Theories arguing that independent, transparent central banks fight inflation better are widely accepted, but the evidence backing them is surprisingly scarce. This column presents new empirical estimates suggesting a payoff to central bank independence and transparency.
How do we know if EU competition authorities are approving the right mergers? This column presents research that tracks how competitors’ stock prices react to merger news to infer when the authorities err. The European Commission is not doing badly, but it has room for improvement.
The WTO's Doha Round talks failed. This column draws lessons from a new book on the history of the WTO's predecessor, the GATT, to show that building and maintaining the global trading system has never been easy. The key ingredient is political leadership, which is evidently lacking at this stage.
This column introduces Jeffrey Frankel’s Policy Insight No. 25 explaining his proposal for countries to peg their currencies to their export prices. Such a peg adjusts to trade shocks and serves as a nominal anchor, so it may outperform current exchange rate regimes.
Gas prices are a product of supply and demand. This column attributes recent gas price increases to stagnant oil supplies and growing global demand from emerging Asian economies – not speculators. Additional shocks to the US refining capacity further tightened gas prices in the US. These forces will likely keep gas prices high for the foreseeable future.
Business worries that leading on climate change means lagging on competitiveness and propose linking carbon-cutting policies to tariffs. This column argues that lessons from the 1960s debate over VAT rates and border adjustments suggest that carbon-linked border adjustments may be ineffective and unnecessary.
The European Central Bank is under fire from Nicholas Sarkozy. This column introduces a new set of measures of central bank independence and transparency, which shows that the ECB is markedly more transparent than the Eurozone members’ central banks were in the 1990s.
Outsourcing has been much discussed in terms of its impacts on employment and growth. But how, why, and where do firms outsource parts of their production? This column presents empirical evidence that tests theoretical models of global sourcing
Across the globe, children of well-off parents are generally well off; the offspring of the downtrodden are usually downtrodden. But why? This column marshals new empirical evidence on the persistence of educational attainment and its role in intergenerational transmission of social economic status.
Why are some economies rich and others poor? The economics profession is divided between rival schools of thought that emphasise geography or institutions. This column assesses the relative importance of each using the interaction of history and geography. The answer raises major policy implications.
The Irish economy is reeling from a swift drop. This column explains how the “Celtic Tiger” shifted from a converging growth path to an unsustainable property boom. Tough adjustments in wages, taxation and public expenditure will be necessary to undo the damage.
Justin Wolfers of the University of Pennsylvania’s Wharton School talks to Romesh Vaitilingam about prediction markets – where they come from; their use in election campaigns and corporate decision-making; how well they perform compared with alternative ways of aggregating information (such as opinion polls or staff meetings); how they can best be designed; and prospects for their application to such areas as geopolitical risks and the spread of disease. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Multilateral liberalisation is moving at a glacier pace while regionalism spreads like wildfire. Recent research suggests that at least in Latin America, regional tariff cutting induced a faster decline in external tariffs, but regionalism is more helpful precisely in the sectors where the multilateral system works best.
Carmen Reinhart, in work with Kenneth Rogoff, has developed a comprehensive new database spanning eight centuries for studying debt and banking crises, inflation, currency crashes and debasements. She talks to Romesh Vaitilingam about the lessons for today’s global financial crisis, noting that although we may not have seen explicit sovereign debt defaults for a while, a growing number of emerging markets are now defaulting through inflation.
A popular headline figure quantifying the US payoff from globalisation at $1 trillion per year has been criticised by Dani Rodrik and other sceptics. Here is an explanation and defence of the Peterson Institute’s big number.
Will the dollar lose its place as the premier international currency? This column argues that the previous episode of dethroning, in which the dollar overtook the pound, suggests that economic fundamentals, rather than network externalities, drive the choice of a great global currency. Occasionally, it takes an economic historian to remind his economist colleagues that history may not matter as much as one would want to believe.
New research shows that India, China, and speculators are not the culprits in the food price explosion. Biofuels were a significant element in the 2005-2007 food price surge as they accounted for 60% of the growth in global consumption of cereals and vegetable oils. There cannot be any doubt that biofuels were a significant element in the rise of food prices. Since new research also shows that biofuel support policies are disappointingly ineffective on environmental grounds, governments should reconsider them.
What causes the persistent gender gap among high-income earners? Using entrance exams from an elite French university, this column suggests that part of the explanation may lie in gender differences in performing under competitive pressure.
Should taxpayers bail out the banking system? One of the world’s leading international macroeconomists contrasts the Larry Summers “don’t-scare-off-the-investors” pro-bailout view with the Willem Buiter “they-ran-into-a wall-with-eyes-wide-open” anti-bailout view. He concludes that either way, taxpayers are always the losers. The best policy makers can do is to be merciless with shareholders and gentle with bank customers.
Recent empirical estimates of the housing wealth effect suggest that a UK recession will be hard to avoid. With the housing-wealth decline compounded by falling equity prices and inflation-eroded real incomes, a drop in consumption is in the offing. The US situation could be even worse.
Social recognition is a powerful force, and awards ranging from state orders to tournament prizes motivate people in fields ranging from from the arts to military service. Here is why economists should take note and study such incentives.
This column introduces the use of Eurovision song contest scores as a measure of cultural proximity. Unlike other measures, such as common language or religion, Eurovision scores are asymmetric and time-varying, allowing estimates to distinguish between two potential channels through which cultural proximity might affect trade: trade costs and consumer preferences.
What explains the poverty trap? This column summarises a vast array of evidence on the relationship between parents’ socioeconomic status, children’s health, and children’s future socioeconomic outcomes. Poverty worsens childhood health, which leads to adulthood poverty. Focusing on young mothers’ health and wellbeing could break the cycle.
William Cline of the Peterson Institute for International Economics talks to Romesh Vaitilingam about climate change – in particular, its impact on developing countries; what economists bring to analysis of carbon mitigation technologies and policies; and the importance of an international agreement on global warming. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Willem Buiter talks to Romesh Vaitilingam about the financial crisis, the global cyclical slowdown and the rise of inflation. He discusses central banks’ responses to the credit crunch and calls on them to tighten monetary policy to counter the inflationary threat.
Financial development is key to an economy’s long-run growth. This column argues that it is asymmetrically important – while not key to economic expansion, financial development is a critical shock absorber that helps prevent sharp economic contractions. Moreover, avoiding such drops improves long-run growth prospects.
WTO ministers gather next week to push for a conclusion of the WTO talks that were started in Doha in 2001. This column argues that there is zero chance of a deal in 2008, but proposes a 5-step plan could put the talks on a glide path to a successful landing in 2009 or 2010.
Robert Stavins of Harvard University talks to Romesh Vaitilingam about what should follow the Kyoto Protocol – the potential architectures for a new international agreement on tackling global climate change; lessons from previous international agreements on a range of issues; and the main stumbling blocks to an agreement. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
The Doha Round is stagnant, which does not bode well for trade liberalisation in the near future and possibly for the World Trade Organization in the long run. This column highlights the lessons of a new report on reviving the Doha Round, emphasising long-term trends that must be addressed, lest the WTO become obsolete.
Economists’ best guess for the dollar’s value tomorrow is its value today, but they predict exchange rates a decade into the future. This column explains the difference between short-run and long-run exchange rate forecasts and examines the future of the euro-dollar rate.
The current credit crisis should be both a squeeze and a crunch, but it seems to have been neither in the euro area. This column explains why credit may become costlier or scarcer under current conditions and explores how European financial entities seem to be defying the negative news.
The euro has increased trade within the currency union. This column summarises research exploring how firms’ exporting behaviours have been shaped by the euro.
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Basel II’s goal was to reduce incentives for excessive risk taking. Making banks’ capital requirements risk-sensitive, however, also set the system up for credit crunches during economic down turns. This column argues that small cyclical adjustments to the confidence levels set by regulator could preserve Basel II’s value-at-risk foundation while avoiding painful credit crunches during periods of economic distress.
Rating agencies are currently plagued by conflicts of interest in building and rating financial products. But even with the right incentives, reliable ratings would be hard to come by, this column argues. If market participants punish wrongly optimistic predictions more than wrongly pessimistic ratings, then an agency’s good reputation and a good rating do not coincide.
The resource curse has stymied development in numerous oil-rich economies. This column introduces the Extractive Industries Transparency Initiative and explains how transparency by firms investing in resource-rich countries might help alleviate the curse.
Alan Taylor of the University of California Davis talks to Romesh Vaitilingam about the first era of globalisation and the policy lessons that researchers in economic history and international economics are drawing for contemporary experiences of financial market integration, trade liberalisation and the growth of international reserves. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Just ahead of the ‘mini-ministerial’ of the World Trade Organisation, which is intended to conclude the Doha Round, John Whalley talks to Romesh Vaitilingam about the prospects for reaching an agreement. He notes the potential conflict between the trade liberalisation agenda and the big global issues that have emerged since the Round was launched in 2001, notably national security and climate change.
Alan Winters (who was recently appointed chief economist at the UK’s Department for International Development) talks to Romesh Vaitilingam about the current round of world trade negotiations – the benefits of reaching an agreement; the dangers of failure; the conflicting aspirations of different interest groups; and the relationship between trade liberalisation and poverty reduction in developing countries.
Standard policies to redress Europe's productivity problems keep politicians in their comfort zone: support for the “knowledge economy” and more R&D. More progress would come if they accepted and facilitated the “dark side” of productivity improvement – the exit of high-cost producers and re-deployment of labour.
Understanding Iceland and its current financial predicament requires some history and context. Here Iceland’s best known professor of economics explains the essentials.
Unemployment follows the business cycle but the average rate also seems to fluctuate over decades. Here Patrick Minford and coauthors propose a political economy explanation and back it up with evidence from the inter-war period.
The Gulf States’ dollar peg is causing them harm. One of the world’s leading international macroeconomists argues that they should “peg the export price” as this delivers automatic accommodation to terms of trade shocks while retaining the credibility-enhancing advantages of a nominal anchor.
China has largely reduced the scope of its production and innovation subsidies at the firm level, but some still remain. Recent research shows that such production subsidies do, on average, boost firm-level exports especially in more innovative and capital-intensive industries and especially for firms with previous export experience.
Development assistance targeting health overwhelmingly concentrates on HIV/AIDS. This column argues that that focus neglects critical demographic issues and degrades health infrastructure, particularly in Sub-Saharan Africa. The prime rule for AIDS aid should be “First, do no harm”.
A book of Vox columns on the subprime crisis is posted today for free downloading. Edited by Andrew Felton and Carmen Reinhart, the collection brings together the best columns on this fast moving issue as well as providing a timeline of the crisis and a glossary.
Carmen Reinhart talks to Romesh Vaitilingam about Vox's first book, which brings together key columns on subprime and the continuing turmoil in financial markets. She recalls Charles Kindleberger, who characterised financial crises as 'a hardy perennial'.
Everyone knows that educated people earn more, smoke less, are less likely to be obese and live longer. This column discusses recent research that shows more educated parents also spend more time with their kids – a result ripe with implications for the inter-generational persistence of income and health inequalities.
Multilateral trade talks are stagnating while bilateral agreements being signed daily. This column considers why reciprocity seems to have lost its appeal.
Departing from the practice of treating attitudes as a black box, economists are beginning to study the process through which attitudes are formed. New evidence shows that parents pass on risk and trust attitudes to their children, with important implications for understanding persistent differences in economic outcomes across and within countries.
Anne Krueger of Johns Hopkins University talks to Romesh Vaitilingam about trade liberalisation and its impact on economic growth and living standards, particularly in developing countries. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Governments spend heavily on industrial clusters. They are wasting their money if firms naturally cluster to reap agglomeration gains. This column presents evidence from France that questions policymakers’ enthusiasm for promoting clusters.
Guido Tabellini talks to Romesh Vaitilingam about the role of culture and institutions in economic development over long periods of time. This was the subject of his presidential address to the annual congress of the European Economic Association, held in Budapest in August 2007.
Luigi Zingales talks to Romesh Vaitilingam about corporate fraud in large US companies and the role of various actors in exposing fraud, including the Securities and Exchange Commission, auditors, employees, industry regulators and the media.
Conventional wisdom says globalisation has increased US income inequality. This column says that is dead wrong, as China and Wal-Mart have increased the purchasing power of the poor more than the rich.
Prospects for international environmental cooperation often seem dim, as agreement must hew to the lowest common denominator. This column identifies economic gains from environmental commitments via reputational spillovers and their impact on capital flows. The evidence suggests that nations have more to gain from cooperation than they may realise.
Ireland switched from 5% growth in 2007 to negative growth in 2008. Ireland’s leading macroeconomist discusses that causes and consequences for national policy. A thorough reform of tax and spending policy is the answer, even if it violates the Maastricht limits in the short run.
The World Trade Organisation is losing its place at the centre of the global trading system. Absent reforms, the rules-based architecture of international trade may collapse into a “might makes right” affair.