The US Federal Reserve makes monetary policy based on necessarily imperfect economic forecasts. Recent research shows that the Fed is quite adept at assessing current economic conditions, but forecasting the future remains disappointingly difficult.
Centrally determined pay for public sector workers like NHS nurses acts as a maximum wage in some labour markets. Here is a summary of a new study arguing that the resulting hiring difficulties are causing patient deaths.
Many African economies recently signed economic partnership agreements with the European Union. This commentary analyses the agreements and identifies some significant challenges for future Africa-EU trade relations.
German discussion of economic policy is appallingly demagogic. Neglect of economic reasoning has resulted in the threat of a maximum wage and passage of a minimum wage that will cost thousands of jobs.
Are some African economies poised for prolonged growth and human development? This article assesses African development prospects using Iceland’s economic ascent over the last century as a benchmark.
If the world wants to stabilise atmospheric greenhouse gases at 550 parts per million, massive changes are required, especially in the energy sector. This article discusses means and costs of drastically reducing carbon emissions.
A 75 basis point cut is biggest since the Fed instituted its current procedures more than two decades ago. Steve Cecchetti, the most popular Vox columnist by far, explains that the Fed was not reacting to the stock market drop. The signal is that there is a new sheriff in town; when he see changes in the economy that compromise medium-term stabilization objectives, he will do what needs to be done and do it right away.
Public policies must address large-scale risks that private insurers are unwilling to cover. Here are five economic principles for providing insurance against catastrophes and an evaluation of the US terrorism insurance programme.
Recent financial market troubles highlight a number of problems with the credit ratings agencies. This column argues only a few of the proposed policy solutions are likely to be both feasible and helpful.
The rapid growth of sovereign wealth funds risks provoking a protectionist response by industrialised countries. Here is the argument that a voluntary code of conduct could help avert the problem.
The forward premium, the difference between the forward exchange rate and the spot exchange rate, contains economically valuable information about the future of exchange rates. Here is the evidence that it can help predict short-run rates and that investors who ignore it and use random walk models may be leaving money on the table.
Central banks have experimented with ‘forward guidance’ – sending signals about the future path of interest rate policy more than just one decision ahead – as a way of stabilizing medium-to-longer run expectations. Here is a discussion of the phenomenon and some ideas on how the Fed could improve its signalling.
The Common Fisheries Policy, a product of special interests rather than economic rationale, has driven European fish stocks to dangerously low levels. Reforms creating tradable fishing rights determined by an independent authority and allocated via auction could save these vital natural resources from extinction.
Historically, successful development has involved exporting labour-intensive manufactures. Despite opening up to the world economy in many respects, India’s policies continue to retard the expansion of labour-intensive sectors. Here is a discussion of how India could speed its transition to a modern economy.
Here is a discussion of work showing that constructed measures of ‘pure inflation’ differ markedly from standard measures. For example, pure inflation is uncorrelated with real output – just as neoclassical economics says it should be.
Spain’s inflation-less drop in unemployment is due in large part to its immigration boom. If immigrants’ labour-supply behaviour comes closer to that of natives and inflation remains above target, a deeper slowdown or increasing immigration flows will be needed to bring it down.
Evidence from Israeli hospitals shows that medical care-givers aren’t accommodating patients’ preferences. This summary of the findings suggests how hospitals might better serve their patients.
Across the globe, management of shared resources depends on negotiated agreements. A model of Italian water sharing demonstrates how economic theory can improve negotiations in practice.
In capitalist economies, firms pay higher wages to motivate workers who fear unemployment. In Soviet Russia, Stalin used the Gulag to discipline workers. The economic rationale of the ‘efficiency wage’ model helps explain the cruel brutality of Stalin’s prison camps.
Women have a more elastic labor supply than men and participate less in the market because of intra-family bargaining. Their labor income should be taxed less to achieve optimal taxation and to change the allocation of family chores in a way that allows females to work more in the market if they want. This tax approach may be fiscally cheaper, less distortionary and would directly address the source of labor market gender differences: intra-family bargaining.
The new strategy is not ‘stealth inflation targeting,’ but it matters for the Fed’s own deliberations. Here the world’s leading monetary theorist argues that forcing FOMC members to look years ahead will move policy towards a coherent strategy, away from a sequence of short-term decisions -- highly desirable since the anticipation of policy matters to its effectiveness.
Since World War II, civil wars have killed more people than interstate conflicts. Poverty and low income growth have long been suspected as important causal factors, and new evidence suggests that drops in income raise the likelihood of civil war. However, democratic institutions may significantly alleviate such dangers.
It is commonly believed that business cycles ‘cleanse’ industry with waves of creative destruction. New research shows that entry is higher in booms than busts, but exit rates and the type of exiting firms, are steady over the cycle. Plants entering during recessions, however, are larger and more productive –‘creative entry’ rather than ‘creative destruction’.
The standard framework for thinking about inequality and redistribution – the median voter approach – predicts that rising inequality should produce more redistribution. The facts reject this prediction for the UK and suggest that beliefs may be an important missing factor.
Civil war is a pivotal challenge for the development of the world’s poorest nations. Recent research finds that trade deters severe conflicts but fosters less severe ones. Here is the logic and evidence.
The market for unusual assets has grown in recent years. Here is a column that reviews the evidence on the market for violins, showing that they have provided a relatively stable return, with low, and in some cases negative, correlation to other assets.
High quality empirical evidence from the shows that mass media influences voters but it is not clear that the media imparts a bias. It could be that improving access to any media informs voters and prompts them to turn against an embattled incumbent.
The possibility of “no cost” emission reductions has been raised by research on California’s Global Warming Solutions Act of 2006. Here is a more sober assessment. Overly optimistic findings leave policymakers with inadequate appreciation of the stakes, and provide little insight into the relative cost of policy design alternatives.
From an economic perspective, two critical issues are the speed-safety tradeoff in drug approval and the overlap of regulation and product liability. Research on the US experience suggests that regulatory agencies have historically erred on the “safety” side of the speed-safety balance and there would be gains from better integration of government regulation and product liability laws.
Since the 1970s, US manufacturing output has risen by 70% but air pollution has fallen by 58%. Was this due to improved abatement technology or shifting dirty production abroad?