July 2009

Messerlin, van der Marel, 31 July 2009, 13146 reads

Opening protected services markets would deliver large benefits to consumers – business, communication, and distribution services in the EC, US, and eight other economies represent almost one-third of world GDP. This column suggests the US and EC should launch transatlantic negotiations in services that would trigger plurilateral negotiations.

Karlan, 31 July 2009, 15385 reads

Dean Karlan of Yale University talks to Romesh Vaitilingam about his research programme on microfinance, which uses experimental methodologies to examine what kinds of products work and why. They also discuss his work on ‘commitment contracts’, which people can use to try to modify their own behaviour. The interview was recorded at the American Economic Association meetings in San Francisco in January 2009.

Conti , Gaulé, 30 July 2009, 20571 reads

European universities produce high-quality scientific research, but they licence it to industry far less than US universities. This column introduces new survey evidence on university licensing and assesses the gap between the US and Europe. It highlights European universities’ shortcomings in generating technology transfer revenue, despite their desire to do so.

Voth, Voigtländer, 29 July 2009, 58565 reads

In modern economic thinking, peace and prosperity go hand in hand. However, there are good reasons why in pre-modern societies, the opposite relationship held true – war, disease, and urban death spelled high incomes. This column explains why Europe’s rise to riches in the early modern period owed much to exceptionally bellicose international politics, urban overcrowding, and frequent epidemics.

Wood, Mayer, 28 July 2009, 26911 reads

Did China’s engagement with the global economy de-industrialise other developing countries? This column uses a factor-endowment approach to assess the magnitude of its impact. China’s opening to trade diminished labour-intensive manufacturing in other developing economies, primarily in East Asia, but its impact was not massive, and other developments often swamped its influence.

Wälti, 27 July 2009, 20453 reads

Have emerging market economies decoupled from advanced economies’ business cycles? This column, looking at emerging markets’ trend growth rates, argues that decoupling was always a myth and that globalisation brings national business cycles closer together.

Piermartini, 26 July 2009, 13104 reads

In times of economic difficulty, governments are often under pressure to adopt measures to restrict trade. This column says that contingency measures allowing trade policy flexibility can play an important role in maintaining a rule-based system of multilateral trade in such circumstances. But there is sufficient latitude for WTO-compliant protectionism that vigilant monitoring remains necessary.

Nicodemo, 25 July 2009, 19243 reads

It seems intuitive that more affordable childcare would encourage mothers to enter into the labour force. But this column documents the persistence of unpaid, non-parental childcare in southern European countries such as Greece, Italy, and Spain. It stresses the importance of this finding for formulating new policies to encourage female labour participation.

Sy, 25 July 2009, 11719 reads

Current efforts to regulate credit rating agencies focus on micro-prudential issues and aim at reducing conflicts of interest and increasing transparency and competition. Yet, the current crisis has shown that credit ratings can have systemic effects. This column says that policymakers should assess how credit ratings downgrades can endanger financial stability and take appropriate macro-prudential measures.

Landier, Ueda, 25 July 2009, 15070 reads

Bank restructuring is a source of disagreement on both sides of the Atlantic, and no clearly preferred policy approach has emerged. This column compares the costs to taxpayers of using recapitalisation, asset guarantees, and asset sales. In many circumstances, asset sales are an inferior tool.

Bradlow, 24 July 2009, 11392 reads

Land deals involving poor countries are booming and have been met with some scepticism. This column says that these transactions can bring many benefits to the host country if undertaken responsibly. It recommends rules including adequate transparency, social and environmental standards, a grievance mechanism, and a fair local distribution of the benefits.

Wolfers, 24 July 2009, 11399 reads

Justin Wolfers of the University of Pennsylvania’s Wharton School talks to Romesh Vaitilingam about happiness economics – the state of knowledge; the explosion of data; the debate about the Easterlin paradox; the impact of inequality and the business cycle on people’s happiness; and the implications for public policy. The interview was recorded at the Centre for Economic Performance in London in June 2009.

Darvas, 23 July 2009, 12451 reads

The crisis has revealed the serious asymmetry of unpunished fiscal profligacy in euro-area member countries and painful austerity in euro-area applicant countries. This column argues that the stakes are now very high and euro-area members ought to change the entry criteria to make them more reasonable.

Zahrnt, 22 July 2009, 17889 reads

The 2013 Common Agricultural Policy reform will involve EU members competing with each other for subsidy funds. This column calculates potential CAP payments under three different reform scenarios to identify winners and losers. Several traditional defenders of the CAP are indeed likely to lose from reform, but other countries that defend the status quo would – surprisingly – gain from reform.

Gylfason, 21 July 2009, 9128 reads

Iceland's dramatic crisis has given it reason to seek EU membership. This column lays blame for the disaster at the feet of a corrupt and inept political class running the country.

Danielsson, 21 July 2009, 13237 reads

The Icelandic parliament has decided to apply for EU membership. This column warns that domestic opposition and outstanding disputes with EU member countries on Icesave may derail the agreement.

Brender, Gagna, Pisani, 21 July 2009, 81401 reads

The crisis has broken the close correlation between differences in expected interest rates and the euro-dollar exchange rate. This column attributes that to the sharp increase in risk aversion triggered by the collapse of Lehman Brothers. It argues that fluctuations in risk aversion explain the path followed by the euro-dollar exchange rate since the beginning of the financial crisis.

Beck, Fuchs, Uy, 20 July 2009, 23658 reads

The global turmoil threatens the progress Sub-Saharan Africa has made in deepening its financial sector in recent years. This column says that it is up to Africa’s financial sector stakeholders – bankers, donors, and policymakers – to guide financial sector reforms in a way that maximises Africa’s opportunities.

Wheaton, 18 July 2009, 44179 reads

Is the US due for a protracted decline in housing prices? This column argues that fundamentals on the supply side of the housing market imply that US housing prices are about to bottom out. They should resume rising soon.

Frankel, 18 July 2009, 16260 reads

Is a credible multilateral climate change agreement feasible? This column says that such global cooperation is necessary and attempts to address the political hurdles. The proposed emissions reduction plan develops formulas to cap atmospheric concentrations of carbon dioxide at 500 ppm while obeying political constraints regarding cost, fairness, and timing.

Favero, 18 July 2009, 9338 reads

Has the Federal Reserve responded too slowly to macroeconomic conditions during the crisis? This column defends the central bank based on new estimates of the policy function, arguing that it has reacted promptly to a gradually evolving macroeconomic situation.

Cecchetti, 18 July 2009, 15556 reads

The current financial crisis has been the most challenging for policymakers around the world. This column introduces the 79th Annual Report of the Bank for International Settlements, discusses the risks posed by the massive policy initiatives undertaken in response to the crisis, and offers suggestions for systemic reforms.

Tabellini, 17 July 2009, 13115 reads

What should we conclude about the implications of the global crisis for the future of the world economy? This column, the second of a two-part series, outlines the exit strategies required for fiscal and monetary policy. It says that the crisis ought to be seen as a temporary period of turmoil, rather than a paradigm-shifting event.

Katz, 17 July 2009, 8482 reads

If people in disadvantaged urban neighbourhoods have the opportunity to move house, what is the impact on their wellbeing and their educational and labour market outcomes? Lawrence Katz of Harvard University talks to Romesh Vaitilingam about the ‘Moving to Opportunity’ project, which is tracking 5,000 low-income families with children who were offered the chance to relocate in the mid-1990s. The interview was recorded at the American Economic Association meetings in San Francisco in January 2009.

Gerlach, Giovannini, Tille, 17 July 2009, 14229 reads

What lessons should central bankers take away from the financial crisis? This column summarises concerns about macro-prudential regulation, inflation expectations, and the interaction between monetary policy and financial regulation

Tabellini, 16 July 2009, 19704 reads

It’s time to start drawing conclusions about the global crisis. This column, the first of a two-part series, assesses the causes and nature of the problems. Although the crisis originated in financial market failings, policymakers are much to blame. Regulatory failure amplified private sector errors, and poorly planned policy responses exacerbated the troubles.

Costello, Koopman, Mc Morrow , Mourre, Székely, Hobza, 15 July 2009, 24288 reads

The crisis may reduce the EU’s potential output by 5% of GDP or more. This column warns that the crisis may permanently reduce the EU’s supply-side capacity unless policymakers respond with reforms. It outlines measures to address the crisis and address long-run concerns about demographic shifts, public finances, and climate change.

Hellerstein, Shrader, Ryan, 14 July 2009, 29473 reads

This column introduces timelines, produced by the New York Fed, that organise and illustrate policymakers’ responses to the global financial crisis.

Easterly, 13 July 2009, 40965 reads

The tipping point is a popular theory of social behaviour with many applications. This column says that Thomas Schelling’s original model of racially segregated neighbourhoods, while theoretically attractive, is strongly rejected by US data.

Leijonhufvud, 11 July 2009, 10882 reads

The current financial system poses three major sources of risk to macroeconomic stability – price level instability, the increased system-wide leverage, and the increased global connectivity of the financial system. This column proposes policy alternatives to deal with these challenges.

Brackfield, Oliveira Martins, 11 July 2009, 46336 reads

Most narratives of the crisis start with problems in the financial sector that then spilled over into the real economy. This column looks at the real side first and shows that labour productivity growth declined significantly in the years prior to the crisis, particularly in the US construction sector. Financial markets may have failed in that they didn’t detect the deterioration of structural productivity trends in the early 2000s.

Levich, 10 July 2009, 41216 reads

How can markets prevent counterparty failure from cascading into broad financial turmoil? This column looks at the seven-year-old clearing and settlement bank that handles 60% of foreign exchange transactions. The institution’s effective mitigation of counterparty risk throughout the financial crisis may be a model for a centralised derivatives trading exchange.

Boeri, 10 July 2009, 12363 reads

Tito Boeri of Bocconi University talks to Romesh Vaitilingam about his research on public perceptions of migrants in Europe, which, in the middle of a recession, are increasingly seeing migrants as a fiscal burden and are pressing governments to reduce their access to welfare and tighten immigration policies. The interview was recorded at the Centre for Economic Performance in London in June 2009.

Beck, Buyukkarabacak, Rioja, Valev, 09 July 2009, 24730 reads

How does financial development affect macroeconomic outcomes? Previous studies have relied on aggregate measures. This column introduces a data set that distinguishes between lending to enterprises and households and investigates the consequences for economic growth, income inequality, and consumption smoothing.

Oliveira Martins, Araújo, 08 July 2009, 28972 reads

What’s driving the unprecedented collapse in global trade flows? This column shows that the magnitude of the global decline reflects greater synchronisation of trade flow declines across countries. Globalisation has brought the world in sync.

Spolaore, Wacziarg, 07 July 2009, 14960 reads

Can trade and democracy promote peace or is armed conflict deeply rooted in cultural, ethnic, and religious differences? This column introduces a novel way to estimate the direct effect of long-term relatedness on the risk of international conflict and finds that, while democracies and open economies are less conflict-prone, the risk of conflict is actually greater among more closely related populations.

Calomiris, Miles, Longhofer, 06 July 2009, 40328 reads

Economists have expressed fears over the macroeconomic consequences of falling home prices dragging down consumption in the US and other nations. This column says that housing values and consumption are indeed correlated, but once one takes into account the fact that housing price changes may be acting as a proxy for future expected income, the measured housing wealth effect, if it exists at all, is much smaller than popularly believed. That finding suggests that changes in housing wealth have little effect on consumption.

Evenett, Hoekman, 06 July 2009, 14785 reads

For most nations in the world, this is a trade crisis. Leaving China and India aside, income of developing nations is expected to drop 1.6% this year, even though these nations had nothing to do with subprime assets or the financial shenanigans that triggered the crisis. A new CEPR-World Bank e-book reports that protectionism is not yet a problem, but argues that the “fateful allure of protectionism” is a threat. To counter the threat, four concrete steps should be taken to reinforce the global trade and financial architecture.

Galenson, 04 July 2009, 24822 reads

The art of the past century was radically different from earlier art. This column says that that was a direct result of a basic change in the structure of the market for advanced art that occurred during the late nineteenth century. Indeed, contemporary art is the logical result of young conceptual innovators operating in a competitive market that has consistently rewarded radical and conspicuous innovation.

Freund, 03 July 2009, 24045 reads

The collapse in trade has been unprecedentedly severe. This column examines potential explanations. While the global fragmentation of production has increased the responsiveness of trade flows to drops in demand, trade also responds more sharply to GDP during global slowdowns than during tranquil times.

Currid, 03 July 2009, 9788 reads

Elizabeth Currid of the University of Southern California talks to Romesh Vaitilingam about her book, The Warhol Economy: How Fashion, Art and Music Drive New York City, which describes the inner workings of New York’s creative industries, the significant economic value they generate and the implications for policy-makers wanting to foster their own cultural economies. The interview was recorded in London in June 2009

Acemoglu, Cantoni, Johnson, Robinson, 02 July 2009, 28916 reads

Can external agents successfully impose significant institutional reforms? Many economists are sceptical. This column assesses major reforms the French imposed upon their conquered European neighbours in the years after the French Revolution. The reforms, imposed suddenly without concern for being “appropriate to local conditions”, appear to have spurred significantly faster economic growth.

Columba, Cornacchia, Salleo, 01 July 2009, 21480 reads

As discussed in the first column in this series, greater leverage and incentives encouraging managers to take excessive risks drove a pro-cyclical new financial accelerator. This column discusses policy options to keep those forces in check.