Firms that reorganise production to grow account for almost 40% of the value added created in the manufacturing sector. They add layers of management, increase by 7% the average hours worked in the firm, and reduce the average wage at pre-existing layers of managers or workers by 11%. This column presents new stylised facts about the way firms organise production and explains how recent advances in economic theory can help to understand these findings.
The crisis is deepening in Europe, and recession is spreading globally. This column argues that macroeconomic policies have failed to overcome the dual problems of flagging aggregate demand and high and spiralling public debt. It urges policymakers to abandon failed orthodoxies and irrelevant treaties and consider new, alternative solutions.
Interest rates on Italian and Spanish bonds are back up to their 2011 levels, raising alarm bells across Europe. But this column argues that the media’s hard-held belief that neither Italy nor Spain can withstand interest rates of 7% is wrong.
Gender discrimination varies vastly across nations – an outcome that most would ascribe at least partly to culture. If culture is transmitted via language, as Douglas North asserts, grammar difference should line up with gender discrimination. This column presents new empirical evidence that gender distinctions in language are strongly correlated with female labour-force participation and the use of gender political quotas.
The democratisation of economic research takes a new step next week as the Nobel Symposia webcast important seminars on development and climate. This column provides the necessary links.
Large German trade surpluses are ingrained in the Eurozone’s structure, but private sector mechanisms for dealing with the corresponding capital account deficit are broken. The unavoidable result has been large official capital account deficits by Germany (the bailouts) and the Eurosystem (Target2 balances). This column proposes the creation of a Germany sovereign wealth fund that would restart the private recycling of Germany’s excess savings – eventually cleaning out the Target2 imbalances and depreciating the euro in the process.
A lot has been said about the pros and cons of financial globalisation. But what exactly is ‘financial globalisation’? This column argues that we can’t be clear about the pros and cons of financial globalisation unless we are clear on what it actually is.
China’s huge savings are met with both awe and suspicion. This column asks what explains the high savings rate. It uses data from 1960 to 2009 – including the periods with the most significant economic reforms.
In June 2012 the EU proposed both a banking union and a framework for bank resolution. This column argues that the proposed Crisis Management Directive is a step in the right direction for resolution but that banking union needs a single resolution authority and single resolution fund along with a single supervisor.
In the years leading up to the global crisis, the US focused on subsidising home ownership, whereas Germany placed much more emphasis on education and vocational training. While it is easy to think that this explains the subsequent performance of the two economies, this column provides some much needed economic analysis.
Economics and economists have taken a beating in the last few years. One practice on the receiving end of much criticism has been the use of models that assume rational expectations when individuals are well informed. This column proposes some tests of these assumptions and argues that 'imperfect information' models may succeed where others have failed.
How to reduce incarceration rates without fuelling a crime boom? This column argues that by being more selective over whom to lock up and for how long, scarce public funds can be put to better use.
Competitiveness is one of the most debated issues in policy circles. But, what triggers it? Capitalising on the first existing harmonised cross-country dataset measuring the entire range of international activities of firms in seven European countries, this column identifies the triggers of competitiveness. It argues that policymaking could be improved by firm-level evidence if there were less reluctance to the use of micro-founded indicators to inform policy decisions.
Does a high income tax rate cause people to work less, work more, or continue unaffected? This is a question that divides politicians and the public. And, according to this column, it is also a question that economists do not know the answer to. It is time to say so.
How do emerging markets move from procyclical fiscal and monetary policies to countercyclical ones? This column argues that a key ingredient is stronger institutions.
As droughts, record temperatures and high crop prices remind us, the world’s water supply is not co-located with the world’s water demand. This column takes a factor-abundance trade-theory approach to the problem and suggests that open markets that make specialisation of production possible may offer a way to fight water scarcity.
Despite assurances that the ECB will do “whatever it takes” to save the euro, interest rates on sovereign bonds in the highly indebted European countries remain alarmingly high. This column argues that in order for interest rates to fall, policymakers need to assure private investors that their bond holdings are safe from subordination.
National healthcare systems are under financial pressure around the globe. One commonly suggested reform involves decentralisation. This column argues that the success of healthcare decentralisation depends on the political and design incentives. But if successful decentralisation is achieved, it can result in higher satisfaction and more fairness at no additional cost.
During the First World War the fertility rates of European countries collapsed dramatically. The deficit of births that resulted was, for some countries, as large as military casualties. This column presents a quantitative theory to explain this phenomenon.
It has become increasingly fashionable to talk about Europe without the euro. But this column points out that in the last century Europe has seen the collapse of three multi-nation currency zones: the Habsburg Empire, the Soviet Union, and Yugoslavia – and they all ended with disastrous hyperinflation. The lesson for the Eurozone is clear: avoid break up at almost any cost.
A central banker's toolkit these days must include a way of estimating the effect of quantitative easing purchases on government bond yields. With markets savvier than ever in anticipating quantitative easing purchases, estimating the effect has become more difficult. This column by four Bank of England economists introduces a novel empirical approach.
Does Europe need a banking union? This column argues that banking union is necessary but not sufficient for monetary union to survive. To cope with sovereign risk more political and fiscal integration is needed.
The UK is about to make a massive change to its pension system. From October 2012, employers will be obliged to automatically enrol employees into a pension scheme – though individuals can opt-out. This column explores what this might mean for pension funding and argues that the risks are to the downside.
The ECB president, Mario Draghi, said he’d do “whatever it takes to save the euro”. This column asks what 'whatever it takes', means and whether the ECB is prepared to go that far. It argues that limited and conditional lending improves the odds of success but it is not the game changer needed.
Are return migrants more likely to become entrepreneurs than non-migrants? This column, using data from Egypt, argues that although migrants lose their social networks while they are overseas, the savings and human capital accumulation that they acquire abroad more than compensate for this loss. This makes return migrants more likely to start businesses.
Worker productivity in the UK and a number of other countries has been persistently weak since the onset of the global crisis. This column argues that, in the UK at least, the weakness in service sector productivity is the biggest puzzle. In most other countries the weakness is more obvious in manufacturing.
Central banks are running out of conventional tools, and the effectiveness of unconventional ones like QE are being questioned. More radical solutions are being considered. This column sets out the case for monetisation of budget deficits.
Is protectionism getting better or worse? This column analyses recent World Bank data from 24 major economies suggesting that import protection through temporary trade barriers – such as antidumping, safeguards, and countervailing duties – has increased considerably for a handful of mostly emerging markets in the past year. But the news is not all bad – some countries have lowered their trade barriers.
The Eurozone debate is awash with proposals for mutualising national debt. This column summarises and evaluates the main proposals – suggesting how they might be combined in a five-year path to a fiscal union. It stresses that short-term stability objectives will only work if they help to advance the agenda for fiscal federalism including macroeconomic stabilisation and risk-sharing.
Why do some states develop as democracies while others remain authoritarian? The question continues to puzzle social scientists. This column presents new data from 13 British American colonies from before the American Revolution. It shows that democratic institutions had a lot to do with the need to attract workers.
When economies are on the down, uncertainty is on the up – particularly during a crisis. But this column argues that the euro itself may have been a cause of uncertainty in the first place, long before the crisis.
Two-year bond yields in six European countries recently turned negative. What explains the shift? This column presents a model suggesting that a higher chance of extreme economic events – such as a break up of the euro – can be the cause of a number of abnormal patterns in the bond markets.
The European debt crisis drags on, dragging Europe down with it. This column argues that one-off capital levies – taxes on the rich – is one way of financing debt reduction. This could be an important step towards deleveraging public budgets without severely damaging the economy.
Some maintain that Italy and Spain risk losing market access for their sovereign bonds despite drops in yields. A recent Vox column by Francesco Giavazzi suggested that Italy could and should avoid a bailout. This column argues that in spite of all its admirable human and economic assets, Italy has moved to a bad equilibrium from which it is most unlikely to escape.
While most economists agree that the UK and other countries need to cut back to ensure the sustainability of their public finances, the debate rages over when and by how much. This column argues that the timing matters – starting too early, before the economy has recovered, will have substantial economic costs.
While markets have been cheered by recent ECB announcements on sovereign debt, some still question the Bank’s ability to save the euro. This column argues that the ECB is a lot stronger than many think. Linking ECB sovereign bond purchases to policy conditionality will ensure that reform efforts are sustained. The free lunch option has been ruled out – and that is a good thing.
How to save the banks but not the bankers? This column argues that fines for criminal behaviour in banks are not enough – it may be time to start locking people up.
Spain looks set to turn to the EFSF for a formal bailout subject to stringent conditionality. In this column, Francesco Giavazzi – one of Europe’s leading macroeconomists and an advisor to the Monti government – argues that Italy’s situation is nothing like Spain’s. To avoid submitting itself to its EFSF conditionality, Italy should reduce its borrowing needs with a determined programme of public asset sales and bridge financing from the Cassa Depositi e Prestiti.
The US sulphur dioxide cap-and-trade programme, aimed at the acid rain problem, has been hailed as a great success in almost all areas. This column argues that the programme’s success may tell us something about whether cap and trade can be applied more widely in climate policy.
Will democracy establish itself in the Middle East? This column looks at what is needed to start democracies are what is needed to keep them going. It argues that that it is the level of economic development – not short-run economic growth – that is needed for democracy to survive.
Many an economist will tell you they base their decisions on evidence. But what if the evidence is based on incorrect or irrelevant data? This column asks what this might mean for our view on regional inequality in China.
The upside to a rigid labour market, so the argument goes, is that the downside isn’t so bad. This column compares evidence from the job markets in Germany and the US. It argues that Germany is actually far more volatile.
How does a major credit event such as the failure of Lehman Brothers on 15 September 2008 influence the way banks send and receive payments to and from one another? And what are the associated risks and costs?
Is austerity good or bad? This column argues that it is as foolish to argue this question as it would be to debate whether it is better to drive on the left or right. Procyclical fiscal policy, on the other hand, is another question.
Macroprudential policy is meant to reduce the risks from the financial sector spilling over to the wider economy. But the debate over how to do so goes on. This column argues that macroprudential policy can be analysed through the prism of market failures that it is supposed to address.
Public debt held by non-residents has been on the rise over the last few decades – that is until the global crisis. This column looks at how the ownership of government bonds in the G20 and the Eurozone. It finds that increased foreign bondholders bring costs as well as benefits.
One negative side-effect of trade liberalisation that has often been underplayed is the fiscal aspect. This column provides evidence from 110 trade-liberalisation episodes that tariff cuts lead to lower tax revenues as a share of GDP. The drop is highest in poor countries that don’t have the capacity to compensate for lost tariff revenues with domestic taxes.
Will the London Olympics provide a major boost for employment in Stratford, as promised? This column presents evidence from a study in the UK, which, if applied to the Olympics, suggests that we shouldn’t count on it – many of the jobs will go to other Londoners.
Bank bonuses may not have changed much in the last few years, but their owners have. This column asks whether government-owned banks may bring stability to the supply of credit over the business cycle and especially at a time of financial crisis.
What are the spillover effects within a fiscal union? This column looks at evidence within bond markets for individual US states and the market for US Treasury securities. Results are twofold. First, there are negative spillovers between most markets for individual US state bonds. Second, there is no substantial spillover effect between shocks originating from state securities and from federal markets, except for a few large issuers.
Canada and Mexico have recently been invited to join negotiations for the Trans-Pacific Partnership. This column argues that this is a big deal. It could produce a domino effect, beginning with the addition of Japan and Korea and leading to a model 21st century trade area encompassing over 700 million people with a combined GDP of some $26 trillion.