May 2015

Schoenmaker, 31 May 2015, 11086 reads

Debt financing amplifies the effects of asset prices fluctuations across the financial system and this can produce bubbles. Regulation therefore increasingly focusses on restricting debt financing. Although there is no silver bullet for making the financial system failure-proof, this column argues that policymakers should adopt an integrated and consistent macroprudential approach across the financial system in order to help prevent businesses moving to less-regulated pastures.

Baiocchi, Cullen, Eggleston, Fuchs, Loftus, 30 May 2015, 13249 reads

Socio-economic conditions like wealth and education have been demonstrated to be powerful predictors of life expectancy. Similarly, over the 20th century, a tendency for women to outlive men has emerged in much of the Western world. Using data for countries from all around the world, this column shows how socio-economic factors mediate the sex differential in the probability of survival to advanced age. These patterns seem to transcend temporal and cultural barriers, but rather emerge and evolve as countries develop, and standards of living rise.

Alesina, Paradisi, 29 May 2015, 14377 reads

Most of us intuitively believe that politicians reduce taxes and increase spending in the run up to elections to curry favour with voters. But our logic may well be flawed. This column presents evidence from recent Italian elections suggesting that things aren’t so black and white. Yes, some municipalities set lower tax rates in the run up to elections. But the evidence also suggests that municipalities running deficits will think twice about tax breaks and spending sprees. Politicians in big cities are also more cautious, choosing to focus not on tax but on more pressing local issues.

Kearney, Levine, 28 May 2015, 15000 reads

Compared with other developed countries, the US ranks high on income inequality and low on social mobility. This could be particularly concerning if such a trend is self-perpetuating. In this column, the authors argue that there is a causal relationship between income inequality and high school dropout rates among disadvantaged youth. In particular, moving from a low-inequality to a high-inequality state increases the likelihood that a male student from a low socioeconomic status drops out of high school by 4.1 percentage points. The lack of opportunity for disadvantaged students, therefore, may be self-perpetuating.

Bryan, 27 May 2015, 21910 reads

John Nash passed away this week. This column pays tribute to a mathematician whose contributions to economics are enormously influential.

Müller, Storesletten, Zilibotti, 27 May 2015, 10309 reads

In the policy circles, there are confronting positions regarding Greece’s assistance programme and the structural reforms it should implement. This column argues that the best response is pragmatism and sequential compromise. Efficiency requires an assistance programme providing the country with debt relief with an intervention of an institution such as the IMF. Thus, misconceived economic principles could bring large welfare losses for Greece and renewed financial instability in the Eurozone.

Fang, Gu, Xiong, Zhou, 27 May 2015, 12888 reads

China has experienced a decade-long housing market boom, with the market being compared to the housing bubbles of Japan in the 1980s and the US in the 2000s. This column uses data on mortgage loans in 120 cities to investigate whether the Chinese housing market might trigger a financial crisis. Although price growth rates are comparable to those experienced by Japan prior to its bubble, substantial income growth and high mortgage down payment ratios helped support the steady participation of low-income households. A high expectation of future income growth, however, might have been a key driver of price-to-income ratios, and this may not be sustainable.

Bossone, Cattaneo, 26 May 2015, 10933 reads

Introducing a currency in parallel to the euro could help Greece repay its external debt and resume economic activity. This second column in a two-part series evaluates the different options and their effects on aggregate demand and fiscal sustainability. The authors propose a tax credit certificates programme, which they argue could generate new spending capacity and avoid the adoption of new austerity measures.

Blanchard, 25 May 2015, 22635 reads

On 15-16 April 2015, the IMF organised the third conference on ‘Rethinking Macro Policy’. In this column, IMF’s Chief Economist Olivier Blanchard presents his personal takeaways from the conference. Though progress in macro policy is undeniable, confusion is unavoidable given the complex issues that remain to be settled. 

Bossone, Cattaneo, 25 May 2015, 22129 reads

To prevent it from defaulting on its debt, the Greek government might need to introduce a new domestic currency, in parallel to the euro. This column, the first in a two-part series, compares the current proposals for a parallel currency and discusses how such a policy instrument could promote economic recovery.

Hanushek, Woessmann, 24 May 2015, 9440 reads

Later this year, the UN will set the post-2015 Sustainable Development Goals. This column argues that having lots of targets will make it hard for policymakers to enact real change. Instead, the primary post-2015 goals should focus on young people achieving basic skills. Basic skills, in turn, will help address issues of poverty and limited healthcare as well as help foster the new technologies needed to improve sustainable growth.

Francesconi, Pollak, Tabasso, 23 May 2015, 7817 reads

Bequests have important economic and social consequences. Using a large sample drawn from the Health and Retirement Study, this column documents two results. First, about a third of US parents with wills plan to distribute their estates unequally among their children. This is especially common among families with stepchildren and children with whom the parent has little contact. Second, about 40% of parents die without wills.

Consoli, Marin, Popp, Vona, 22 May 2015, 9127 reads

The greening of the economy brings with it changes in the demand for certain skills in the labour market. Understanding these changes has important implications for policy aiming to support sustainable industry. This column uses US data to identify key green jobs and the skills of import for them. Environmental sustainability regulations are shown to affect the demand for green skills in the labour market. Labour market policies should target labour supply, for instance through education, to avoid potential skill gaps down the line.

Morikawa, 22 May 2015, 8798 reads

World trade in services is increasing rapidly but micro evidence remains scarce. This column employs firm data from Japan to argue that service-exporting firms are more productive than non-exporting firms and goods-exporting firms. Information asymmetry, transportation costs, differences in institutions, cultures, and languages increase the fixed costs of service trade. Therefore, highly productive firms are more likely to self-select into service trade.   

Broto, Molina, 21 May 2015, 9455 reads

Credit ratings agencies have enormous power over countries in dire straits. But whether prevailing global economic conditions affect their assessments is rarely asked. This column suggests that credit ratings agencies overreact in downgrading countries credit ratings during times of economic crisis and instability, and underreact when upgrading during calmer times. This is bad news for policymakers who think that strong economic performance will get them back the credit rating they once took for granted.

Angrist, Pischke, 21 May 2015, 38495 reads

Economic scholarship has changed dramatically in the past half-century, becoming far more empirical and much less abstract and theoretical. The winds of change have blown most strongly in applied microeconomics, but econometrics has been left far behind. This column argues that econometrics teaching needs an overhaul and that this change has to start with better textbooks.

Sturgeon, 20 May 2015, 9906 reads

With global value chains that fragment production across the world, national statistics fail to capture the growing interconnectedness of economies. This column describes the international input-output tables that allow researchers to estimate the share of a country’s export value derived from imported inputs. However, while these tools offer promising uses, at the moment statistics on trade in value added should be treated with great caution.

Demeritt, Hoff, Walsh, 20 May 2015, 16444 reads

Economists typically assume people behave in a rational and self-interested way, making standard models limited in their explanatory power. This column argues that psychological and sociological factors – though usually ignored in economic models – affect decision-making. The findings, drawn from the World Development Report, further suggest that better behavioural understanding could subsequently aid development efforts.

Backhouse, Boianovsky, 19 May 2015, 18070 reads

The notion of secular stagnation – a state of negligible or zero economic growth – is back in the headlines. Questions naturally arise about its intellectual antecedents. This column discusses how the concept rose and fell with the economic fortunes of advanced industrialised nations. Political trends and trends in economic theory played a part in its trajectory, with the notion closely connected to the idea that the level of government debt should be allowed to rise.

Bøler, Javorcik, Ulltveit-Moe, 18 May 2015, 10422 reads

The gender wage gap persists even in gender equal societies such as the Nordic countries. This column suggests that globalisation may play a role in that. The authors show that exporting firms have higher gender wage gaps although the effect is only present among college graduates. The heightened competition faced by exporters requires greater commitment and flexibility on the part of the workers, which leads to statistical gender discrimination.

Gelos, Lambert, 17 May 2015, 10439 reads

Since the Global Crisis, international banks have reduced cross-border lending but continued to lend through their branches and affiliates overseas. This column argues that the observed shift was to a significant extent driven by regulatory changes. It should improve financial stability in host countries of foreign banks.

Benink, Huizinga, 16 May 2015, 12191 reads

QE in the Eurozone is unusual in that the risks of sovereign debt defaults are shared between the ECB and the national central banks. This column argues that if such risk sharing were applied to the Outright Monetary Transactions programme, it could potentially create insolvency problems for countries with large public debts, especially in a low-growth scenario.

Hausman, Kellogg, 15 May 2015, 11627 reads

The economic and environmental impacts of the US fracking boom are hotly debated. This column argues that there’s been a large positive impact on the US economy, estimating that the benefits to producers and consumers totalled $48 billion in 2013, or around one-third of 1% of US GDP. The climate change impacts have been large, but they do not outweigh the private gains. However, a lack of data on the impacts to water, air, and seismic activity hamper policymakers effectively targeting the areas of greatest concern and hamper them drawing up effective regulation.

Bircan, De Haas, 15 May 2015, 6231 reads

Innovation enhances economic growth but the mechanisms that underpin the spread of products remain largely unclear. Based on new micro-data from Russia, this column argues that access to credit helps firms to adopt products and production processes that are new to them. However, there is little evidence that bank credit stimulates in-house R&D. Thus, banks can facilitate the diffusion of technologies within developing countries but their role in pushing the technological frontier is limited.

Gorodnichenko, Roland, 14 May 2015, 15757 reads

Social science studies usually explain democratisation of countries with the increase in incomes. In contrast, this column argues that culture is a neglected but important determinant of democracy. The findings show that countries with individualist culture democratise earlier than collectivist cultures that may remain stuck for a long time with relatively efficient autocracies.

Claussen, Røisland, 14 May 2015, 8047 reads

The so-called ‘discursive dilemma’ in collective decision-making implies that the policy choice of a monetary policy committee depends on whether it votes directly on policy, or whether it votes on the underlying economic judgements – the ‘premises’ for the decision. This column argues that the monetary policy committees should vote on the premises. This gives better decisions, better explanations and better monetary policy communication.

Magud, Sosa, 13 May 2015, 10214 reads

Emerging markets are not the hot investment prospect they used to be. This column estimates that weaker private investment in these nations is a slowdown after a period of boom rather than an outright slump. Prospects for a recovery of business investment, however, are not promising. Commodity prices are expected to remain weak and external financial conditions are set to become tighter. 

Debaere, Kurzendoerfer, 12 May 2015, 10815 reads

Water management is a major challenge today. To guide efficient water allocation, it is essential to understand the drivers of water use. This column sheds light on this issue using US data from the 1950s until today. The findings show that US water withdrawal has stabilised, and has even decreased in the past decades. Technological improvements have been crucial towards that end. However, the shifting demand from agriculture and manufacturing to less-water intensive sectors has been just as important.

Adam, Panizza, Presbitero, Vines, 12 May 2015, 19720 reads

World leaders are preparing for the third International Conference on Financing for Development in Addis. More money may help, but may also make things worse due to aid dependence, Dutch disease, and/or unsustainable debt. This column argues that the political discussion needs to be accompanied by more, and better data and research on how financing can support sustainable development.

Somville, Vandewalle, 11 May 2015, 29024 reads

Making transfers to bank accounts instead of paying cash could potentially enhance savings. This column tests this hypothesis using a randomised trial from India. The evidence suggests that being paid on the account increases the balance by around 110% within three months of weekly payments. The individuals who were paid in cash do not save more in other assets, such as cash at home, but increase consumption.

Auerbach, Gorodnichenko, 10 May 2015, 13340 reads

The impact of fiscal policy on exchange rates is of key interest to policymakers. This column argues that unexpected government spending instantly affects exchange rates. The finding, based on daily data reporting of the US Defence Department, may suggest that unexpected government spending has broader macroeconomic effects as well. The results, however, do not hold is low-frequency data are used instead.

Nangle, 09 May 2015, 23582 reads

The recent remarkably low interest rates have puzzled economists. The standard explanation rests on the extraordinary manoeuvres of the world’s largest central banks. This column argues, however, that it is due to economic developments, specifically globalisation and the collapse in labour power in the west.

Begley, Purnanandam, Zheng, 08 May 2015, 10942 reads

A key regulatory response to the Global Crisis has involved higher risk-weighted capital requirements. This column documents systematic under-reporting of risk by banks that gets worse when the system is under stress. Thus banks’ self-reported levels of risk are least informative in states of the world when accurate risk measurement matters the most.

Maçães, 08 May 2015, 9124 reads

Europe’s institutional architecture is evolving in response to the EZ Crisis and years of economic malaise. This column, by Portugal’s Secretary of State for Europe, argues a flexible institutional framework that allows for stronger economic policy coordination, convergence and solidarity.

Fohlin, Gehrig, Haas, 07 May 2015, 23445 reads

The story of the run-up to the Global Crisis is, unfortunately, not an entirely new one. This column argues that regulators would do well to read up on the ‘Panic of 1907’. What quelled rumours and panicky behaviour back then still applies – maintaining market liquidity through measures that encourage transparency.

Ward, 06 May 2015, 11382 reads

A solid empirical result is that voters reward governments for recent economic prosperity. This column presents new evidence that the electoral fate of governing parties is also associated with the electorate’s wider ‘subjective well-being’. Policymakers who want to win should focus on more a broad range of factors that matter to the quality of people’s lives.

Milanovic, 06 May 2015, 23847 reads

Our level of income is unarguably dependent on where we live in the world. But evidencing this is tricky. This column presents a model that explains global income variability using one variable only – where you live. The results suggest that we might want to reassess how we think about both economic migration and global inequality of opportunity.

Jayachandran, Pande, 05 May 2015, 9748 reads

Indian children are more likely to be malnourished than their counterparts in Sub-Saharan Africa, despite higher standards of living. This column uses data on child height – an anthropometric measure of net nutrition – from Africa and India to explore how parental gender preferences affect the likelihood of children being malnourished. Indian firstborn sons are found to have a height advantage over African firstborn sons, and the height disadvantage appears first in second-born children, increasing for subsequent births. This suggests that a preference for a healthy male heir influences fertility decisions and how parents allocate resources between their children.

Aizenman, Jinjarak, Zheng, 04 May 2015, 12259 reads

China’s export-led growth has coincided with the country becoming one of the largest net global creditors. This column looks ahead to the next chapter of Chinese ‘outwards mercantilism’ – FDI investment in natural resources, commodities and mining bundled with access to finance and the export of Chinese capital products and labour services.

Hanousek, Kochanova, 04 May 2015, 10287 reads

The evidence about the effect of bribery on economic growth is mixed. Some find it harmful while others believe it helps via a ‘grease the wheels’ effect. This column argues that the ambiguity can be explained by divergent effects of the mean and dispersion of corruption. A high bribery-mean retards productivity growth of firms, but a high bribery-dispersion facilitates performance of weak firms.

Minford, 03 May 2015, 11605 reads

The financial system – especially banks – is generally blamed for the Great Recession. This notion has been used to justify the adoption by central banks of several new monetary policy functions, such as financial stability and macro-prudential policies. This column argues that the financial crisis was just one component of the Great Recession and that central banks are largely responsible, given their failure to prevent banks’ liquidity difficulties from overflowing into the economy. It suggests that central banks should pay attention to stabilising monetary policy and scale back the new policies of direct regulation.

Inui, Nakamuro, Edamura, Ozawa, 02 May 2015, 9626 reads

In order to achieve sustainable growth, Japan should make an efficient use of its labour force. However, female labour force participation and the share of women in leading positions in Japan remain low. This column investigates the impact of board diversity on firms’ innovative activity using Japanese firm-level data. The findings suggest that board diversity is associated with innovation only for firms that have already acquired diverse management skills.

Attanasio, Meghir, Mommaerts, 01 May 2015, 9646 reads

The significance of informal sources of insurance against income risk has important consequences for the design of social insurance programs. A particular concern is that public programs simply crowd out informal institutions. This column uses US household data to investigate whether the extended family acts as such an informal institution. Although there is a large potential for the family to insure against income shocks, no such insurance occurs. 

Blanchard, 01 May 2015, 19465 reads

Complex forces are shaping macroeconomic evolutions around the world. In this column, IMF’s Chief Economist Olivier Blanchard describes some of these forces and provides an overview of the state of the world economy. Putting the forces together, the baseline forecasts are that advanced countries will do better this year than last, and emerging countries will slow down. Overall, the global growth will be roughly the same as last year, with the macroeconomic risks having slightly decreased.