https://hdl.handle.net/10419/64140 2026-11-15T22:52:08Z 2026-11-15T22:52:08Z Basu, Deepankar https://hdl.handle.net/10419/283965 2024-07-19T14:58:32Z 2024-01-01T00:00:00Z

Title: How likely is it that omitted variable bias will overturn your results? Authors: Basu, Deepankar Abstract: Building on a recently developed methodology for sensitivity analysis that parametrizes omitted variable bias in terms of partial R2 measures, I propose a simple statistic to capture the severity of omitted variable bias in any observational study: the probability of omitted variable bias overturning the reported result. The central element of my proposal is formal covariate benchmarking, whereby researchers choose an observed regressor (or a group of observed regressors) to benchmark the relative strength of association of the omitted regressor with the outcome variable and with the treatment variable. These relative strengths of association function as the two sensitivity parameters of the analysis. By allowing these sensitivity parameters to take all permissible values, we get the most conservative estimate of the probability that omitted variable bias can overturn the reported results. By using absolute and relative limits on the maximum values of the sensitivity parameters based on institutional knowledge or other details of the particular study, a researcher can generate less conservative estimates of that probability. For empirical studies with relatively large number of regressors and sample sizes, I suggest bounds for the sensitivity parameters based on simulation studies. I illustrate the methodology using an empirical example that studies the effect of exposure to violence on attitudes towards peace.

2024-01-01T00:00:00Z Krebs, Tom Weber, Isabella https://hdl.handle.net/10419/300485 2024-07-20T01:29:05Z 2024-01-01T00:00:00Z

Title: Can price controls be optimal? The economics of the energy shocks in Germany Authors: Krebs, Tom; Weber, Isabella Abstract: In the wake of the global energy crisis, many European countries used energy price controls to fight inflation and to stabilize the economy. Despite its wide adoption, many economists remained skeptical. In this paper, we argue that price controls should be part of the policy toolbox to respond to shocks to systemically important sectors because not using them can have large economic and political costs. We put forward our arguments in two steps. In a first step, we analyze the impact on the German economy and society of the global energy crisis that followed Russia's attack on Ukraine in February 2022. Our analysis shows that energy shocks matter. Specifically, the one-year GDP loss of the energy crisis 2022 amounts to 4 percent and is comparable to the short-run output losses during the COVID-19 crisis 2020 and the global financial crisis 2008. In addition, during the energy crisis 2022 inflation rates rose dramatically and real wages dropped more than in any other year in post-war Germany. There are also clear signs that the crisis is causing severe long-term economic damage (hysteresis effects). At the beginning of 2024, GDP is 7 percent and real wages are 10 percent below the pre-COVID-19 trend. We argue that the German government handled the immediate response to the energy shock well, but subsequently waited too long to introduce an energy price brake in 2022. This failure to act decisively in response to heightened economic insecurity coincided with a strong rise of the approval rates of the far-right AfD in the summer of 2022. We also show that the German energy price brake was an effective price stabilization policy for households, but did not protect the industrial base appropriately making it more likely that the German economy will continue to stagnate. In a final step, we turn to the use of price controls as an optimal policy response to an energy shock within a general equilibrium framework. We develop a simple production model with an energy sector and shows that price controls are socially optimal whenever self-fulfilling expectations generate endogenous price uncertainty in the wake of an energy shock. We also link our analysis to the so-called sunspot literature that was developed in the 1980s as a response to the rational-expectations revolution in macroeconomics. Finally, we use our theoretical analysis to shed some light on the economic policy debate and the resistance of German mainstream economists to the introduction of energy price controls in 2022.

2024-01-01T00:00:00Z Basu, Deepankar https://hdl.handle.net/10419/305482 2024-11-12T02:37:23Z 2024-01-01T00:00:00Z

Title: A note on the theory and empirics of the Goodwin model Authors: Basu, Deepankar Abstract: I discuss some theoretical and empirical points about the Goodwin model. First, I offer a simple proof that solution trajectories around the stable critical point in the Goodwin model are closed orbits but not limit cycles. Moreover, in a neighborhood of the stable critical point, the closed orbits are ellipses. Second, I compare the predictions of the Goodwin model with patterns observed in actual annual data for the U.S. economy for the period 1950-2019. I find that the predictions of the model regarding three key aspects of cycles-the amplitude, time period and the direction of motion-are fully or partially at variance with observed data.

2024-01-01T00:00:00Z Basu, Deepankar https://hdl.handle.net/10419/305481 2024-11-12T02:56:50Z 2024-01-01T00:00:00Z

Title: Technical change and the rate of profit in Classical-Marxian models of economic growth Authors: Basu, Deepankar Abstract: I study the effect of technical change on the equilibrium profit rate in Classical-Marxian models of economic growth with alternative closures. In each model, capitalists adopt a new technique of production only if it will increase the profit rate given their expectations about the movement of the real wage rate. The accumulation rate depends on a threshold rate of profit, below which capitalists do not invest. I consider three alternative closures: (a) a constant real wage rate (relevant for a labor surplus economy); (b) a constant wage share (relevant for an advanced capitalist economy with strong labor); and (c) a constant unemployment rate (relevant for an advanced capitalist economy with weak labor). For the model of the advanced capitalist economy with strong labor, the profit rate can fall after viable technical change irrespective of capitalists' expectations about the trajectory of the real wage rate after technical change. For models of the labor surplus economy and the advanced capitalist economy with weak labor, the equilibrium rate of profit can fall after viable technical change only if capitalists' choice of technique had been based on an expected fall in the real wage rate after technical change.

2024-01-01T00:00:00Z