March 2012

Menkhoff, Sarno , Schmeling, Schrimpf, 31 March 2012, 18413 reads

Momentum trading – buying past winners and selling past losers – is a popular trading strategy in many assets. In foreign exchange high returns to momentum trading have fuelled concerns that it is little more than destabilising speculation. This column argues that, for better or worse, such strategies are likely to continue.

Boltho, Carlin, 31 March 2012, 39290 reads

Divergent behaviour from Eurozone countries that have very different economic, social, and political structures is threatening the existence of the single currency. This column argues that the Eurozone is a fragile bureaucratic creation that has hardly ever raised much popular enthusiasm anywhere. If behaviour across the area remains as asymmetric as it has been over the last decade or so, the project could run into even stronger headwinds in the long run.

Koedijk, Statman, Campbell, 30 March 2012, 18375 reads

Does more money always make you happy? This column argues that financial wellbeing is distinct from income. People with low income can enjoy financial wellbeing as high as people with high incomes as long as their aspirations do not exceed their incomes.

Baldwin, 30 March 2012, 28436 reads

Risk-taking by banks played a critical role in the global crisis and Eurozone crisis. This column introduces a new eReport that focuses on four aspects of excessive risk-taking by banks, highlighting the causes and the cures. The eReport applies the best available theory and data, bringing together the main insights and views that have emerged from the crisis.

Thimann, 30 March 2012, 17458 reads

A recent Vox column argued that with the three-year liquidity operations, the ECB has “hit a limit in its ability to prevent an acceleration of inflation”. This column explains why the ECB’s inflation-fighting powers remain intact – and why the risks of a sudden inflationary spike remain low.

Van Reenen, 29 March 2012, 11017 reads

The UK’s recent budget reflects tensions felt throughout Europe – how to stem massive budget deficits while not choking off growth. The UK is often held up as a model for voluntary austerity, but this column argues that its policies are a poor model for growth. It asserts that there is a deep intellectual vacuum at the heart of the budget and the government’s approach to economic growth in general.

Hott, Jokipii, 29 March 2012, 41482 reads

Visit Ireland and Spain and you will find row upon row of empty houses – the remnants of a housing boom turned bust. Were low interest rates to blame? This column looks at the effect of a deviation in interest rates from the Taylor rule and finds that keeping interest rates ‘too low’ can explain up to 50% of the overvaluation of the property market in these countries and elsewhere.

Tornell, Westermann, 28 March 2012, 30865 reads

“Should the inflation outlook worsen, we would immediately take preventive steps”. So said Mario Draghi, President of the European Central Bank. This column argues that these are brave words given that the ECB has hit a limit in its ability to prevent an acceleration of inflation.

Choi, Haisley, Kurkoski, Massey, 28 March 2012, 19714 reads

As if today’s problems aren’t enough, in the coming years Europe faces what economists are calling a ‘demographic timebomb’, with ageing populations placing an unsustainable burden on already precarious public finances. In order to encourage more people to save for themselves, this column argues that using a psychological intervention can increase contributions to retirement savings accounts by up to 2.9% of income.

Carmassi, Micossi, 28 March 2012, 17292 reads

Excessive risk-taking by large banks was among the main causes of the 2008–09 financial crisis. This column argues that the antidote to excessive risk-taking should come from the elimination of the subsidies of the banking charter and the implicit promise of bailout in case of major losses, and the introduction of strong incentives for management and shareholders to preserve the capital of their bank. This requires deep changes in Basel prudential rules.

van Bergeijk, 27 March 2012, 24640 reads

Can international economic pressure induce policy changes? The conventional wisdom, among economists at least, is that economic sanctions, for all their posturing, won’t achieve very much. For better or worse, this column shows that this is now changing.

Buti, Padoan, 27 March 2012, 18147 reads

The economic and financial crisis in the Eurozone is in its fourth year. This column argues that, by providing a confidence bridge, decisive and credible policy action can turn the economy around and bring it towards a good equilibrium of debt sustainability and sustainable growth.

Grosvold, Pavelin, Tonks, 27 March 2012, 31571 reads

It is no secret that men outnumber women in the boardroom many times over. This column looks at the latest government efforts to redress this imbalance, particularly in the UK, and asks why so few companies are willing to increase the number of women on their board.

Reinhart, Kirkegaard, 26 March 2012, 35704 reads

Rich nations worldwide have a problem with debt. In the past, such problems have been dealt with by several tactics, including 'financial repression'. This column explains how the tactic works and documents its resurgence in the wake of the global and Eurozone crises.

Chaudhary, Musacchio, Nafziger, Yan, 26 March 2012, 16710 reads

A recent article in The Economist praises Florida’s unique success at school reform, in contrast to the nationwide effort to improve public schools. But this column presents evidence from the education policies in Brazil, Russia, India, and China that decentralisation doesn’t always work.

Nier, Merrouche, 25 March 2012, 28124 reads

Five years into the global crisis there is still little agreement on its root causes. Had central banks kept policy rates too low for too long? Or were rising global imbalances the underlying cause of the crisis? This column suggests that the strength of net capital inflows, rather than the monetary-policy stance, emerges as the key determinant of differences in the growth of financial imbalances across OECD countries over the pre-crisis period.

Kuhn, Wuellrich, Zweimüller, 25 March 2012, 33727 reads

While the retirement age in most developed countries is going up, this column looks at what happens when it goes down. In some countries, those who work in physically demanding jobs are demanding the right to retire earlier. This column finds that people should be careful what they wish for.

Bordo, Meissner, 24 March 2012, 34482 reads

Did inequality in the US lead to the global financial crisis? This column presents evidence from 14 countries between 1920 and 2008 and argues that while inequality can be blamed for many things, the global crisis is not one of them.

Hallegatte, Heal, Fay, Tréguer, 24 March 2012, 21262 reads

What can be done to combine the need for growth with environmental constraints? This column argues that what is needed is to reconcile developing countries’ urgent need for rapid growth and poverty alleviation with the need to avoid irreversible and costly environmental damage.

Mölders, Volz, 23 March 2012, 19624 reads

The Trans-Pacific Partnership is back on course having received interest from the Canada, Japan, and Mexico in recent months. This column argues that as changes to the TPP start to seem more likely, there may be trade effects in anticipation. In the face of potential trade diversion, the column urges European trade policymakers to strengthen the EU’s trading ties with the Asia-Pacific region, preferably by reviving global trade talks.

Mattoo, Subramanian, Mishra, 23 March 2012, 18111 reads

Do exchange rate movements in one country affect its competitors? This column suggests that a 10% appreciation of the renminbi increases other developing countries’ exports by about 2%. Where competition with China is especially intense, the increase could be as large as 6%. The results imply that an appreciation of the renminbi could provide a boost to developing country exports.

Blanchard, 23 March 2012, 27063 reads

The Greek package has cheered up markets. In this column, the IMF’s Chief Economist Olivier Blanchard argues that the programme deals squarely with the two most fundamental issues facing Greece – high debt and low competitiveness. And it is also fair, asking for sacrifices of both Greece and its creditors.

Kawahama, 22 March 2012, 17167 reads

Competition may drive down prices but it also drives down profits – and some would argue innovation as well. How should policymakers balance the short-term need for competition with the the long-term need for innovation? This column explores the idea of ‘innovation and competition policy’ rather than just ‘competition poliicy’.

Kirkegaard, 21 March 2012, 11016 reads

Last week’s historical restructuring of Greek debt appears to have gone smoothly. This column argues that appearances may be deceptive.

Degryse, Ather Elahi, Fabiana Penas, 21 March 2012, 28634 reads

As we are learning time and again, if a big bank goes down it takes a lot of other things down with it. This column looks at the effect of bank fragility and failure on other nearby countries and outlines what can be done to mitigate the cross-border contagion.

Frey, Gallus, 21 March 2012, 17545 reads

The world appears to be unfair. Those who are prettier earn a higher salary and are also happier. This column argues it is still not hopeless for those less blessed with looks. Appropriate clothing, hairstyles, and good teeth can help, as can choosing a profession where expertise is clearly central and beauty of less importance.

Ito, Shimizu, 20 March 2012, 38931 reads

Last year, the yen reached a post-war high against the dollar and a record high against the euro. This column looks at the recent trend in the Japanese currency and outlines what Japan’s policymakers should do about it.

Baldwin, 20 March 2012, 7145 reads

VoxEU welcomes the latest member of the Vox consortium – RIETI – that provides policy-relevant research and commentary on Japanese and global issues. Launched in April 2011, RIETI’s ‘columns&essays’ series hopes to become a major resource for economists, policymakers, and journalists with an interest in Japan, Asia, and the Japanese perspective on global issues.

Cafiso, Cellini, 20 March 2012, 17584 reads

As fiscal-consolidation policies are being implemented across the EU, a debate has been developing concerning the effects of such policies on the dynamics of the debt-to-GDP ratio. This column examines past episodes and finds that following fiscal adjustment may have favourable effects in the short term but that the two-year cumulated changes have been mainly adverse.

Valentinyi, 19 March 2012, 25072 reads

Hungary was, until recently, the trailblazer in Eastern Europe. This column outlines the missteps that have seen it become one of the most financially vulnerable countries in the region.

Aizenman, Inoue, 19 March 2012, 22785 reads

The patterns of gold holding remain a debatable topic at times when the relative price of gold has appreciated while the global economy has experienced recessionary effects. This column studies the curious patterns of gold holding and trading by central banks from 1979 to 2010. It suggests that a central bank’s gold position signals economic might, and gold retains the stature of a ‘safe haven’ asset at times of global turbulence.

Xafa, 18 March 2012, 22600 reads

With Greece in deep recession for the fifth year running, several prominent observers have been calling on it to exit the Eurozone. This column argues this would not help Greece’s economy recover faster from its deep recession. Greece will still be the most heavily regulated country in the OECD and returning to a drachma would only add to the debt burden.

Annunziata, 18 March 2012, 15832 reads

Oil prices are again on the rise – will this derail the economic recovery? And what if there is an oil shock on the horizon? This column presents an overview of the oil market and its possible effects on the global economy. It argues that if there is a shock, the list of casualties will have Europe at the top with the US close behind.

Véron, 17 March 2012, 12015 reads

Are the regulators finally fighting back? This column argues that behind the headlines, those responsible for setting global financial standards are growing steadily more confident and assertive. Rather than simply set the standards, they are finally making sure they get enforced.

Brenton, 17 March 2012, 11824 reads

Africa trades too little with itself. This column argues that what is needed is an approach that reforms policies that create non-tariff barriers; puts in place appropriate regulations that allow cross-border movement of services suppliers; delivers competitive regionally integrated services markets; and builds the institutions that are necessary to allow small producers and traders to access open regional markets.

Columba, Costa, Lim, 16 March 2012, 17511 reads

In the wake of the 2008 financial crisis, there has been burgeoning interest in macroprudential policy as an overarching framework to address the stability of the financial system as a whole rather than only its individual components. This column, based on a new dataset from 49 countries, shows that some macroprudential instruments are effective in reducing procyclicality in the financial system, and thus systemic risks.

Rancière, Ouazad, 16 March 2012, 19348 reads

Did the rise in subprime mortgages – predominantly to black and Hispanic borrowers – lead to a fall in racial segregation as people were able to move to more desirable neighbourhoods? This column looks at extensive data on mortgages and changes in the ethnic mix at local schools. It finds that the credit boom that precipitated the global financial crisis may actually have increased racial segregation.

Griffith, Miller, Abramovsky, 15 March 2012, 31036 reads

Multinational firms outsourcing or offshoring their operations to developing countries is a problem as old as globalisation. This column looks at the effect on high-skilled labour in the home country. It presents evidence that, on average, when firms start employing high-skilled workers offshore, they also increase the number of this type of worker employed at home.

De Crombrugghe, De Keuleneer, 15 March 2012, 10265 reads

Even with the latest bailout and debt restructuring, Greek debt is still projected to be 120% of GDP by 2020. With no access to foreign markets, Greece will have to fund any future deficits by calling on more funds from foreign governments or international institutions. This column suggests a novel solution: force ordinary Greeks to save some of their earnings by purchasing government bonds.

Acharya, Engle, Richardson, 14 March 2012, 28337 reads

The effective regulation of banks requires identification of systemically important financial institutions. This column discusses a method to estimate the capital that a financial firm would need to raise if we have another financial crisis. This measure of capital shortfall is based on publicly available information but is conceptually similar to the stress tests conducted by US and European regulators.

Vives, 13 March 2012, 32051 reads

The global crisis has raised many questions. High on any list would be how regulators and supervisors missed the warning signs so spectacularly, particularly those responsible for overseeing the dangerously exposed financial system. This column, by one of CESifo’s European Economic Advisory Group, provides a diagnosis of the problem and outlines what can be done about it.

Bandiera, Jack, Ashraf, 13 March 2012, 22389 reads

What motivates agents in the social sector? Recent theoretical advances indicate that financial incentives might crowd out intrinsic motivation and reduce performance. This column describes a field experiment where hairdressers in Zambia were motivated in different ways to sell condoms. It finds that social recognition can be a more powerful performance motivator than financial gains.

Calmfors, 12 March 2012, 22878 reads

Several Eurozone countries are currently struggling with acute fiscal crises. This column argues that Sweden provides an example that fiscal transparency and a high-quality economic policy debate may be more important for budget discipline than formally binding rules and automatic correction mechanisms as being envisaged in the European fiscal compact.

Marimon, 12 March 2012, 13530 reads

The European Parliament is currently in talks over new ways to fund research. This column argues that unless the current proposal is changed, funding for research in social sciences will almost completely disappear from the main ‘cooperative research’ (now ‘Societal Challenges’) programme.

Hassler, 11 March 2012, 16639 reads

The concern over the negative consequences of global warming has led to a vast array of policy measures aimed at reducing the use of fossil fuels. Yet a comprehensive plan for a shift towards more climate-friendly energy is still lacking. This column argues that a major reason for this is that macroeconomists have not been sufficiently active in the policy discussion. It then lays out four lessons from macroeconomics that should be helpful.

Mendoza, 11 March 2012, 44029 reads

Inequality in the world’s poorest countries is considered one of the main barriers to development. But this column points out that the inequality is about much more than the über-rich and the destitute – it is about access to political power. This column looks at political dynasties, where leadership is passed down through family ties, to see if these are a cause of the persistent social and economic divides.

Cline, 10 March 2012, 14353 reads

The clouds hanging over the Eurozone seem to have cleared – for now. But it wasn’t long ago that people were looking at Italy and calling for debt restructuring. This column argues that such a move would have triggered bank runs, financial instability, and perhaps the break up of the euro. It says that Italy’s debt is sustainable at current levels so long as the government manages its spending.

Sinn, 10 March 2012, 19806 reads

In February 2012, the Bundesbank had a TARGET claim of €547 billion on the Eurosystem. This column proposes a US-like system of marketable covered treasury bills that could be applied to a yearly settlement of TARGET liabilities.

Manasse, 10 March 2012, 11823 reads

A day after the largest restructuring of government debt in history, this column provides two lessons to take away from the noise.

Ghani, Iyer, Mishra, 09 March 2012, 18222 reads

While the rate of economic growth in India and other South Asian countries is impressive, it does raise the question of whether this growth is inclusive. This column looks at a range of poverty measures over time and finds that while not all extremely poor people in the world are trapped in poverty, in India and South Asia the poorest are not catching up with the richest fast enough.

Sosa Andrés, Krieger-Boden, Nunnenkamp, 08 March 2012, 15500 reads

Investors from emerging and developing economies are becoming bigger players in FDI, particularly in developing countries. While some raise concerns that emerging economies might gain control over raw materials, others are hopeful that non-traditional investors might provide new opportunities for development. This column analyses these new FDI flows and finds that while fears may be exaggerated so too is the optimism.

Mody, Bornhorst, 07 March 2012, 32887 reads

While the fall in Germany’s current-account surplus may have alleviated the Eurozone’s imbalances, another problem has arisen. This column argues that German exporters and banks are no longer Europe’s financiers but Germany is instead now filling this financing gap through so-called TARGET claims – the system for central bank settlements within the Eurosystem. At stake is not just academic curiosity but the financial architecture of the Eurozone.

Fuller, Kahn, 06 March 2012, 16550 reads

In early 2010, two similar earthquakes struck Haiti and later, Chile. The difference in loss of life was stark. This column points to the importance of well-governed and economically developed cities for coping with natural disasters and climate change. The authors propose a novel idea – charter cities built from scratch in the world’s poorest countries with their own rules and, hopefully, their own fast track to development.

Eichengreen, O'Rourke, 06 March 2012, 61097 reads

The debate over stimulus versus austerity continues unabated. This column shows that, while industrial production and trade recovered much more quickly than during the Great Depression, both series now appear to be slowing down. It suggests that, as St Augustine would have said had he been managing director of the IMF, there is a case for additional fiscal consolidation and monetary normalisation, but not yet.

Ruscher, Wolff, 05 March 2012, 14637 reads

It is not just governments, banks, and households that need to look again at their finances: big businesses do too. This column looks at balance-sheet adjustments by large companies in Germany and Japan and argues that a better understanding of how companies adapt will help policymakers trying to bring about structural change in their economies – particularly within the Eurozone.

Zettelmeyer, Gulati, 05 March 2012, 19993 reads

One of the most interesting questions arising from the ongoing Greek debt restructuring is what it implies about the feasibility of voluntary debt restructurings. Indeed, why would anyone voluntarily take a debt-exchange offer that promises a large reduction in repayments? This column argues creditors might feel safer with new debt instruments issued under English law than with old Greek-law regulated ones.

Holton, Lawless, McCann, 04 March 2012, 26546 reads

As the Eurozone crisis continues, lending to the real economy has fallen significantly. But it is difficult to know if this is due to a drop in demand for loans or a drying up of supply. Using data for small- and medium-sized companies in 11 Eurozone countries, this column identifies the effects of the crisis on credit demand, supply, and conditions.

Delbecque, 03 March 2012, 44903 reads

Professional asset managers are responsible for investments worth around €40 trillion worldwide. This column looks at the role of asset managers in investing society’s long-term savings, highlighting the key differences with investment banks.

Danielsson, 02 March 2012, 13710 reads

The Eurozone’s problems are political as well as economic. The European leaders establishing the euro were, according to this column, guilty of putting political desire above economic reality. Their successors now trying to resolve the sovereign debt crisis are repeating that mistake, with potentially devastating consequences.

Kirkegaard, 01 March 2012, 12121 reads

Brinkmanship has produced an early-morning deal in Europe to extend a new lifeline to Greece and clear the way for the biggest sovereign bond restructuring in history. This column takes a detailed look at the EU deal, the ongoing brinkmanship between the Eurozone and the IMF, and the general focus on austerity.

Verhelst, 01 March 2012, 19256 reads

Eurozone countries have recently agreed to adopt a ‘golden rule’ for fiscal policy, forcing governments to be stricter about balancing their books. This column compares the golden rule to existing EU fiscal policies. It argues that the successful implementation of the golden rule would overturn much of the existing economic governance in the Eurozone to become the main determinant of fiscal discipline.