April 2012

Portes, 30 April 2012, 27594 reads

Once upon a time, credit default swaps were a form of insurance held by investors who also owned the underlying asset. But this column argues that the market has now become overwhelmed by ‘naked CDSs’ that allow speculators to make bets on the future of corporates and sovereigns – bets that can be wildly destabilising. This column calls for a ban on naked CDSs.

Whelan, 29 April 2012, 44983 reads

In recent years, instability in many European countries has led to large transfers of money into Germany. This in turn has led the Bundesbank to build up large credits with other central banks in Europe – via the TARGET2 system. Does this represent a risk to Germany in the event of a breakup of the euro? This column argues that Germany will have far bigger things to worry about.

Bown, Crowley, 28 April 2012, 22402 reads

As the global economy entered a crisis not seen since the Great Depression, many feared a return of 1930s-style protectionism. This column asks why many countries avoided this fate, focusing on trade policy in the US and EU.

Alesina, Nadler, 28 April 2012, 20716 reads

The divergence in sovereign spreads across Eurozone members has been the object of much attention. This column looks at divergence across US states and finds that unexpected deficits are correlated with higher state bond yields across all states. This effect is larger for states with left-leaning political systems, suggesting that bond-market participants view political variables as relevant in assessing the risk characteristics of sub-sovereign bonds.

Van Reenen, 27 April 2012, 31823 reads

Many policymakers in Europe seem to stick to the idea that fiscal consolidation might inspire confidence and help the economy to grow. This column argues these sentiments may be understandable but are basically wrong. For countries like the UK where borrowing is relatively cheap and sovereign default unlikely, slowing down the pace of fiscal consolidation would be a rational response. The obsession over the fiscal stance is a distraction from sustainable long-run growth.

Rose, 27 April 2012, 15830 reads

Conventional wisdom says that when the economy starts to nosedive, the trade barriers start to rise. But this column argues that maybe protectionism isn’t countercyclical after all.

Rendahl, 26 April 2012, 25863 reads

Many developed economies are in a liquidity trap with interest rates at or near zero. Many also have high unemployment that looks set to persist. This column argues that it is times like these when governments should be spending more, not less – they just have to be careful how they do it.

Véron, 26 April 2012, 12748 reads

In a bid to shore up the sorry state of Europe’s economies, there is now debate over the need for a European banking union to go with plans for a Eurozone fiscal union. This column argues that such proposals are necessary, but the necessary reform is still a long way off.

Persaud, 25 April 2012, 15376 reads

Does Europe need a fiscal union to support its monetary union? This column argues that the cause of Europe’s problems is not public sector ill discipline but rather private sector ill discipline. In such a situation, it asks whether we should be trying to save a drowning man by putting him in a straightjacket.

Carraro, Massetti, 25 April 2012, 18992 reads

In 2006 China became the world’s largest carbon dioxide polluter. This column argues that China is not rich enough to start reducing emissions immediately, but it is far too big not to do anything. The question is when and at what rate it is reasonable to call on China to start cutting back.

Turrini, 25 April 2012, 13328 reads

Most EU countries have embarked on a path of fiscal austerity. Would the employment impact of fiscal consolidation be more harmful if reforms liberalising the labour market were taken at the same time? This column argues that fiscal consolidations increase unemployment more in regulated labour markets because employment protection is associated with a stronger reduction in job creation.

Hoff, 24 April 2012, 27311 reads

For some, affirmative action is righting one wrong by committing a wrong against another group. But this column presents new theory and evidence suggesting that the influence of social stigma on a person’s self-confidence, self-development and their ultimate success should not be ignored.

Loungani, Kose, Terrones, 24 April 2012, 13730 reads

How different is the current recovery from past ones? How do prospects differ between advanced and emerging economies? This column argues that the ongoing recovery in advanced economies has so far paralleled the weak and protracted recovery following the 1991 global recession to a surprising degree, partly because of challenges in Europe. In contrast, the recovery in emerging market economies has been unusually strong.

Prasad, Foda, 23 April 2012, 13881 reads

The world economy is showing scattered signs of improvement but remains fragile according to official forecasts. This column summarises the latest update of the Brookings Institution-FT Tracking Indices for the Global Economic Recovery. It confirms some positive signs but also much to worry about as the world economy continues to meander with no clear sense of direction.

Bosetti, Carraro, De Cian, Massetti, Tavoni, 23 April 2012, 17214 reads

International agreements on ways to tackle climate change are in a depressing deadlock. This column argues that part of the problem is aiming too high. It suggests that slow and gradual progress towards controlling climate change is the only way forward. But this is at least better than waiting for an ideal solution that may never come.

Panizza, Presbitero, 22 April 2012, 71423 reads

Countries with high public debt tend to grow slowly – a correlation often used to justify austerity. This column presents new evidence challenging this view. The authors point out that correlation does not imply causality – it may be that slow growth causes high debt. They argue that policymakers should be wary – the case for cutting debt to boost growth still needs to be made.

Ruta, Venables, 21 April 2012, 12086 reads

Around one fifth of global merchandise trade is in natural resources. Yet national policies manipulate trade flows and prices, and the problem is exacerbated by market failure in long-run extraction contracts. This column argues these problems could be addressed by extending the role of the WTO in the enforcement of resource-extraction agreements.

Kilian, 21 April 2012, 29481 reads

Was the surge in the oil prices between 2003 and 2008 caused by financial investors taking speculative positions in oil futures markets? Many pundits and policymakers seem to think so, but this column says this view goes against the extensive body of evidence.

Annunziata, 21 April 2012, 14298 reads

According to its latest projections, the IMF no longer sees China as the main source of imbalances in the global economy. This column argues that fears of a stalling Chinese economy are exaggerated, and that sustained and more balanced Chinese growth will actually be a rare nugget of good news for the global economy.

Dadush, Wyne, 20 April 2012, 31013 reads

The current gyrations of sentiment over government-bond spreads in the Eurozone are generating much commentary. Yet this column argues they are diverting attention from the real issue – the Eurozone periphery needs a big realignment towards the tradable sector to reignite growth sustainably. It adds that EU policies have made little progress, casting doubt on whether the adjustment can succeed.

Buti, Pench, 20 April 2012, 24506 reads

Most economists agree that European economies share the need to reduce public deficits and debts. This column stresses that while gradual consolidations are in general more likely to succeed than cold-shower ones, the superiority of a gradual strategy tends to evaporate for high levels of debt and is also less pronounced for consolidation episodes following a financial crisis.

Ross, 20 April 2012, 13498 reads

Michael Ross of UCLA talks to Viv Davies about his book, ‘The Oil Curse: How Petroleum Wealth Shapes the Development of Nations’. They discuss the irony of how those countries with the greatest social and economic deficits are also the most vulnerable to the oil curse and as a result grow less quickly than might be expected given their wealth. [Also read the transcript]

Cottarelli, 20 April 2012, 24094 reads

As with austerity itself, the austerity debate shows no sign of disappearing any time soon. This column argues that the last thing that the world economy needs at this uncertain moment is a knee-jerk reaction from fiscal policy. While the column agrees that governments need to make cuts, it stresses they should not lose sight of the bigger picture.

Angeloni, Wolff, 19 April 2012, 27881 reads

Europe’s sovereign debt crisis has reignited the debate over the link between sovereign and banking risk. This column presents data from the July stress test and December Capital Exercise of European Banking Authority. It finds that holdings of sovereign debt is not the main driver of bank stock market performance but that investors do take into account the riskiness of sovereign debt in the bank’s host country.

Leppänen, 18 April 2012, 13986 reads

Since the start of the crisis the Eurosystem balance sheet has grown from €1200 billion in June 2007 to around €2900 billion in March 2012. But this is spread unevenly among different central banks within the Eurozone, raising the thorny issue of intra-area (TARGET) balances. This column argues that these balances signal a need for change and restructuring in the Eurozone banking sector.

Neumann, 17 April 2012, 16419 reads

Debt finance of public consumption has clearly gone too far in several countries, reaching the borderline of sustainability. Have austerity measures now gone too far as well? This column argues it seems too early to sound the alarm. First, the global economy is likely to grow by 3.3 % this year, and second, reversing the fiscal stance or exiting the euro are worse options than austerity.

Freixas, Laux, 17 April 2012, 14140 reads

Faith in market discipline has been shattered by the financial crisis. This column argues that the failure of market discipline has different roots. It points to a lack of transparency and efficiency, particularly when it is needed most. In order to rectify this, however, it is not enough to merely increase the provision and disclosure of information. Instead, transparency depends on how that information is interpreted and used.

Kocher, Rützler, Sutter, Trautmann, 16 April 2012, 31920 reads

According to recent research, children’s self-control is critical for their development. This column explores whether self-control can be taught – and whether governments should do the teaching.

Alcidi, Gros, 15 April 2012, 52209 reads

Spain faces high unemployment and slow growth. This column focuses on an important sources of those problems – its housing market. While some adjustment has occurred since Spain's housing bubble burst in 2008, house prices and construction need to decrease more to slow Spain's unsustainable accumulation of foreign debt.

Acharya, Schnabl, Drechsler, 15 April 2012, 22253 reads

The deadliest aspect of the Eurozone crisis is the tripwire linking the riskiness of banks and governments. This column provides evidence of the link and explains how it arose. It argues that given the near-chaos-like interaction, the zero risk weights on sovereign bonds should be revisited.

Hallegatte, 14 April 2012, 16984 reads

Earlier this week, much of Southeast Asia was stunned by an earthquake that for a moment brought back memories of the devastating tsunami of 2004. The cost of such natural disasters has been on the rise in recent years due to an increase in the number of people living and working in high-risk areas. This column explores some of the reasons behind this increase.

Fershtman, Gandal, 13 April 2012, 25887 reads

Cloud computing – services that are accessed directly over the Internet – is the new ‘game-changer’ in the information technology world. Yet cloud computing is still in its infancy. This column explores what it might mean for competition among service providers.

Goodhart, Wagner, 12 April 2012, 24442 reads

"Don't put all your eggs in one basket" is standard financial advice. This column says that financial regulators are violating that principle. It argues that financial institutions have become too similar to each other, making financial crises more likely. It proposes a regulatory approach based on relative stock market correlations that would encourage greater diversity in the financial system.

Gylfason, 11 April 2012, 12973 reads

Most economists would agree that the global financial and economic crisis was at least partly caused by a failure in the regulation of the financial sector. While regulatory reform is now being debated throughout the world, critics argue that it is only a matter of time before any new regulations are removed by powerful interest groups. This column asks whether prompt corrective action belongs in constitutions.

Ghani, Iyer, Mishra, 10 April 2012, 25726 reads

What policies can narrow the huge gap between the rich and the poor within India and other South Asian countries? One way is to devolve power to local governments in the hope they can better target the poverty. This column argues that simply directing financial resources to poor regions is not enough and needs to be complemented with increases in capacity and accountability of the local authorities.

Baldwin, 10 April 2012, 27252 reads

The five finalists of the £250,000 EZ breakup contest were announced last week; only one has a graduate degree in economics. This column argues that three are amateurish efforts full of economic and factual errors. European economists should take such ignorance seriously. Failure to do so in the US allowed odious ideas to gain respectability.

Patton, Ramadorai, Streatfield, 09 April 2012, 12311 reads

In the wake of the financial crisis, the Securities and Exchange Commission proposed a rule requiring US-based hedge funds to provide regular reports on their performance, trading positions, and counterparties. Before the policy is phased in later this year, this column argues that such a move will benefit not only regulators but investors as well.

Mishra, Lundstrom Gable, Anand, 08 April 2012, 26153 reads

Thanks to developments in technology, trade in services is becoming increasingly more viable, with many businesses now dividing their operations across the world. This column creates a new measure of what it calls ‘service export sophistication’ to illustrate this shift. It highlights the need to refocus policy debate with the understanding that service exports are vital for high economic growth.

Wang, 07 April 2012, 19154 reads

In 2005, the US Bankruptcy Abuse Prevention and Consumer Protection Act raised the costs to households of filing for bankruptcy by 60%. While the law was designed to prevent abuse by wealthy debtors, this column presents evidence that the higher costs inhibit filings by financially distressed households who cannot afford the fees, adding “insult to injury for households that are already broke”.

Andrés, Doménech, 07 April 2012, 24616 reads

Macroeconomic developments in Europe cast doubt on fiscal-consolidation strategies. This column examines the pace of consolidation in the Spanish 2011–14 Stability Programme. It shows that if Spain were to meet the deficit targets, it would be bringing forward by seven years the zero structural-deficit target that will be mandatory as of 2020, according to the new Spanish legislation.

Keen, de Mooij, 06 April 2012, 27211 reads

Troubled Eurozone countries face the difficult challenge of regaining competitiveness without devaluing their currency. Could a fiscal devaluation, shifting taxes from employers to consumers, help? This column presents evidence suggesting that it could, but the devil is in the detail.

DeLong, 06 April 2012, 29998 reads

The Vox debate on austerity rages on. Here Brad DeLong draws on his recent research with Larry Summers to argue that unless long-term real borrowing costs in the Eurozone exceed 5%, the short-term contractionary effects of spending cuts are likely to erode rather than bolster the overall fiscal situation.

Mehran, Morrison, Shapiro, 06 April 2012, 25381 reads

A recent op-ed by a former Goldman Sachs employee has led to an outcry over two important themes which came to the fore during the crisis, ie corporate culture and incentives. This column argues that neither regulation nor market forces has put either of these issues to rest. It adds that bank complexity and the too-big-to-fail policy both serve to undermine market discipline.

Maystre, Bicchetti, 05 April 2012, 27879 reads

Trade in commodity derivatives – such as oil futures – has grown tremendously over the last few decades. Some believe that the "financialisation" of commodity markets has made them more efficient. Others worry that financialisation has resulted in greater price distortions and volatility. This column presents high-frequency trading data suggesting that the sceptics may have a point.

Iacovone, Javorcik, 05 April 2012, 12040 reads

How do firms adapt their products before starting to export? This column argues they upgrade their products’ quality. Using data from Mexico, it shows that producers tend to enjoy a price premium on the domestic market relative to other companies producing the same product. This premium appears exactly one year before the product is exported, suggesting producers are getting ready to export.

De Haas, Korniyenko, Loukoianova, Pivovarsky, 04 April 2012, 13350 reads

Depending on which way you look at it, international banking either provided stability in countries where domestic banks failed or provided instability in otherwise well-run financial sectors. This column looks at the experience of Europe’s emerging economies. It argues that the latest Vienna Initiative aimed at improved coordination and information-exchange between banks is essential for financial stability in the region.

Delbecque, 04 April 2012, 15585 reads

The ECB’s longer-term refinancing operations have been widely analysed. Although comments are largely positive, some experts have argued that direct ECB intervention was the only way to save the Eurozone. This column reviews the criticisms against the operations and assesses whether the ECB should have intervened directly in the sovereign-debt markets instead of providing funding to banks.

Alesina, Giavazzi, 03 April 2012, 57967 reads

Europe’s embrace of austerity has sparked a debate among economists. This column argues that the debate has gone astray. Until the critical principle – ‘how’ is as important as ‘how much’ – is embraced, the austerity debate in Europe will continue to be completely out of line with the real economic trade-offs.

Camacho, Pérez-Quirós, Poncela, 03 April 2012, 28023 reads

This column develops an early warning system to capture the trembling of the Eurozone economy before anyone else notices it, as seismologists do with earthquakes. It shows that the latest forecast suggests reductions in recession probabilities and that the crisis resolution mechanism could be behind this increase in confidence. Therefore, it seems that the Eurozone faced a short-lived double-dip recession.

Forni, Gerali, Pisani, 03 April 2012, 15458 reads

How to jump-start productivity growth in Europe’s economies is a question at the heart of debate over economic policy in the Eurozone. This column explores the effect of a decrease in mark-ups in the Italian services sector. Using simulations, it suggests that the potential macroeconomic gains from pursuing competition-friendly reforms could be substantial.

Corsetti, 02 April 2012, 61475 reads

Is austerity self-defeating? Is it keeping Europeans underemployed for years and destroying the very growth needed to pay off the debt? Or is it steering nations clear of Greek-like tragedies? So starts a new debate on Vox on austerity, introduced in this column.

di Giovanni, Levchenko, Zhang, 02 April 2012, 21956 reads

The late Nobel Laureate Paul Samuelson argued that if China’s productivity growth accelerates in areas where it does not currently have a comparative advantage – notably the service sector – developed countries may suffer. This column presents a multi-country, multi-sector model, and reaches the opposite conclusion: the world, including developed countries, is far better off when China’s growth favours its current comparative disadvantage sectors.

Pisani-Ferry, Merler, 02 April 2012, 24034 reads

Many analysts and observers have put forward that the euro crisis is a balance-of-payments crisis at least as much as a fiscal crisis. This column provides evidence of capital-flow reversals in Greece, Ireland, Portugal, Spain, and Italy. It argues that the fostering of a pan-European banking industry and the creation of a banking union with centralised supervision and access to resources to recapitalise weak financial institutions should feature high on the policy agenda.

Böhler, Selçuki, Pelkmans, 01 April 2012, 13738 reads

Turkey has been a candidate for EU membership for 15 years. Some have argued that its best chance of gaining entry is to join the European Economic Area first. This column argues that such a move would be bad for Turkey and bad for Europe.

Herzer, Nunnenkamp, 01 April 2012, 20235 reads

The longstanding debate on aid effectiveness has failed to produce conclusive evidence that aid promotes economic growth. This sad result of 40 years of research still leaves some hope. This column argues that foreign aid could help improve economic conditions of the poorest population segments and narrow income gaps. However, the data seems to indicate aid has actually widened the gap between the rich and the poor.