Afternoon roundup

• Effects of Central Bank Intervention on the Interbank Market During the Sub-Prime Crisis. Abstract:

  Does central bank intervention improve liquidity in the interbank market during the current sub-prime crisis? To answer this question, we employ a unique dataset which reports trades and quotes of the e-MID, the only electronic, regulated interbank market in the world. Our results show that central bank intervention appears to create greater uncertainty rather than enhancing liquidity as intended. We find that central bank intervention crowds out private liquidity. These results suggest that, when counterparty risk poses systemic risk to the interbank market, the central bank should focus on providing interbank loan guarantees or engage in direct asset purchases rather than simply injecting capital into the system.



• The Effect of Compulsory Schooling on Health – Evidence from Biomarkers. Abstract:

  Using data from the Health Survey for England and the English Longitudinal Study on Ageing, we estimate the causal effect of schooling on health. Identification comes from two nation wide increases in British compulsory school leaving age in 1947 and 1973, respectively. Our study complements earlier studies exploiting compulsory schooling laws as source of exogenous variation in schooling by using biomarkers as measures of health outcomes in addition to self-reported measures. We find a strong positive correlation between education and health, both self-rated and measured by blood fibrinogen and C-reactive protein levels. However, we find ambiguous causal effects of schooling on women's self-rated health and insignificant causal effects of schooling on men's self-rated health and biomarker levels in both sexes.

  Upshot: estimates of the effect of income on health overestimate the effect of income if they don't include education. Note, of course, that IQ also has independent effect.


• Cool map of congressional earmarks. There's a reason most empirical work is done on US data.


• NZ contemplates a capital gains tax. I'm not convinced this is the best way of dealing with distortions in the Kiwi investment market.

HT on many to Wayne Marr