Editors’ Summary

This issue of Economía consists of six papers. The first paper looks at the consequence of capital flow surges and discusses policies for mitigating the possible negative effects of these surges. The second studies the links between prudent fiscal management and the effectiveness of macro economic policies. The third shows how better information can nudge workers to save more for their retirement. The fourth demonstrates the presence of peer effects in fertility decisions. The fifth uses twin-birth data to show that birth weight has a large impact on early childhood health. And the last paper, based on Roberto Rigobón’s presidential address at LACEA 2014, discusses what macroeconomists can learn from online price data.

In “Capital Inflow Surges in Emerging Economies: How Worried Should Latin America and the Caribbean Be?,” Andrew Powell and Pilar Tavella start by documenting the surge of capital inflows to Latin America after the global financial crisis (they propose a novel definition of “surge” that considers the total size of the gross inflow episode across countries). Next, the authors use a probit model to explore what factors determine whether capital inflow surges lead to a banking crisis or a recession. For the typical episode, they find that surges increase the probability of a banking crisis by 8 percent and the probability of a recession by 24 percent. They also show that the quality of banking supervision is key for reducing the risk of a banking crisis after a capital flow surge and that crises are more likely to happen when portfolio flows dominate the surge. Powell and Tavella conclude the paper by suggesting a set of policy responses, which, depending on the country/inflow characteristics, can mitigate the negative consequences of a capital flow surge. Such policies include reforms in bank regulation and interventions that may affect the composition of inflows and reduce the share of portfolio flows.

In “Macroeconomic Gains from Structural Fiscal Policy Adjustments: The Case of Colombia,” Hernando Vargas, Andrés González, and Ignacio Lozano assess the macroeconomic effect of Colombia’s fiscal policy and public debt management over the past ten years. They analyze the influence of fiscal policy changes on the short-term output response to fiscal shocks with a model that allows structural nonlinear impulse response functions and evaluate monetary policy by identifying policy shocks with a narrative approach similar to the one developed by Romer and Romer. They find that sound fiscal management has improved Colombia’s ability to implement effective countercyclical monetary and fiscal policies. Specifically, they show that sound policies increased the reaction of output to government expenditure shocks and strengthened the response of market interest rates to monetary policy shocks. The authors conclude that sound fiscal policy brings strong countercyclical benefits to both monetary and fiscal actions.

In “Knowledge, Information, and Retirement Saving Decisions: Evidence from a Large-Scale Intervention in Chile,” Eduardo Fajnzylber and Gonzalo Reyes exploit a large-scale natural experiment to analyze the impact of personalized pension projection (PPP) statements on retirement savings. The authors compare the saving behavior of individuals during the first twelve months after they received the PPP statement with the saving behavior of comparable individuals who did not receive this statement due to some specific administrative rules. The paper addresses two different issues. First, it tests the full-information hypothesis (if individuals are fully informed, PPP statements should not have any effect on their saving behavior). Second, it explores differences across individuals who belong to different age groups (a test of myopia or liquidity constraints) and also across genders. The paper finds that PPP statements had an effect on savings (individuals who received the statements were more likely to make voluntary contributions) and that this effect was larger for older individuals. This latter result is consistent with the presence of myopia or liquidity constraints. The paper has important policy implications because it shows that small improvements in the information provided by pension administrators can nudge workers toward saving more and help individuals to better align their savings plans with their retirement income goals.

In “Peer Effects on a Fertility Decision...