## Monday, September 9, 2019

### Environmental and Energy Policy and the Economy

The first volume from last May's NBER meeting is forthcoming; see https://www.nber.org/books/kotc-1  Marvelously, the meetings and volumes will be ongoing annually.  See below for the 2020 CFP.  Note that submissions from non-NBER researchers are welcome.

NBER Call for Papers / Proposals
2nd Annual NBER Environmental and Energy Policy and the Economy Conference

Dear Researchers,

We are seeking papers or proposals for the second annual NBER conference/publication on Environmental and Energy Policy and the Economy. We will accept six papers for presentation at the National Press Club in Washington, D.C. on May 21, 2020. The audience will include the professional staffs of government agencies, research institutions, and NGOs focused on energy and environmental policy. The contributed papers will then be published in an annual volume by the University of Chicago Press.

To view last year?s agenda and papers for the forthcoming volume, please click
HERE and HERE.

Papers should be relevant to current policy debates and accessible to a professional audience, yet following standard NBER protocol, they should avoid making policy recommendations. While standalone projects are specifically encouraged, we also welcome spinoff projects where authors intend to later submit a more extensive or technical version to a journal, or may have already done so. While no paper should be a duplicate of another paper, alternate versions that put results into a more general, policy relevant context and summarize them in more accessible language are encouraged. This is a great opportunity to communicate research to the policy community.

Submissions should be either complete papers or 2-3 page abstracts outlining the intended contribution. Submissions are due by October 14, 2019, and can be uploaded at

http://www.nber.org/confsubmit/backend/cfp?id=EEPEs20

## Monday, May 13, 2019

### Understanding the Bad News for IV Estimation

In an earlier post I discussed Alwyn Young's bad news for IV estimation, obtained by Monte Carlo. Immediately thereafter, Narayana Kocherlakota sent his new paper, "A Near-Exact Finite Sample Theory for an Instrumental Variable Estimator", which provides complementary analytic insights. Really nice stuff.

## Monday, April 15, 2019

### Hedging Realized vs. Expected Volatility

Not all conferences can be above average, let alone in the extreme right tail of the distribution, so it's wonderful when it happens, as with last week's AP conference. Fine papers all -- timely, thought provoking, and empirically sophisticated.  Thanks to Jan Eberly and Konstantin Milbradt for assembling the program, here (including links to papers).

I keep thinking about the Dew-Becker-Giglio-Kelly paper. For returns r, they produce evidence that (1) investors are willing to pay a lot to insure against movements in realized volatility, r^2_{t}, but (2) investors are not willing to pay to insure against movements in expected future realized volatility (conditional variance), E_t(r^2_{t+1} | I_t). On the one hand, as a realized volatility guy I'm really intrigued by (1). On the other hand, it seems hard to reconcile (1) and (2), a concern that was raised at the meeting. On the third hand, maybe it's not so hard.  Hmmm...

## Wednesday, April 10, 2019

### Bad News for IV Estimation

Alwyn Young has an eye-opening recent paper, "Consistency without Inference: Instrumental Variables in Practical Application".  There's a lot going on worth thinking about in his Monte Carlo:  OLS vs. IV; robust/clustered s.e.'s vs. not; testing/accounting for weak instruments vs. not; jacknife/bootstrap vs. "conventional" inference; etc.  IV as typically implemented comes up looking, well, dubious.

Alwyn's related analysis of published studies is even more striking.  He shows that, in a sample of 1359 IV regressions in 31 papers published in the journals of the American Economic Association,
"... statistically significant IV results generally depend upon only one or two observations or clusters, excluded instruments often appear to be irrelevant, there is little statistical evidence that OLS is actually substantively biased, and IV confidence intervals almost always include OLS point estimates."
Wow.

Perhaps the high leverage is Alwyn's most striking result, particularly as many empirical economists seem to have skipped class on the day when leverage assessment was taught.  Decades ago, Marjorie Flavin attempted some remedial education in her 1991 paper, "The Joint Consumption/Asset Demand Decision: A Case Study in Robust Estimation".  She concluded that
"Compared to the conventional results, the robust instrumental variables estimates are more stable across different subsamples, more consistent with the theoretical specification of the model, and indicate that some of the most striking findings in the conventional results were attributable to a single, highly unusual observation."
Sound familiar?  The non-robustness of conventional IV seems disturbingly robust, from Flavin to Young.

Flavin's paper evidently fell on deaf ears and remains unpublished. Hopefully Young's will not meet the same fate.

## Monday, April 8, 2019

### Identification via the ZLB and More

Sophocles Mavroeidis at Oxford has a very nice paper on using the nominal interest rate zero lower bound (ZLB) to identify VAR's.  Effectively, hitting the ZLB is a form of (endogenous) structural change that can be exploited for identification.  He has results showing whether/when one has point identification, set identification, or no identification. Really good stuff.

An interesting question is whether there may be SETS of bounds that may be hit. Suppose so, and suppose that we don't know whether/when they'll be hit, but we do know that if/when one bound is hit, all bounds are hit. An example might be nominal short rates in two countries with tightly-integrated money markets.

Now recall the literature on testing for multivariate structural change, which reveals large power increases in such situations (Bai, Lumsdaine and Stock). In Sophocles' case, it suggests the potential for greatly sharpened set ID.  Of course it all depends on the truth/relevance of my supposition...