Finance

Writing for the Financial Times, Prof. Kristin Forbes delves into her new study examining how quantitative tightening (QT) programs impact markets. “QT programs have, so far, been working as central banks intended,” Forbes writes. “At the same time, they have provided a small degree of support for central banks’ efforts to tighten financial conditions, with minimal impact on market functioning and liquidity. QT has worked in the opposite direction to quantitative easing, but the effects are much, much more muted.”

Researchers from MIT have found that our current retirement savings system “largely favors higher-income and white employees,” reports Remy Samuels for Plan Sponsor. The researchers concluded that “employer matching and tax benefits are more unequally distributed than wages,” explains Samuels. “While the median Black and Hispanic earners receive 75 cents and 79 cents, respectively, for every dollar of earnings received by the median white earner, median Black and Hispanic earners receive only about 50 cents for every dollar of matching contributions that median white earners receive.”

Bloomberg reporter Boyan Ivanchev spotlights research by Prof. Drazen Prelec and Prof. Duncan Simester that finds, “credit card buyers were willing to pay over 100% more for tickets, due to the behavioral pattern that psychologically causes the credit card buyer to perceive the purchase as a type of deferred payment, and therefore, not immediately feel the psychological discomfort, as when letting this amount go when paying cash.”

Prof. Tavneet Suri speaks with NPR reporter Nurith Aizenman about her ongoing research studying the impact of universal basic income with GiveDirectly, a U.S. charity that provides villagers in Kenya with a universal basic income. Suri says her results thus far, “add to the evidence that many poor people are trapped in poverty by a lack of capital for precisely the kinds of transformative investments they would need to vault them into higher incomes.”

Prof. Tavneet Suri speaks with NPR hosts Ari Shapiro and Nurith Aizenman about her research with GiveDirectly a U.S. based charity that provides villages in Kenya with universal basic income. Suri’s work studies how the method of income delivery payments – monthly income or single lump sum payments – can impact communities. “We need to see if these effects last,” says Suri. “Does it just disappear, or was this enough to keep them going forever?” 

Alexander Bratianu-Badea SM '15 co-founded De-Ice, a startup creating a new and efficient way to thaw aircrafts, reports Kate Duffy for Bloomberg. Bratianu-Badea says, “De-Ice’s strips stick onto the plane with aerospace-grade, acrylic-based adhesive backing. During regulatory tests, the system was exposed to different temperatures, humidifies and chemicals. Even UV light and submersion in a heated oil bath couldn’t damage it.”

New research by Prof. Tavneet Suri and Prof. Abhijit Banerjee explores how to most effectively direct cash to low-income households, reports Dylan Matthews for Vox.  Suri and Banerjee compare “three groups: short-term basic income recipients (who got the $20 payments for two years), long-term basic income recipients (who get the money for the full 12 years), and lump sum recipients, who got $500 all at once, or roughly the same amount as the short-term basic income group,” writes Matthews. “Suri and Banerjee found that the lump sum group earned more, started more businesses, and spent more on education than the monthly group.”

Prof. Emeritus Olivier Blanchard speaks with Robert Armstrong of the Financial Times about inflation, the rise in long yields and the fiscal endgame in the U.S. Blanchard urges regulators to, “have plans for a steady reduction of primary deficits to close to zero. Slow, steady, convincing, credible.”

Prof. Tavneet Suri discusses GiveDirectly, the world’s largest universal basic income (UBI) program, which has been providing almost 5,000 people in Kenya with “a payment of about 75 cents (62p) a day since 2017,” reports Philippa Kelley for The Guardian. “We do see people leaving low wage jobs,” says Suri. “They are going and starting businesses, and the businesses are doing great because there’s money around.”

Writing for CNBC, Senior Lecturer Tara Swart explains how an unexpected financial windfall can impact the brain. Swart says there, “are three remarkable things that happen to your brain when you unexpectedly receive a large sum of money overnight,” a dopamine deluge, the five stages of grief and a shift in perspective and social dynamics. 

Prof. Jonathan Parker speaks with Marketplace host Samantha Fields about the definition of discretionary spending and how it differs depending on the person and their financial situation. “People who don’t have to worry about money often buy things they think of as necessities, but really aren’t,” says Parker. “Cutting back on discretionary spending looks different for different people, too.”

Aleena Nadeem '16 founded EduFi, a fintech startup that provides a straightforward process for students in Pakistan to take out loans to help finance their education, reports Kate Park for TechCrunch. “Education offers hope and can change the lives of people. I am one example of millions out there,” says Nadeem.

A study co-authored by Prof. S.P. Kothari has found that, at an aggregate level, repurchasing shares neither creates nor destroys much wealth, reports Jamie McGeever for Reuters. The study concludes that “buybacks return several hundred billion dollars of capital to shareholders every year and are a mainstream financial avenue open to companies ‘that for the most part do not harm the overall market,” reports Jamie McGeever for Reuters.

Professor Alex Pentland and Alex Lipton, a Connection Science Fellow at MIT, write for Scientific American about how social media can impact financial systems. “Before Twitter and Facebook, a spooked investor or customer would have to call, personally visit or even e-mail and text colleagues to urge them to withdraw funds from a troubled bank,” explain Pentland and Lipton. “Nowadays sophisticated clients can act as soon as they read a Tweet. Social media alerts everyone all at once, and a few clicks on a computer screen can wipe an account clean.”

In a letter to the Financial Times, Senior Lecturer Henry Birdseye Weil makes the case that to help fix the banking system it should not be so easy for clients to withdraw large deposits and it should be easier for banks to increase their liquidity. Additionally, Weil adds that “these fixes would not be necessary if bank liabilities and assets were perfectly aligned. But we are far from that nirvana today.”