibit three striking facts: (i) few …rms lobby, (ii) lobbying status is strongly associated with …rm size, and (iii) lobbying status is highly persistent over time. Estimating a model of a …rm’s decision to engage in lobbying, we …nd signi…cant evidence that up- front costs associated with entering the political process help explain all three facts. We then exploit a natural experiment in the expiration in legislation surrounding the H-1B visa cap for high-skilled immigrant workers to study how these costs a¤ect …rms’responses to policy changes. We …nd that companies primarily adjusted on the intensive margin: the …rms that began to lobby for immigration were those who were sensitive to H-1B policy changes and who were already advocating for other issues, rather than …rms that became involved in lobbying anew. For a …rm already lobbying, the response is determined by the importance of the issue to the …rm’s business rather than the scale of the …rm’s prior lobbying e¤orts. These results support the existence of signi…cant barriers to entry in the lobbying process.

Monetary Transmission in Low-Income Countries: Effectiveness and Policy Implications, November, 2011 (with Peter Montiel, Williams College and Antonio Spilimbergo, IMF), ( CEPR Discussion Paper No. 7951) (revise and resubmit, IMF Economic Review)

Abstract: This paper reviews the monetary transmission mechanism in low-income countries (LICs). We use monetary transmission in advanced and emerging markets as a benchmark to identify aspects of the transmission mechanism that may operate differently in LICs. In particular, we focus on the effects of financial market structure on monetary transmission. The weak institutional framework prevalent in LICs drastically reduces the role of securities markets. Consequently, traditional monetary transmission through market interest rates and market-determined asset prices are weak or nonexistent. The exchange rate channel, in turn, tends to be undermined by heavy central bank intervention in the foreign exchange market. The weak institutional framework also has the effect of increasing the cost of bank lending to private firms. Coupled with imperfect competition in the banking sector, this induces banks to maintain chronically high excess reserves and to invest in domestic public bonds or (when possible) in foreign bonds. With the financial system not intermediating funds properly, the bank lending channel also becomes impaired. These factors undermine both the strength and reliability of monetary transmission, which has important implications for the conduct of monetary policy in LICs.

How Effective Is Monetary Transmission in Developing Countries? A Survey of the Empirical Evidence, July, 2011, (with Peter Montiel, Williams College and Antonio Spilimbergo, IMF),( CEPR Discussion Paper No. 8577 ).

Abstract: This paper surveys the evidence on the effectiveness of monetary transmission in developing countries. We summarize the arguments for expecting the bank lending channel to be the dominant means of monetary transmission in such countries, and present a simple model that suggests why this channel may be both weak and unreliable under the conditions that usually characterize those economies. Next, we review the empirical methodologies that have been employed in the recent literature to assess monetary policy effectiveness, both in developing countries as well as in industrial and emerging economies, essentially based on vector autoregressions (VARs). It is very hard to come away from this review of the evidence with much confidence in the strength of monetary transmission in developing countries. We distinguish between the “facts on the ground” and “methodological deficiencies” interpretations of the absence of evidence for strong monetary transmission. We suspect, however, that “facts on the ground” are indeed an important part of the story. The fact that a wide range of empirical approaches have failed to yield evidence of effective monetary transmission in developing countries, and that the strongest evidence for effective monetary transmission has arisen for relatively prosperous and more institutionallydeveloped countries such as some central and Eastern European transition economies (at least in the later stages of their transition) and Tunisia, makes us doubt whether methodological shortcomings are the whole story. If this conjecture is correct, the stabilization challenge in developing countries is acute indeed, and identifying the means of enhancing the effectiveness of monetary policy in such countries is an important challenge.

The Power of Political voice: Women’s Political Representation and Crime in India, March, 2011 (with Lakshmi Iyer, HBS, Anandi Mani, Warrick, and Petia Topalova, IMF), (HBS Working Paper No. 11-092), revise and resubmit, American Economic Journal, Applied Economics

Abstract: Using state-level variation in the timing of political reforms, we find that an increase in female representation in local government induces a large and significant rise in documented crimes against women in India. Our evidence suggests that this increase is good news, as it is driven primarily by greater reporting rather than greater incidence of such crimes. In contrast, we find no increase in crimes against men or gender-neutral crimes. We also examine the effectiveness of alternative forms of political representation: Large scale membership of women in local councils affects crime against them more than their presence in higher-level leadership positions. 

Protection for Free? An Analysis of U.S. Tariff Suspensions, March, 2011 (with Rod Ludema and Anna Maria Mayda, Georgetown University),( CEPR Discussion Paper No. 7926 ) (submitted)

Abstract: This paper studies the political influence of individual firms on Congressional decisions to suspend tariffs on U.S. imports of intermediate goods. We develop a model in which firms influence the government by transmitting information about the value of protection, using verbal messages and lobbying expenditures. We estimate our model using firm-level data on tariff suspension bills and lobbying expenditures from 1999-2006 and find that indeed verbal opposition by import-competing firms, even without lobbying expenditures, significantly reduces the probability of a suspension being granted. We further find that lobbying expenditures by proponent and opponent firms sway this probability in opposite directions. The effect of verbal opposition is substantially larger than that of both opponent and proponent spending, which implies that either verbal opposition conveys more information or that the government is biased in favor of opponents. Under reasonable assumptions, we find government preferences to be biased in favor of opponents.

How Does Trade Evolve in the Aftermath of Financial Crises?, December, 2010 (with Abdul Abiad and Petia Topalova, IMF), (IMF Working Paper No. 11/3) (submitted)

Abstract: We analyze trade dynamics following past episodes of financial crises. Using an augmented gravity model and 179 crisis episodes from 1970-2009, we find that there is a sharp decline in a country’s imports in the year following a crisis—19 percent, on average—and this decline is persistent, with imports recovering to their gravity-predicted levels only after 10 years. In contrast, exports of the crisis country are not adversely affected, and they remain close to the predicted level in both the short and medium-term.

Democracy and Reforms, February, 2009 (with Paola Giuliano, UCLA and Antonio Spilimbergo, IMF) (IZA DP No. 4032, CEPR DP No. 7194) (submitted)

Abstract: Empirical evidence on the relationship between democracy and economic reforms is scarce, limited to few reforms and countries and for few years. This paper studies the impact of democracy on the adoption of economic reforms using a new dataset on reforms in the financial, capital, public, and banking sectors, product and labor markets, agriculture, and trade for 150 countries over the period 1960?2004. Democracy has a positive and significant impact on the adoption of economic reforms but there is no evidence that economic reforms foster democracy. Our results are robust to the inclusion of a large variety of controls and estimation strategies.