Economics

The pension sector is an important investor group in global financial markets and a key holder of government and corporate debt. This article examines the evolution of pension fund asset allocations around the globe and documents two important structural changes. First, pension investors have shifted portfolio share allocations away from fixed income securities. This trend is robust across Defined Contribution (DC) and Defined Benefit (DB) programs as well as country groups. Second, pensions have instead shifted allocations into riskier investments within mutual funds as well as alternative investments. We hypothesize that a global decline in interest rates is one potential driver of this ch..

A decline in credit scores can worsen the borrower's financial position, making default a self-fulfilling prophecy. We estimate the causal effect of credit scores on default using a rule that counts multiple inquiries within 14 days as one, moving scores without changing credit reports. Regression discontinuity estimates around the 14-day cut-off show that an additional counted inquiry lowers scores by five points on average. Default does not respond among consumers with clean records, but rises by 3.2 percentage points over two years among those with prior derogatories. For these consumers, at least 13 percent of the relationship between scores and default is self-fulfilling. We show that s..

We conducted a survey experiment with over 8,000 participants in Germany, Hungary, and Italy to examine how information about the economic impact of immigration affects the support for more open immigration policies. Respondents who received projections showing higher future incomes under more open immigration policies reported greater support for these policies. The treatment also partly changed how prior attitudes affected policy preferences. Structural estimates suggest that majority support for immigration above current levels would require annual per-capita income gains of about 1.2% in Italy and 1.7% in Germany, and still larger or unattainable gains in Hungary. These increases are lar..

The current euro area policy framework conflates short-run stabilization with long-run fiscal sustainability, exposing members to deflationary and inflationary tail risks. We employ an estimated euro area model to analyze an alternative framework that separates these objectives. A centralized Treasury issues Eurobonds to finance countercyclical stabilization, while national governments retain responsibility for long-term fiscal sustainability. The Treasury can coordinate with the monetary authority in case of a large recession, with no need to suspend fiscal rules at the national level. The arrangement functions as an automatic stabilizer, eliminating the tail risks of deflation and fiscal s..

Unique global data on 47,000 consumers across 47 countries representing 90% of world GDP reveal universal patterns in macroeconomic belief formation. Most consumers form beliefs based on local information sources (utility bills, shopping, and acquaintances) that provide signals not representative for the overall consumption bundle, so that seeking information leads to forming biased macroeconomic expectations. Distrust in governments and central banks, the producers of aggregate economic information, helps explain reliance on local sources and the lack of learning from aggregate realizations. Observed macroeconomic volatility fuels distrust. In the cross-section, we confirm that certain demo..