Policy Guidance and the International Transmission of U.S. Macro News: Evidence from Investment Funds
Gabriele Ciminelli (University of Amsterdam)

Abstract: This paper contends that U.S. macroeconomic releases are an important `global’ factor driving cross-border flows and that their effect depends on the guidance provided by the U.S. Federal Reserve (Fed). I source data on allocations into investment funds and study the response of U.S. investors to domestic employment news, focusing on the post-crisis period. I show that, when the Fed complemented its zero-rate policy with calendar-based forward guidance, monetary policy expectations became insensitive to macro releases and investors responded to positive employment news by re-balancing their portfolios toward faster growing and riskier countries. On the other hand, as the Fed progressively changed guidance to signal that it was ready to withdraw policy accommodation, investors perceived the same positive news to bring forward the moment of policy normalization and reacted by reducing their foreign market exposures. Countries with better institutions experienced less outflows, while those with a more open capital account fared worse. These findings highlight an important role of central bank guidance in determining how investors shift capital across countries in response to shocks. They also provide novel evidence of investors risk-taking abroad, following positive shocks at home, during periods of accommodative monetary policy. 

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Earnings Capacity of Disability Insurance Claimants
Silvia Garcia-Mandicó (Erasmus University Rotterdam)

Abstract: Determining the earnings capacity of benefit recipients is critical to the operation and evaluation of disability insurance (DI) programs. We use administrative data on the universe of Dutch DI recipients and reassessment of their benefit entitlement under more stringent rules to estimate earnings capacity they could be induced to utilize. We estimate that the increased stringency removed 17 percent from the program and reduced the amount of benefit received by 20 percent, on average. In response, employment increased by 20 percent and earnings rose by 18 percent. Recipients were able to increase earnings by 636 euros for each 1,000 euros of DI income lost. In line with the intuition that moral hazard might be larger among them, this earnings response was largest from those with more subjectively defined disabilities (mental health and musculoskeletal conditions), as well as female and younger recipients. Consistent with earnings capacity deteriorating with claim duration, reassessment had the least impact on the benefits and earnings of those who had been claiming DI for longest. Working while claiming partial disability benefits may slow the deterioration of earnings capacity.