The decline in real interest rates over the past several decades has been the subject of intense policy debate. This column argues that, with the current demographic profile of large older cohorts leading to a population that is disproportionately biased towards saving, we can expect real interest rates to remain low or negative for another 10 to 15 years. The only way for the Eurozone, in particular, to accommodate these excess savings may be to raise its sovereign debt levels.
In the years preceding the Great Recession there was a dramatic rise in household debt in the US, and an increase in import competition triggered by the expansion of China and other low-wage countries. This column uses consumer credit data to argue that these phenomena are intimately linked. Household debt levels increased significantly in counties where US manufacturing jobs shifted overseas, and regional exposure to import competition explains 30% of the cross-regional variation in the growth in household debt.
Economists have argued that corruption in business can potentially grease the wheels of an economy. This column presents evidence from nine Central and Eastern European countries on the effects of bribes on the efficiency with which production factors are allocated across firms. The impact of corruption on capital and labour misallocation is larger the smaller the country, the lower its political stability and the weaker the quality of its regulation. This is evidence against the ‘grease the wheels’ hypothesis.
A recent UN study claims that a large share of exports from developing countries goes unreported and that smuggling is a likely explanation. But many analysts argue that the discrepancies are statistical errors. This column suggests that although some malfeasance is at play as the trade gap is correlated with tariffs and corruption, this statistical relationship cannot identify countries or shipments that are corrupted. There's smoke, but no smoking gun.
Effective forecasting of conflict risk could help prevent civil wars. But resource constraints mean that policymakers rarely act until conflict begins because they fear the number of false positive warnings. This column argues that the policy of reacting to violence instead of preventing it cannot be justified, given the accuracy of simple forecasting models such as news analysis.
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