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Carola Binder

Carola Binder

She is an Assistant Professor of Economics at Haverford College. I earned a PhD in Economics at UC Berkeley in May 2015, with fields in macroeconomics and economic history.

Articles by Carola Binder

Central Banking Stories to Watch in 2019

December 31, 2018

Happy New Year, everybody! 2018 has been a quiet year for my blog, but productive on other fronts, as I’ve kept busy with research and my family. But here are a few central bank-related stories I’m interested in following in the new year.
1. New Governor at Reserve Bank of IndiaFollowing the early exit of Governor Urjit Patel in December, Prime Minister Modi appointed the third central bank governor in just three years: Shaktikanta Das. Patel’s resignation followed reported pressure from Modi to relax lending criteria. This is certainly a troubling sign about central bank independence, but Das’ words and actions in 2019 should give us a better picture of just how troubling. And it is part of a larger trend of political pressure on central banks post-crisis.2. Central Bank Independence

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Inflation Expectations and the Price at the Pump

August 31, 2018

My paper "Inflation Expectations and the Price at the Pump" is now published in the Journal of Macroeconomics. Here is an open-access link to the official version (through October 20, 2018). And here is my new website which has links to the ungated versions of this and my other papers.The key takeaway of this paper is that, though gas prices and average household inflation expectations are correlated, consumers do not seem to overweight gas prices when forming inflation expectations. Since the impact of gas prices on expectations fades quickly with forecast horizon, energy price shocks seem unlikely to unanchor longer-run inflation expectations.

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“Macroeconomic Research, Present and Past”

August 8, 2018

I am at the Liberal Arts Macro Workshop at Wake Forest University. The plenary talk last night wasby the authors of "Macroeconomic Research, Present and Past." Philip Glandon, Kenneth N. Kuttner, Sandeep Mazumder, and Caleb Stroup read over 1000 papers from five top macroeconomics journals to catalog the epistemology, methodology, theoretical framework, and several other key characteristics of the papers (see table below).They read all regular articles (not e.g. book reviews) from the 2016-2017 issues of the the Journal of Monetary Economics (JME), the Journal of Economic Dynamics and Control
(JEDC), the Journal of Money, Credit and Banking (JMCB), the Review of Economic
Dynamics (RED), and the American Economic Journal: Macroeconomics (AEJ). For the JME and the JMCB, they also read all

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From Senior Thesis to Publication

July 18, 2018

One of the most challenging and rewarding aspects of my job at Haverford College is advising senior theses. At Haverford, every student in every major writes a senior thesis (or equivalent capstone project). I co-teach the senior thesis course in the fall with two or three colleagues, and advise thesis writers in the spring. In the fall, students work on choosing a topic and research question, conducting a literature review, and developing a research proposal. In the spring, they work one-on-one with an advisor to see the proposal through.Every completed thesis is an achievement, and we celebrate all of our seniors with a champagne reception on the due date. But today, for the first time, one of my advisee’s theses has successfully made its way through the peer review process and is

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Snapshot of the Publication and Review Process as an Assistant Professor

May 12, 2018

I have just completed my third year as an Assistant Professor. I have kept a spreadsheet for the three years of all of my journal submissions and the results (desk reject, referee reject, revise and resubmit, or accept, with dates for nearly everything). I had almost no idea what the publication process would be like when I finished grad school, and would have loved to see such a spreadsheet. So I thought I’d share some summary statistics in case this can help some new researchers or give students an idea of what the publication process is like.I have no idea whether my experience is representative. Keep in mind, I am at a liberal arts college, albeit one that values research. Stefano DellaVigna and David Card have the actual statistics on publication in the top 5 journals. I have not

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Mortgage-Backed Securities Ratings and Losses Maybe Not So Bad

April 16, 2018

An NBER working paper released today conducts a "post mortem" on the role of non-agency mortgage-backed securities (MBS) in the 2008 financial crisis. The authors, Juan Ospina and Harald Uhlig, suggest that some of the standard narratives about the financial crisis were "created in the heat of the moment" and merit re-examination a decade later.
"One such standard narrative has it that the financial meltdown of 2008 was caused by an
overextension of mortgages to weak borrowers, repackaged and then sold to willing lenders
drawn in by faulty risk ratings for these mortgage back securities. To many, mortgage backed
securities and rating agencies became the key villains of that financial crisis. In particular,
rating agencies were blamed for assigning the coveted AAA rating to many

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D is for Devastating: A Statistical Error and the Vitamin D Saga

March 8, 2018

Statistical errors in research are quite common in research, and not always detected. As economists are well aware, when an error with important policy implications is revealed, it may prompt a media frenzy. I was surprised to learn recently of a major statistical error with potentially huge public health implications, yet with seemingly sparse media coverage when it was revealed. The error concerns the Recommended Dietary Allowance (RDA) of Vitamin D. A 2014 paper found a statistical error in a study used by the Institute of Medicine (IOM) to determine the RDA, resulting in a recommendation that was about an order of magnitude too low. I am neither a public health expert nor medically trained, but (following Miles Kimball’s lead) have developed an interest in public health, and

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To Eradicate or to Manage?

January 6, 2018

I am lucky that the American Economic Association annual
meetings are in my city this year, so I made it easily to the sessions despite
the snow and bitter cold. On Saturday, January 6, I attended an excellent 8
a.m. session on central bank communication. I may write more about the session
later—I already tweeted some of it—but for now I wanted to share an interesting
aside made by Alan Blinder. He said something like, “In life, some problems are
solved and some are managed.”

The context for his remark was his prediction that cacophony will remain a problem for
communication by central bank committees. He asserted that this is a problem
that will never go away; we can never hope to solve it, only to manage it.
Here’s Blinder’s example of how cacophony can be managed:

Alan Blinder

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Consumer Inflation Uncertainty Holding Steady

December 7, 2017

I recently updated my Consumer Inflation Uncertainty Index through October 2017. Data is available here and the official (gated) publication in the Journal of Monetary Economics is here. Inflation uncertainty remains low by historic standards. Uncertainty about longer-run (5- to 10-year ahead) inflation remains lower than uncertainty about next-year inflation.

In recent months, there has been no notable change in inflation uncertainty at either horizon.

The average "less uncertain" type consumer still expects longer-run inflation around 2.4%, while the longer-run inflation forecasts of "highly uncertain" consumers have risen in recent months to the 8-10% range.

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Is Taylor a Hawk or Not?

October 24, 2017

Two Bloomberg articles published just a week apart call John Taylor, a contender for Fed Chair, first hawkish, then dovish. The first, by Garfield Clinton Reynolds, notes:
…The dollar rose and the 10-year U.S. Treasury note fell on Monday after Bloomberg News reported Taylor, a professor at Stanford University, impressed President Donald Trump in a recent White House interview. 

Driving those trades was speculation that the 70 year-old Taylor would push rates up to higher levels than a Fed helmed by its current chair, Janet Yellen. That’s because he is the architect of the Taylor Rule, a tool widely used among policy makers as a guide for setting rates since he developed it in the early 1990s.
But the second, by Rich Miller, claims that "Taylor’s Walk on Supply Side May Leave Him More

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Cowen and Sumner on Voters’ Hatred of Inflation

October 23, 2017

A recent Scott Sumner piece has the declarative title, "Voters don’t hate inflation." Sumner is responding to a piece by Tyler Cowen in Bloomberg, where Cowen writes:
Congress insists that the Fed is “independent"…But if voters hated what the Fed was doing, Congress could rather rapidly hold hearings and exert a good deal of influence. Over time there is a delicate balancing act, where the Fed is reluctant to show it is kowtowing to Congress, so it very subtlety monitors its popularity so it doesn’t have to explicitly do so. 

If we imposed a monetary rule on the Fed, even a theoretically optimal rule, it would stop the Fed from playing this political game. Many monetary rules call for higher rates of price inflation if the economy starts to enter a downturn. That’s often the right

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Rethinking Macroeconomic Policy

October 13, 2017

I had the pleasure of attending “Rethinking Macroeconomic Policy IV” at the Peterson Institute for International Economics. I highly recommend viewing the panels and materials online. The two-day conference left me wondering what it actually means to “rethink” macro. The conference title refers to rethinking macroeconomic policy, not macroeconomic research or analysis, but of course these are related. Adam Posen’s opening remarks expressed dissatisfaction with DSGE models, VARs, and the like, and these sentiments were occasionally echoed in the other panels in the context of the potentially large role of nonlinearities in economic dynamics. Then, in the opening session, Olivier Blanchard talked about whether we need a “revolution” or “evolution” in macroeconomic thought. He leans toward

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An Inflation Expectations Experiment

September 28, 2017

Last semester, my senior thesis advisee Alex Rodrigue conducted a survey-based information experiment via Amazon Mechanical Turk. We have coauthored a working paper detailing the experiment and results titled "Household Informedness and Long-Run Inflation Expectations: Experimental Evidence." I presented our research at my department seminar yesterday with the twin babies in tow, and my tweet about the experience is by far my most popular to date:

I gave a 90 minute econ seminar today with the twin babies, both awake. Held one and audience passed the other around. A first in economics?
— Carola Conces Binder (@cconces) September 28, 2017

Consumers’ inflation expectations are very disperse; on household surveys, many people report long-run inflation expectations that are far from the

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Consumer Forecast Revisions: Is Information Really so Sticky?

September 14, 2017

My paper "Consumer Forecast Revisions: Is Information Really so Sticky?" was just accepted for publication in Economics Letters. This is a short paper that I believe makes an important point. 

Sticky information models are one way of modeling imperfect information. In these models, only a fraction (λ) of agents update their information sets each period. If λ is low, information is quite sticky, and that can have important implications for macroeconomic dynamics. There have been several empirical approaches to estimating λ. With micro-level survey data, a non-parametric and time-varying estimate of λ can be obtained by calculating the
fraction of respondents who revise their forecasts (say, for inflation) at each survey date. Estimates from the Michigan Survey of Consumers (MSC) imply

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New Argument for a Higher Inflation Target

August 21, 2017

On voxeu.org, Philippe Aghion, Antonin Bergeaud, Timo Boppart, Peter Klenow, and Huiyu Li discuss their recent work on the measurement of output and whether measurement bias can account for the measured slowdown in productivity growth. While the work is mostly relevant to discussions of the productivity slowdown and secular stagnation, I was interested in a corollary that ties it to discussions of the optimal level of the inflation target.The authors note the high frequency of "creative destruction" in the US, which they define as when "products exit the market because they are eclipsed by a better product sold by a new producer." This presents a challenge for statistical offices trying to measure inflation:
The standard procedure in such cases is to assume that the quality-adjusted

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The Low Misery Dilemma

August 18, 2017

The other day, Tim Duy tweeted:

I expect the FOMC minutes to reveal that some participants were concerned about low inflation while others focused on low unemployment.
— Tim Duy (@TimDuy) August 16, 2017
It took me a moment–and I’d guess I’m not alone–to even recognize how remarkable this is. The New York Times ran an article with the headline "Fed Officials Confront New Reality: Low Inflation and Low Unemployment." Confront, not embrace, not celebrate.The misery index is the sum of unemployment and inflation. Arthur Okun proposed it in the 1960s as a crude gauge of the economy, based on the fact that high inflation and high unemployment are both miserable (so high values of the index are bad). The misery index was pretty low in the 60s, in the 6% to 8% range, similar to where it has

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Macro in the Econ Major and at Liberal Arts Colleges

August 10, 2017

Last week, I attended the 13th annual Conference of Macroeconomists from Liberal Arts Colleges, hosted this year by Davidson College. I also attended the conference two years ago at Union College. I can’t recommend this conference strongly enough!

The conference is a response to the increasing expectation of high quality research at many liberal arts colleges. Many of us are the only macroeconomist at our college, and can’t regularly attend macro seminars, so the conference is a much-needed opportunity to receive feedback on work in progress. (The paper I presented last time just came out in the Journal of Monetary Economics!)
This time, I presented "Inflation Expectations and the Price at the Pump" and discussed Erin Wolcott’s paper, "Impact of Foreign Official Purchases of

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Labor Market Conditions Index Discontinued

August 7, 2017

A few years ago, I blogged about the Fed’s new Labor Market Conditions Index (LMCI). The index attempts to summarize the state of the labor market using a statistical technique that captures the primary common variation from 19 labor market indicators. I was skeptical about the usefulness of the LMCI for a few reasons. And as it turns out, the LMCI is now discontinued as of August 3.

The discontinuation is newsworthy because the LMCI was cited in policy discussions at the Fed, even by Janet Yellen. The index became high-profile enough that I was even interviewed about it on NPR’s Marketplace.One issue that I noted with the index in my blog was the following:
A minor quibble with the index is its inclusion of wages in the list of indicators. This introduces endogeneity that makes it

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The Obesity Code and Economists as General Practitioners

July 27, 2017

"The past generation, like several generations before it, has indeed been one of greater and greater specialization…This advance has not been attained without cost. The price has been the loss of minds, or the neglect to develop minds, trained to cope with the complex problems of today in the comprehensive, overall manner called for by such problems.”

The above quote may sound like a recent criticism of economics, but it actually comes from a 1936 article, "The Need for `Generalists,’" by A. G. Black, Chief of the Bureau of Agricultural Economics, in the Journal of Farm Economics (p. 657). Just 12 years prior, John Maynard Keynes’ penned his much-quoted description of economists for a 1924 obituary of Alfred Marshall:

“The study of economics does not seem to require any specialized

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New Publication: Measuring Uncertainty Based on Rounding

July 7, 2017

For the next few weeks, you can download my new paper in the Journal of Monetary Economics for free here. The title is "Measuring uncertainty based on rounding: New method and application to inflation expectations." It became available online the same day that my twins were born (!!) but was much longer in the making, as it was my job market paper at Berkeley.Here is the abstract:
The literature on cognition and communication documents that people use round numbers to convey uncertainty. This paper introduces a method of quantifying the uncertainty associated with round responses in pre-existing survey data. I construct micro-level and time series measures of inflation uncertainty since 1978. Inflation uncertainty is countercyclical and correlated with inflation disagreement, volatility,

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Do Socially Responsible Investors Have It All Wrong?

June 6, 2017

Fossil fuels divestment is a widely debated topic at many college campuses, including my own. The push, often led by students, to divest from fossil fuels companies is an example of the socially responsible investing (SRI) movement. SRI strategies seek to promote goals like environmental stewardship, diversity, and human rights through portfolio management, including the screening of companies involved with objectionable products or behaviors.

It seems intuitive that the endowment of a foundation of educational institution should not invest in a firm whose activities oppose the foundation’s mission. Why would a charity that fights lung cancer invest in tobacco, for example? But in a recent Federal Reserve Board working paper, "Divest, Disregard, or Double Down?", Brigitte Roth

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Low Inflation at “Essentially Full Employment”

May 31, 2017

Yesterday, Brad Delong took issue with Charles Evans’ recent claim that "Today, we have essentially returned to full employment in the U.S." Evans, President of the Federal Reserve Bank of Chicago and a member of the FOMC, was speaking before the Bank of Japan Institute for Monetary and Economic Studies in Tokyo on "lessons learned and challenges ahead" in monetary policy. Delong points out that the age 25-54 employment-to-population ratio in the United States of 78.5% is low by historical standards and given social and demographic trends.Evans’ claim that the U.S. has returned to full employment is followed by his comment that "Unfortunately, low inflation has been more stubborn, being slower to return to our objective. From 2009 to the present, core PCE inflation, which strips out the

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EconTalk on the Economics of Pope Francis

April 17, 2017

Russ Roberts recently interviewed Robert Whaples on the EconTalk podcast, which I have listened to regularly for years. I was especially interested when I saw the title of this episode, The Economics of Pope Francis, both because I am a Catholic and because I generally find Roberts’ discussions of religion (from his Jewish perspective) interesting and so articulate that they help me clarify my own thinking, even if my views diverge from his. 

In this episode, Roberts and Whaples, an economics professor at Wake Forest and convert to Catholicism, discuss the Pope’s 2015 encyclical Laudato Si, which focuses on environmental issues and issues of markets, capitalism, and inequality more broadly. Given Roberts’ strong support of free markets in most circumstances, I was pleased and

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Happiness as a Macroeconomic Policy Objective

April 7, 2017

Economists have mixed opinions about the degree to which subjective wellbeing and happiness should guide policymaking. Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, and Ricardo Reis summarize a recent survey of European economists by the Centre for Macroeconomics and CEPR. They note that the survey "finds a reasonable amount of openness to wellbeing measures among European macroeconomists. On balance, though, there remains a strong sense that while these measures merit further research, we are a long way off reaching a point where they are widely accepted and sufficiently reliable for macroeconomic analysis and policymaking."As the authors note, the idea that happiness should be a primary focus of economic policy is central to Jeremy Bentham’s "maximum happiness

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Cautious Optimism about Fed Independence

March 16, 2017

Unsurprisingly, the FOMC decided to raise its federal funds rate target by 25 basis points at its March 15 meeting. The move was widely anticipated, especially following the strong recent employment report. The day before the meeting, the New York Times wrote that the "Fed’s challenge, after raising rates, may be existential," anticipating greater-than-ever threats to the Fed’s independence from the President and Congress.In the past few years, Republicans have been more frequent critics of low interest rates than Democrats. During the campaign, in September, Trump accused Yellen of keeping interest rates artificially low to boost support for Obama and the Democrats. However, a few months prior, in May, he expressed support for the Fed’s low interest rate policy, primarily because of its

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Thoughts on Angrist and Pishke’s “Undergraduate Econometrics Instruction”

February 13, 2017

Joshua Angrist and Jörn-Steffen Pischke, coauthors of "Mastering ‘Metrics," have just released a new NBER working paper called "Undergraduate Econometrics Instruction: Through Our Classes, Darkly." They argue that pedagogy has not kept pace with trends in economic research in the past few decades:
In the 1960s and 1970s, an empirical economist’s typical mission was to “explain” economic variables like wages or GDP growth. Applied econometrics has since evolved to prioritize the estimation of specific causal effects and empirical policy analysis over general models of outcome determination. Yet econometric instruction remains mostly abstract, focusing on the search for “true models” and technical concerns associated with classical regression assumptions. Questions of research design and

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Post-Election Political Divergence in Economic Expectations

January 8, 2017

"Note that among Democrats, year-ahead income expectations fell and year-ahead inflation expectations rose, and among Republicans, income expectations rose and inflation expectations fell. Perhaps the most drastic shifts were in unemployment expectations:rising unemployment was anticipated by 46% of Democrats in December, up from just 17% in June, but for Republicans, rising unemployment was anticipated by just 3% in December, down from 41% in June. The initial response of both Republicans and Democrats to Trump’s election is as clear as it is unsustainable: one side anticipates an economic downturn, and the other expects very robust economic growth."
This is from Richard Curtin, Director of the Michigan Survey of Consumers. He is comparing the economic sentiments and expectations of

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Pushing the Boundaries of Economics

December 31, 2016

As a macroeconomist, I mostly research the types of concepts that are more traditionally associated with economics, like inflation and interest rates. But one of the great things about economics training, in my opinion, is that you receive enough general training to be able to follow much of what is going on in other fields. It is always interesting for me to read papers or attend seminars in applied microeconomics to see the wide (and expanding) scope of the discipline.Gary Becker won the Nobel Prize in 1992 "for having extended the domain of microeconomic analysis to a wide range of human behaviour and interaction, including nonmarket behaviour" and "to aspects of human behavior which had previously been dealt with by other social science disciplines such as sociology, demography and

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The Future is Uncertain, but So Is the Past

December 6, 2016

In a recently-released research note, Federal Reserve Board economists Alan Detmeister, David Lebow, and Ekaterina Peneva summarize new survey results on consumers’ inflation perceptions. The well-known Michigan Survey of Consumers asks consumers about their expectations of future inflation (over the next year and 5- to 10- years), but does not ask them what they believe inflation has been in recent years.In many macroeconomic models, inflation perceptions should be nearly perfect. After all, inflation statistics are publicly available, and anyone should be able to access them. The Federal Reserve commissioned the Michigan Survey of Consumers Research Center to survey consumers about their perceptions of inflation over the past year and over the past 5- to 10-years, using analogous

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Political Pressures on the Fed and the Trump Presidency

November 10, 2016

On Monday evening, Charles Weise gave a seminar at Haverford on "Political Pressures on Monetary Policy during the U.S. Great Inflation," a paper he published in 2012. In the paper, he details how Congress and the Presidents (especially Nixon) pressured the Fed, both directly and indirectly, to pursue loose monetary policy that contributed to the Great Inflation in the 1970s.The paper highlights the fact that although the Fed is nominally independent, Congress and the President can influence the Fed’s actions by threatening to restrict the Fed’s independence. This is not necessarily a bad thing. One way to try to make the Fed accountable to the public is to make the Fed accountable to publicly-elected officials. This can be achieved by several (imperfect) means– hearings and testimonies

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