The Inaugural BCAM Policy Talk: “Fiscal Buffers, Private Debt and Stagnation: The Good, the Bad and the Ugly” by Giovanni Melina

This post was written by Veronika Akhmadieva,  an MPhil/Phd Economics student at Birkbeck

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In 2015, global debt hit a record high of $152 trillion (225% of world GDP), raising the possibility of a new global financial crisis striking the economy in the near future. That prompted the International Monetary Fund (IMF) to conduct an in-depth analysis of global debt and economic growth. The results of this research formed the basis of the inaugural BCAM (Birkbeck Centre for Applied Macroeconomics) policy talk at Birkbeck, given by Dr Giovanni Melina (IMF).

Dr Melina presented an academic paper, a result of his joint work with Nicoletta Batini (IMF) and Stefanie Villa (KU Leuven), that focuses on fiscal buffers, debt and stagnation, and has strong policy implications. In the period from 2002 to 2008, the bulk of the increase in debt of large advanced economies was due to borrowing by the private sector. Then, as some might recall, the Great Recession happened, and the picture changed dramatically; the increase in private debt was rather modest while government debt increased drastically.

A curious mind might wonder why government debt went up during the financial crisis 2007-2008. Dr Melina proposed two possible reasons. The first explanation is based on the denominator effect and on the mechanism of government automatic stabilisers. Government spending, in nominal terms, increased during the financial crisis, partially because more people applied for unemployment benefits, and this in turn boosted government debt. The second explanation derives from the fact that many governments attempted to cover part of private debt – through the recapitalisation of banks, for instance – and that led to the fall in government revenues and the rise in public debt.

“Deleveraging”

The deleveraging is a well-known concept in economics that refers to the process of economic entities reducing their debt to income ratio. The deleveraging of the economy often follows global economic catastrophes, and the financial crisis of 2007-2008 was no exception. Deleveraging can yield important real effects in the economy. Advanced economies can resort to public debt to a very large extent in order to cushion the effects of the negative shocks. For emerging markets raising government debt can be tricky. In some of them deleveraging is still to take place. So what are the best ways for governments to tackle potential deleveraging?

Dr Melina might just have the answer. But first two preliminary questions must be considered – do the levels of private and public debt have tangible effects on output growth? And should government extend financial assistance to credit-constrained agents and firms at times of financial distress?

The paper addresses these questions by first revisiting the literature on the effects of public and private debt on economic growth. Then the authors build a theoretical framework that reproduces the leverage cycle. The authors examine links between private and public debt, in order to capture the mechanisms through which private debt may become public. Finally, the model is used to analyse the effects of government interventions targeted towards financially constrained agents.

Private debt proved to have a negative effect on output. As for public debt, when authors differentiated between high (greater than 95% of GDP) and low public debt countries, they found that when the public debt is low, the government has more room for manoeuvre (more fiscal buffers) and can help to support economic activities in the deleveraging phase. However, if the level of public debt is high to begin with, the further increase is detrimental to the economic growth.

On the question of government financial assistance to credit-constrained agents, it appears that intervention mitigates the extent of the deleveraging and reduces the deflationary effect of the negative house price shocks. Another somewhat counterintuitive finding is that the peak increase in government debt is decreased by government intervention; if government intervenes, it sustains the economic activity and by doing so it reduces its debt. If the level of inefficiency of government spending is high or the level of intervention is excessive, the above may not be true. According to Dr Melina – with about 10% inefficiency costs, the optimal size of intervention is about 7-8% of GDP.

Targeted Intervention

One step further, the authors compare the policy of targeted intervention with other types of fiscal stimuli, such as government investment and government consumption. They found that targeted intervention is more effective in the deleveraging phase, as it is aimed at financially constrained individuals that have high marginal propensity to consume. Hence, most of the funds that are channelled towards these individuals are consumed and that translates into a stronger output effect. Some economies, such as Southern European countries, have limited fiscal space to begin with and can only intervene to a very small extent. These countries may benefit from using limited government funds for targeted intervention rather than increasing the general level of government spending, which might be a less efficient option.

Targeted intervention works best if adequately planned and complemented by appropriate monetary and fiscal policies. In addition, it can be direct, meaning targeted at firms and private sector, or indirect, through banks, recapitalization, asset purchases and guarantees. When banks are in distress, direct targeted intervention might be preferable, because banks may use the funds provided by the government to repair their balance sheets, instead of increasing lending to the private sector.

In practice, targeted intervention might not be the easiest task for governments, as they have to find a way to discriminate between agents, to provide funds to specific firms or industries. Targeted intervention naturally raises moral hazards and competition issues, too. Dr Melina emphasised that targeted intervention is not something to be practised by the government on a regular basis, but should be reserved for disastrous times, when the economy is in distress and in urgent need of stabilisation policies. Could it be that now is just the right time?

Further information:

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“Boy Brain, Girl Brain” – A TRIGGER Seminar on Cognitive Early Development

This post was contributed by Lucy Tallentire, from the School of Business, Economics and Informatics

boygirlSex differences have been the source of contentious debate in recent years, beguiling scientists, lay people and major stakeholders like the NHS and pharmaceutical companies. There are obvious physiological and anatomical differences between the sexes but cognitive differences are often conveyed through stereotypes – that males have better motor and spatial abilities and females have superior memory and social cognition skills, for example. While there is research to support some areas of cognitive sex difference, recent studies have shown that the magnitude of sex differences has decreased in recent years. This suggests the causes of these differences may have less to do with one’s genetics than one’s environment – that nurture may be just as powerful as nature to one’s brain development. It also provides further evidence for the effectiveness of contemporary social movements to bridge the gap between “women’s roles” as nurturing child-bearers and “men’s roles” as workers.

So what can research into typical and atypical early development tell us about sex differences? And should we be focusing on biology as the route of sex differences?  These were just some of the questions addressed by guest speaker Teodora Gliga, from Birkbeck’s Centre for Brain and Cognitive Development, at a special seminar on Wednesday 7 December. The event was arranged and hosted by the Birkbeck TRIGGER initiative, a European-wide research project dedicated to Transforming Institutions by Gendering Contents and Gaining Equality in Research.

Why look at sex differences?

Hormonal differences initiated by biology and genes affect physical and cognitive development; the genes on sex chromosomes and the levels of sex hormones influence the brain during early development. Many psychiatric disorders are more common either in boys or girls; boys are more likely to develop autism – the focus of Teea’s research – but girls are more prone to anxiety. By utilising animal models of development and human studies that have revealed early biological differences between sexes present even before birth, Teodora was able to explain differences in susceptibility to risk factors associated with autism.

However, that the effect is amplified when the brain is exposed to risk factors or adversity, such as stress, demonstrates that biology is not the only variable in the development of a disorder like autism; recent research by Anne Fausto-Sterling on how best to study difference in infant early development has shown that, although birth characteristics provide a moment to begin analysis of developmental processes that lead to sex-related differences in behaviour and preference, this is an arbitrary starting point. Many of the biologically-oriented studies use prenatal sex differences in hormone production as the explanation for later difference in behaviour but according to Fausto-Sterling, it seems likely that hormones are but one of many factors affecting human foetal growth and development. In this framework, behaviour after birth develops independently as small biological differences are slowly magnified by external influences – social, cultural and environmental.

Case Study: The British Autism Study of Infant Siblings

The British Autism Study of Infant Siblings was established to explore the development of autism in young infants, and to advance and improve early detection and diagnosis. Parents frequently tell medical professionals that they knew there was something different about their child’s development quite early on, often long before an official diagnosis is received. However, it has been hard for researchers and clinicians to know about the very early signs for autism as they typically only see the child when they are over three years old, when a diagnosis can be reliably given. Although diagnoses for autism spectrum disorder (ASD) have fallen in recent years, it remains more commonly developed by boys – 1:42 boys and 1:189 girls, according to studies from 2010 and 2014.

Scientific understanding of the neurobiological basis of autism has advanced dramatically in past decades, but there is still very little known about how the condition develops over the first few years. This is precisely why Teea’s team at the Birkbeck Babylab launched the Studying Autism and ADHD Risks (STAARS) project, which looks specifically at the early development of baby brothers and sisters of children with autism spectrum disorders, attention deficit disorders and typical development. The project is notably an output of the TRIGGER programme, as the initiative provided the funding for the research assistant who carried out the analysis.

Of the participants with elder siblings with an ASD diagnosis, 20% went on to develop and get a diagnosis for ASD. The study showed a negative correlation between IQ and severity of symptoms, which provides further evidence that IQ is a protective factor against the development of autism. But Teodora was quick to remind the audience that there is still a lot of debate on these findings – there has not been one specific gene that can explain more than 10% of cases. One must also consider that the symptoms of autism might be exposed more easily in this case study, as it must be conducted on “High Risk” families, where they might be more actively looking for symptoms because of a heightened awareness of autism, and where interactions with siblings with an ASD diagnosis might even be a contributory environmental factor.

Teea finished her presentation with a call for more statistics and better models through which to analyse these statistics. If we are to gain a deeper understanding of ASD, its causes and its early detection, we must focus first on mediating effects that may reveal protective mechanisms, and on increasing our understanding of underlying biology of sex differences and the implications of hormones. According to the expert, “it is a story of interactions between biological, social and cultural factors with cascading effects.”

Further Links:

The TRIGGER team at Birkbeck is currently seeking mentees and mentors for their Athena SWAN mentoring programme 2016/17. The mentoring scheme is open to research, technical and academic staff who work at Birkbeck – find out more here.

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CIMR Workshop – Engaging with Impact

This post was contributed by Lucy Tallentire from Birkbeck’s School of Business, Economics and Informatics

impact2How can academic research generate impact? What support structures are in place to promote and support impact? And how can impact be measured? These were just some of the questions up for debate at a unique workshop on “Measuring the Impact of Academic Research”, hosted by Birkbeck’s Centre for Innovation Management Research (CIMR) on 2 December 2016.

Research Councils UK defines research impact as ‘the demonstrable contribution that excellent research makes to society and the economy’. This can involve academic impact, economic and societal impact or both. Academics are increasingly called upon to provide evidence of research impact, sometimes as a requirement to secure research funding and sometimes as part of formalised evaluation processes, which might involve providing quantitative evidence. As impact becomes increasingly important for academic visibility and even for the purposes of funding allocation, it is vital for the research community to better understand how it occurs and how it might be utilised to add value to the economy and society. Events such as the CIMR workshop provide a platform for collaboration and discussion, and Birkbeck was delighted to welcome experts, academics and policymakers from across the European research communities to join the debate.

The complex nature of impact

A much discussed theme of the workshop appeared not so much as, how can we generate impact, but crucially, how can we define impact, and how researchers benefit from a more concrete definition of what impact means in the context of their study.

Loet Ledesdorff, Professor in Dynamics of Scientific Communication and Technological Innovation at the University of Amsterdam, opened the first session with an insightful presentation on linear impact models and articulating societal demand. This provided an excellent starting point for participant discussion; he stressed the importance of understanding what impact is before it can be measured – after all, measuring is easy once we are aware of what and why we are measuring. While there are many definitions of ‘impact’, we must bear in mind that the way in which we choose to define it influences the measurements we obtain. Therefore it is paramount to establish a clear theoretical question to which researchers can refer back, after which an appropriate system to measure impact can be developed.

Talks by Martyna Śliwa from the University of Essex, Anne-Wil Harzing from Middlesex University and Fernando Galindo-Rueda from the OECD, brought further perspective on how impact can be measured by the results of the Research Excellence Framework 2014 (REF), from academic impact metrics and from key data indicators. They explored how research might be organised in order to generate greater impact; one key advantage of using impact case studies to assess the impact of research, for example, is that they allow a shift in focus from the impact of a single piece of research to the impact of a whole research programme. A research programme could be considered a more appropriate unit of analysis to assess the way in which research makes an impact on society, and probably on the development of science itself.

Promoting Engagement and Narrative

While all in attendance agreed that measuring impact must remain a high priority, both Loet Ledesdorff and Johnathan Adams, Chief Scientist at Digital Science, warned that current policy debate has too narrow a focus on measuring impact, at the expense of promoting it. A key issue for leading-edge university research is to identify “articulation points”, at which points different communities can meet. The workshop provided an opportunity to share tested methods and case studies to create a system of incentives that encourages researchers to generate impact. Rick Delbridge and Tim Edwards from Cardiff University showcased two of their projects designed to tackle societal “grand challenges”: the Social Science Research Park (SSPARK) and the Responsible Innovation Networks (RIN). These initiatives build on the view that in order to generate impact, the social sciences need to engage with stakeholders and allow them a part in identifying the problems universities could be focusing on. Stakeholders want a voice throughout the process of generating and showcasing impact – in the deliberation, evaluation and dispute of research.

Narrative has become a crucial instrument to showcase the impact of these kinds of processes, which also emerged from the case study presented by Federica Rossi from Birkbeck, Ainurul Rosli from the University of Westminster, Nick Yip from UEA, and Muthu de Silva from the University of Kent. This research group interviewed participants in Knowledge Transfer Partnership (KTPs) and found that impact is achieved through sustained interactions within and outside the KTP, which result in knowledge co-production. The mutual benefits of the KTP start an organic ripple – the benefit of the KTP cannot be immediately established by stakeholders, but unfolds over a longer period of time. Broader economic and societal impact of knowledge co-production can be captured by asking key stakeholders to narratively reconstruct their interactions with academic research and how this, over time, has led to a change in their perspective – of the actors involved, and of their roles.

The CIMR workshop provided a space to consider and evaluate successful cases of academic impact, and to share ideas that might offer particular potential for impact academically and socially. The final panel discussion helped to draw out the key messages of the event:

  • It is important to keep the definition of impact broad, as research impact can take many forms;
  • Universities must make space for impact by creating a system of rules and incentives that encourages academics to seek impact;
  • Must also implement incentives that encourage interdisciplinary research because this kind of research is the most impactful;
  • The impact of teaching must not be neglected, since, particularly in the social sciences, one of the key avenues for generating impact is by teaching students how to think about the world in different ways

Thank you again to our Workshop Panel Chairs and Speakers:

  • Emanuela Todeva, BCNED
  • Loet Leydesdorff, University of Amsterdam
  • Jonathan Adams and Martin Szomszor, Digital Science
  • Martyna Śliwa, University of Essex
  • Anne-Wil Harzing, Middlesex University
  • Fernando Galindo-Rueda, OECD
  • Rosa Fernandez, NCUB
  • Rick Delbridge and Tim Edwards, Cardiff University
  • Nola Dundas-Hewitt, Queens University of Belfast
  • Steve Roper,University of Warwick15:00-15:30
  • Federica Rossi Birkbeck
  • Ainurul Rosli, University of Westminster
  • Nick Yip, University of East Anglia
  • Muthu de Silva, University of Kent
  • Jeremy Howells, Kellogg College Oxford
    Suma Athreye, University of Essex
  • Steven Hill, HEFCE
  • Gino Martini, Roche Innovation and King’s College

You can find out about future events on the CIMR website.

Further Links:

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Sports Governance

Lucy Tallentire from the School of Business, Economics and Informatics interviews Rowland Jack, founder of I Trust Sport, ahead of his lecture at the Birkbeck Sport Business Centre on 9 January 2017. Rowland tweets at @itrustsport

As a sports governance consultancy, I Trust Sport has a unique opportunity to influence international sports governance. What drove you to set up the consultancy?

squash-793063_640I chose the name of the company because I believe sport has a lot to offer individuals and society. I have been fortunate enough to work in the sports industry for a long time, including six editions of the Olympic Games, summer and winter. In previous roles focusing on communications and policy, I became increasingly concerned that serious issues of governance were not being addressed effectively and were holding sport back. At one extreme it is obviously the criminal activity that tends to attract media attention, but most of what I perceived was towards the other end of the scale – structural failings or inefficiencies which prevent sports bodies and dedicated people working to their potential.

In 2011 I began research and I set up I Trust Sport a few months after London 2012.

For those without prior knowledge of the problems faced by the squash community, why did the World Squash Federation (WSF) seek an independent governance review?

Squash has lobbied hard in recent years to join the Olympic programme, unfortunately without success. It was believed – I think justifiably – that being part of the Olympic Games would transform the sport by bringing increased visibility and funding. This setback was one reason for significant differences of opinion among senior figures within the World Squash Federation, the Professional Squash Association and elsewhere about the future direction of the sport. In June 2016 the former president of the World Squash Federation was coming to the end of his term and committed to conducting an independent review. I Trust Sport was called in, along with Vero Communications, and asked to report ahead of elections in November.

I should stress that the majority of the challenges facing squash which I will cover in the lecture on 9 January are common to a number of sports: a strained relationship between the international federation and the professional league; a lack of consultation which leads to stakeholders feeling marginalised; and limited resources. It would be unfair to characterise squash as uniquely problematic – these are difficult issues to address. In my view, the World Squash Federation deserves credit for inviting scrutiny from an outside party.

What influence do you hope your recommendations to the World Squash Federation have for squash as an international sport?

I am not a squash player myself but I recognise that squash is a great sport. It blends skill, stamina and tactics in a gladiatorial setting.

Ultimately, I hope that squash can flourish both as a competitive and a recreational sport, and that more people can enjoy playing, watching and being involved in other ways.

For that to happen it is important that the World Squash Federation and the Professional Squash Association collaborate more effectively, working towards common goals. I think that is the top priority.

There are a number of fairly technical points in the report, which I believe can improve the functioning of the World Squash Federation. I’ll talk about some of these on 9 January. It’s up to the new Executive Board to decide how to proceed.

Running an international sports body, particularly when money is tight, is a complicated task. Improving governance is an ongoing process and few sports federations, if any, can claim to be operating as well as they would like. I would argue that quite a few of the findings of the research on squash are applicable to other sports too.

What gives me confidence about squash is that the sport itself has so much going for it. It is already strong in many parts of the world, including in some fast-growing markets, and there are plenty of capable, enthusiastic people who are committed to its success.

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