It's not uncommon to hear academics say "Oh, I finally have my Figure 1!" — the killer graph that succinctly summarizes a paper's key findings and captivates readers with its visual impact. In this post, I explore some of the interesting Figure 1’s in economics, dissecting what makes them so powerful and memorable.
In economics, there’s often talk about the elusive “Figure 1” — that one graph or visual that encapsulates the entire essence of a paper. It’s the showstopper, the conversation starter, the visual hook that draws readers in and leaves a lasting impression.
A well-crafted Figure 1 can summarize complex findings, highlight key trends, or showcase cool results in a single, powerful image. There seem to be two types of Figure 1s. First is the type that shows a reduced form relationship, with the paper later providing an explanation for it. I'll refer to this as "Correlation First, Explanation Later". The second is the type that summarizes the paper and shows the identification strategy, which I’ll refer to as "Methodology in a Picture".
Many figures serve as a powerful visual hooks that present a striking empirical relationship upfront, leaving readers curious about the underlying mechanisms. These figures are effective because they immediately engage the audience with an intriguing pattern, prompting them to read further for the explanation. They serve as a visual abstract, summarizing the paper's key finding in a single, memorable image.
“Monetary Transmission through Shadow Banks”
This example is from Kairong Xiao’s job market paper. The figure shows the relationship between Federal Funds rates and deposit growth rates for commercial banks versus shadow banks from 1987 to 2013.
Strikingly, it reveals that shadow bank deposits expand when interest rates rise, contrary to the behavior of commercial bank deposits. This counterintuitive correlation sets up the paper's exploration of how shadow banks respond differently to monetary policy, challenging conventional wisdom and highlighting the importance of considering the shadow banking sector in monetary transmission mechanisms.
“High Discounts and High Unemployment”
The next example is from Hall (2017), which argues that when discount rates are high, the value that employers attribute to a new hire also declines and leading to higher unemployment. The author does not hesitate in making this point early in the paper, particularly through the figure that shows the relationship between the unemployment rate and the inverse of the real, detrended value of the S&P stock market index from 1948 to 2015.
