Ric Colacito, Bridget Hoffmann, Toan Phan, 28 October 2016

Policy proposals to offset the effects of global warming would be strengthened if we knew more about the net economic benefits of climate action relative to business-as-usual. This column argues that estimates may understate the future costs of business as usual because of heterogeneous seasonal effects, and because more business sectors than previously assumed suffer a negative impact from increased summer temperatures. The cost of inaction may be equal to one-third of the growth rate of US GDP over the next 100 years.

Allaudeen Hameed, Andrew Rose, 27 October 2016

Recently a number of both small and large economies have experienced negative nominal interest rates. This column uses exchange rate data from 2010 to 2016 to demonstrate that negative interest rates seem to have little effect on observable exchange rate behaviour in these economies. While the long-run consequences for the financial sector of negative interest rates are unknown, the short-run effects on exchange rates in the sample are negligible.

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, 27 October 2016

The October 2016 expert survey of the Centre for Macroeconomics (CFM) and CEPR invited views from a panel of macroeconomists based across Europe on Germany’s trade surplus, its impact on the Eurozone economy, and the appropriate response of German fiscal policy. More than two-thirds of the respondents agree with the proposition that German current account surpluses are a threat to the Eurozone economy. A slightly smaller majority believe that the German government ought to increase public investment in response to the surpluses. 

Stephen Redding, Esteban Rossi-Hansberg, 27 October 2016

Economic geography has typically focused on stylised settings. This column surveys a recent strand of literature that has developed quantitative models of the spatial distribution of economic activity. This ‘quantitative spatial economics’ literature has produced important methodological and theoretical insights that clarify earlier results in stylised settings. The emerging field stands to contribute substantially to economic and public ‘place-based policies’.

Roger Farmer, Pawel Zabczyk, 26 October 2016

Ben Bernanke famously quipped that monetary policy works in practice, but not in theory. This column bridges the gap between practice and theory in assessing how central banks can influence both of them by intervening in asset markets. To the extent that asset market volatility is driven by shifts in beliefs, the central bank should aim to eliminate that volatility by engaging in countercyclical unconventional monetary policy, which would end up reducing the risk premium.

Other Recent Columns: