June 2016

Paolo, Parisi, 30 June 2016, 8913 reads

In April 2016, Italian banks set up an equity fund intended to recapitalise troubled financial institutions in a ‘private bail-out intervention’ scenario, with a view to avoiding a bail-in under the European Bank and Recovery Resolution directive. This column analyses the main differences between a bail-in and a bail-out scenario. In particular, it compares contagion effects, and thus the total default probabilities of financial institutions in these two circumstances, in order to establish which banks would benefit more from a bail-out rather than a bail-in.

Menkhoff, Sarno , Schmeling, Schrimpf, 30 June 2016, 5608 reads

Determining ‘currency value’ is a century-old topic on which there is little consensus among economists. This column proposes a novel way of adjusting real exchange rates for key country-specific fundamentals to obtain better gauges of currency valuation levels. Adjusting for productivity, export quality, foreign assets, and output gaps is shown to isolate information related to currency risk premia across countries. This can serve as a more precise input into investment and policy decisions.

di Mauro, Benkovskis, De Pinto , Grazioli, 29 June 2016, 17466 reads

In the ‘currency wars’ discussion, it is almost taken for granted that exchange rate depreciations will result in non-trivial export gains.  Using evidence from countries in Europe and Asia, this column argues instead that factors unrelated to prices/exchange rates often play a predominant role in shaping trade developments. Moreover, these factors affect export outcomes in a very diversified manner across countries, in part because of the interplay of global value chains.

Faber, Gaubert, 29 June 2016, 6534 reads

Governments around the world continue to fund tourism promotion policies, even while current economic literature debates whether tourism in the long run benefits the economy as a whole. This column uses the empirical context of Mexico to analyse the economic implications of international and domestic tourism, and the underlying mechanisms. It finds that tourism provides long-run economic gains to households, both at the local level and in the aggregate.

Calligaris, Del Gatto, Hassan, Ottaviano, Schivardi, 28 June 2016, 11266 reads

Many advanced economies have experienced a productivity slowdown in recent years. Italy, however, has been experiencing such a slowdown since the mid-1990s. This column provides a detailed analysis of Italy’s patterns of misallocation over this period. Firms in the Northern regions, as well as large firms, have experienced the sharpest increase in resource misallocation. To tackle the resulting productivity slowdown, reforms need to address unemployment benefits and higher education, as well as encouraging investment in intangible assets. 

Demertzis, Viegi, 28 June 2016, 7565 reads

Both the Fed and the ECB have managed to remain credible since the Global Crisis, but their credibility levels have evolved differently. This column argues that since inflation in the US and the Eurozone has been similar in the past eight years, the difference in the way that credibility has evolved is the result of the different macroeconomic policy mixes applied.

Bahaj, Levina, Saleheen, 28 June 2016, 7614 reads

Finance plays a key role in growth by connecting savers and investors, but it can also be a source of crises. This column discusses whether there has been enough finance to enable productive investments. UK non-financial companies appear to have enough internal funds to cover all their investment taken as a whole, but the evidence suggests that small firms face shortfalls. The column also pleads for the development of new and better data sources to help measure the supply of finance that can be used to exploit productive investment opportunities. 

Acemoglu, Moscona, Robinson, 27 June 2016, 13252 reads

The ‘great inventions’ view of productivity growth ascribes the excellent growth from 1920 to 1970 in the US to a handful of advances, and suggests that today poor productivity performance is driven by a lack of breakthrough discoveries. This column argues instead that the development of an effective governmental infrastructure in the 19th century accounted for a major part of US technological progress and prominence in this period. Infrastructure design thus appears to have the power to reinvigorate technological progress.

Gros, 27 June 2016, 8436 reads

The business of central banks used to be profitable – they issued cash and could invest the proceeds in the assets they liked. This column argues that the ECB has turned the old business model of central banks around. Today, it earns a stream of income on its liabilities, while the returns of an increasing part of its assets go to the national central banks. This cannot be a stable arrangement.

Csullag, Danielsson, Macrae, 27 June 2016, 10655 reads

Investor demand for bonds is very high. This column argues that this is surprising because under almost any likely inflation scenario, including central banks merely hitting their target inflation rates, bondholders suffer large losses. The beneficiaries are sovereign and corporate borrowers; the losers are pension funds, insurance companies and some foreign exchange reserve funds. Meanwhile, the systemic risk from a bond crisis is increasing.

Pinkovskiy, Sala-i-Martin, 26 June 2016, 8859 reads

When it comes to measuring GDP, researchers tend to use the latest vintage of the Penn World Tables. However, competing series like the World Development Indicators (WDI) and changing methodologies between vintages mean this is not necessarily the best approach. This column assesses the relative performance of different GDP estimators using night-time lights as an unbiased predictor of the growth rates of unobserved true income. Newer versions of the Penn Tables are not necessarily improvements on their direct predecessors.  Newer versions of the WDI index, especially the 2011 vintage, appear generally better at measuring cross-country income differences.

Schoenmaker, Véron, 25 June 2016, 5422 reads

The new European banking supervision system, the Single Supervisory Mechanism, has been operating since 2014. Based on data analysis, interviews with officials and market participants, and nine country-specific studies, this column argues that the mechanism is broadly effective and, in line with the claim often made by its leading officials, tough and fair. However, there are significant areas for future improvement.

Resiliency Authors, 25 June 2016, 84837 reads

Britain voted to leave the EU. This is terrible news for the UK, but it is also bad news for the Eurozone. Brexit opens the door to all sorts of shocks, and dangerous political snowball effects. Now is the time to shore up the Eurozone’s resiliency. The situation is not yet dire, but prompt action is needed. This VoxEU column – which is signed by a wide range of leading economists – identifies what needs to be done soon, and what should also be done but can probably wait if markets are patient. 

Cingano, Manaresi, Sette, 24 June 2016, 4875 reads

Negative shocks to bank balance sheets are problematic not just for financial markets, but for employment and economic growth more widely. This column uses evidence on a bank liquidity shock in Italy in 2007-10 to show the impact on firms’ production, investment, and employment. Firms borrowing from banks with a high exposure to the shock experienced a more intense fall both in credit flows and in investment expenditure. While the credit cut has been homogeneous across borrowers, firms with easier access to external finance were able to contain the negative consequences of the drop in credit for investment.

Ito, Kawai, 24 June 2016, 4986 reads

China’s authorities have been promoting the renminbi as an international currency for international trade, investment, and finance. This column examines the experiences of the dollar, yen, and deutschmark from the 1970s to the 1990s. As long as China’s neighbouring economies keep using the dollar for international trade and financial activities, the rise of the renminbi as a trade invoicing currency may be as fast as the rise of China itself.

Danielsson, Macrae, Zigrand, 24 June 2016, 16478 reads

Brexit creates new opportunities and new risks for the British and EU financial markets. Both could benefit, but a more likely outcome is a fall in the quality of financial regulations, more inefficiency, more protectionism, and more systemic risk.

Aizenman, Ito, 23 June 2016, 4967 reads

In the aftermath of the Asian financial crises in the late 1990s and the early 2000s, many Asian emerging market economies started rapidly increasing their international reserve holdings. This column assesses the East Asian economies’ openness to cross-border capital flows and exchange rate arrangements over the past decades. Financial globalisation has made asset prices and interest rates in these economies more vulnerable to global movements of capital, and to US monetary policy. If China succeeds in efforts to internationalise its currency, the dynamics between the US and Asia will most likely change. For now, however, the Asian region’s international finance continues to be dollar-centric.

Morikawa, 23 June 2016, 5824 reads

The shifting balance between manufacturing and service industries in developed economies has significant implications for long-term growth and international trade. This column uses Japanese firm-level data to analyse the impact of ‘factoryless goods producers’ on overall productivity. As these producers specialise in tasks in which advanced economies have a comparative advantage, it is anticipated that when combined with falling production costs and trade liberalisation, they will contribute to economic growth.

Marin, 23 June 2016, 9076 reads

Income inequality is less severe in Germany than in the US. Part of this is due to CEO pay in the US growing faster than in Germany. This column offers some novel explanations for these observations. From the mid-1990s, Germany began offshoring managerial tasks to Eastern Europe, reducing demand for German managers. In addition Germany offshored skill-intensive jobs to Eastern Europe, reducing the skill premium.

Bernard, Smeets, Warzynski, 22 June 2016, 10570 reads

Deindustrialisation is a major policy concern in high-income countries not only because of resulting unemployment, but also because of the long-run implications for growth. This column uses evidence from Denmark to analyse whether it is being measured in the right way. A substantial fraction of the decline in manufacturing actually reflects the changing nature of production. Service sector firms that still perform many of the value-adding activities of traditional manufacturing firms should not be overlooked by policymakers.

Autor, Figlio, Karbownik, Roth, Wasserman, 22 June 2016, 7240 reads

Around the world, girls tend to surpass boys in educational achievement. Early childhood inputs have been shown to be particularly important for the formation of children’s skills and behavioural patterns. Using US data, this column shows that in higher-quality schools the gender gap in terms of both skills and behaviour shrinks, with essentially no boy-girl disparity in outcomes at the very best schools. Better schools are thus an effective policy lever for reducing gender disparities in elementary and middle school outcomes. 

Bernhofen, Eberhardt, Li , Stephen, 22 June 2016, 8155 reads

Despite being credited with many of the defining inventions of the early modern era, China failed to develop in line with Western Europe at the start of the 19th century. This column suggests that one reason for this was that China’s economy was more fragmented than that of Europe. Using Chinese monthly grain prices from 1740-1820 and grain price panels from Western Europe, it shows that in terms of market integration, the Great Divergence was well under way decades before the start of the 19th century.

Bhatia, Evenett, Hufbauer, 21 June 2016, 10664 reads

In a recent speech, Jeff Immelt, CEO of General Electric, announced that in response to rising protectionism, his company was undertaking a profound shift in its corporate strategy to ensure that more production takes place closer to customers. This column highlights the trend towards localisation and, if this continues unchecked, the risks posed to the world economy.

Bertrand, Cortes, Olivetti, Pan, 21 June 2016, 5717 reads

Marriage rates of skilled and unskilled women have evolved quite differently across countries since 1995. The rate is lower overall for skilled women but the gap is narrowing, and even reversing, in some countries. This column uses evidence from 23 countries between 1995 and 2010 to consider how skilled women’s labour market opportunities impact their marriage prospects in different societies. Generally, more conservative societies have lower marriage rates for skilled women relative to unskilled women, with the effects of an increase in skilled women’s wages depending on the degree of conservatism.

Masciandaro, 21 June 2016, 5222 reads

The revelations in the Panama Papers have highlighted the role that banking secrecy plays in the global economy. In the absence of strong legal instruments to prevent and combat banking secrecy, soft law practices such as blacklisting have been introduced in the hope that a stigma effect will lead to a reduction in illegal international capital flows. This column argues against the existence of a stigma effect, suggesting that the demand for and supply of banking secrecy are likely to be relevant for a long time to come.

Kóczy, 20 June 2016, 7912 reads

Much of the discussion about Brexit has focused on the UK and has ignored the another party – the European Union. This column examines how the UK leaving the EU would affect the distribution of power among the remaining member states. The larger members such as France and Germany would likely benefit directly from Brexit, at least in terms of power.

den Haan, Ellison, Ilzetzki, McMahon, Reis, 20 June 2016, 6501 reads

This week’s UK referendum on EU membership is likely to have both short- and long-term effects on the country’s financial sector. This column, which reports the views of panel members in the monthly Centre for Macroeconomics survey, finds that almost all think that a vote for Brexit would lead to a significant disruption to financial markets and asset prices for several months, putting the Bank of England on high alert. On top of the risk of a financial crisis in the near future, an unusually strong majority agrees that there would be substantial negative long-term consequences. No panel member expects the overall consequences of a Brexit outcome to be beneficial for the UK economy – the first time since this survey began that one side of the argument is supported by none of the respondents.

Enikolopov, Petrova, Sonin, 20 June 2016, 5607 reads

In addition to the traditional mass media, social media has become a channel through which citizens can hold public officials and corporate leaders to account. But social media commentators can be vulnerable to manipulation and reputational damage. This column uses data on a popular blogger in Russia to show that blogs are critical of corruption in state-controlled companies can lead to decreased profit diversion and corruption by the targeted companies. Social media appears to play an important role in improving accountability, particularly when traditional media is censored or political competition is limited.

Pakes, 20 June 2016, 6028 reads

A key task for economists is predicting how markets will respond to complex changes in environment. This column discusses recent empirical developments that allow for a deeper understanding of such market dynamics. Game theory has informed conditional pricing models that take account of products marketed and their production costs. Likewise, dynamic models of productive efficiency allow for analyses of the role of market structure in inducing competitive efficiencies.

Ilzkovitz, Dierx, 19 June 2016, 11765 reads

Firms with greater market power can behave monopolistically, and recent research suggests that declining market competitiveness is driving income inequality. While competition authorities already measure the overall impact of their interventions by using customer savings, these measurements do not account for indirect effects of intervention. This column introduces a DSGE model to model competition policy interventions as a negative mark-up shock. Competition policy has a significant and positive impact on growth and jobs, and impacts richer and poorer households differently. Interventions have important redistributive effects that benefit the poorest in society.

Dupont, Rosenbloom, 19 June 2016, 5729 reads

The long-run persistence of social and economic status has received substantial attention from economists of late. But the impact of economic and political shocks on this persistence has yet to be thoroughly explored. This column examines the disruptions from the US Civil War on the Southern wealth distribution. Results suggest that an entrenched southern planter elite retained their economic status after the war. However, the turmoil of the decade opened mobility opportunities for Southerners of more modest means, especially compared with the North.

Corsetti, Müller, 18 June 2016, 12754 reads

For decades, the UK government has been very careful in ensuring a low-risk status for its public and private debt. This column warns that if the UK opts to leave the EU, uncertainty over the implications of Brexit would put this low-risk status in jeopardy. A depreciation of the pound could well generate an export boom, but this would not compensate for the damage to internal demand and to the UK’s ability to access external financing of its deficits.

Cashin, Unayama, 18 June 2016, 9071 reads

Japan’s prime minister recently announced that a planned 2% VAT increase would be postponed from 2017 to 2019. This column explores how Japanese household consumption adjusted to a VAT increase that was announced in 2013 and implemented in 2014. Household consumption fell by around 4% upon announcement and 1% upon implementation, suggesting that most of the negative impact of a VAT rate increase occurs at the time of the announcement. 

Eisenbach, Lucca, Townsend, 17 June 2016, 6458 reads

The two main elements of bank industry oversight are regulation and supervision. This column provides a framework for thinking about supervision in relation to regulation. Using US data on supervisory hours spent, it finds evidence of economies of scale for bank size. Additionally, less risky banks receive substantially lower amounts of supervisory hours. The findings highlight that supervisors face resource constraints and trade-offs.

Ellul, Pagano, Schivardi, 17 June 2016, 4715 reads

Most countries feature some form of government-provided unemployment insurance, but there is an alternative provider of insurance for employees – the firm they work for. This column asks whether the provision of implicit insurance by family firms in particular to employees is a substitute for the provision of explicit insurance by governments. Family firms stabilise employment more than non-family firms, and their insurance provision is greater when the insurance provided by the public sector is less generous.

Mishra, 16 June 2016, 6288 reads

All monetary policies have external spillover effects. However, the domestic mandates of most central banks may not legally allow them to take spillovers into account, and may force them to undertake aggressive policies so long as they have some small positive domestic effect. This column looks at the rules of the game for responsible policy in such a context. It proposes a ‘traffic light’ system to identify policies that should be encouraged by the international community, policies that should be used temporarily and with care, and policies that should be avoided at all costs.

Vollaard, 16 June 2016, 14719 reads

The situations we find ourselves in determine our behaviour far more than we realise.  To show the relevance of this idea to fellow economists, this column presents a natural field experiment that was conducted in an Economics department. The experiment looks at the department members’ honesty in keeping tally of their soda can consumption in the pantry. The honesty rate is shown to depend greatly on the presence of a pen hanging down from the door of the refrigerator, indicating that situational factors are more significant determinants of behaviour than previously realised.

Chadha, 16 June 2016, 9618 reads

We are fortunate to have a consensus of views on the negative impact of leaving the EU. This column explains how a rational agent should ‘consume’ this advice. Theory tends to say that we should be wary of the motivation of those who forecast at the extreme, but that we should still put weight on the central case.

Lindert, Williamson, 16 June 2016, 26410 reads

Americans have long debated when the country became the world’s economic leader, when it became so unequal, and how inequality and growth might be linked.  Yet those debates have lacked the quantitative evidence needed to choose between competing views. This column introduces evidence on American incomes per capita and inequality for two centuries before World War I. American history suggests that inequality is not driven by some fundamental law of capitalist development, but rather by episodic shifts in five basic forces: demography, education policy, trade competition, financial regulation policy, and labour-saving technological change.

Brunello, Weber, Weiss, 15 June 2016, 11109 reads

Early life conditions can have long-lasting effects on individual development and labour market success. Using a sequence of reforms that raised the minimum school-leaving age in Europe, this column investigates how access to books at home influences educational and labour market outcomes. The returns to an additional year of education for individuals brought up in households with few books are much lower than for the luckier ones who had more than a shelf of books at home.

Durante, Zhuravskaya, 15 June 2016, 3480 reads

Governments involved in conflict are often concerned with how their actions are perceived by the international community. This column uses evidence on the Israel-Palestine conflict and US news reporting between 2000 and 2011 to show how media considerations can impact military strategy. Israeli attacks are more likely to be carried out one day before the US news is expected to be dominated by important political or sport events. There is no evidence of a similar pattern to Palestinian attacks. The findings suggest that strategic behaviour could undermine the effectiveness of the mass media as a watchdog, and thus reduce citizens’ ability to keep public officials accountable. 

Campos, Coricelli, 14 June 2016, 5840 reads

The partnership between the UK and the EU has famously been described as “awkward”. A benefit of the Brexit debate is that it has spawned an enormous amount of research addressing issues surrounding the relationship that have been taken for granted for probably too long. This column takes stock of new research presented at a recent conference on the UK-EU relationship.

Galizzi, Loewenstein, 14 June 2016, 8991 reads

Although not a nudge, the ‘soda tax’ in the UK can nonetheless be justified in part on behavioural grounds. This column analyses the potential effectiveness of the soda tax in reducing consumption. As a behavioural instrument, the tax does not go far enough, and is in fact regressive.  A comprehensive junk food tax should be introduced instead, accompanied by nudges, ‘healthy’ subsidies, and regulation of ‘super-sizing’ practices.

Maloney, Valencia Caicedo, 14 June 2016, 6175 reads

The persistence of economic fortune over the long run has been the subject of intense research. This column investigates the persistence of patterns of economic activity in the Americas at the sub-national level over the last half millennium. The location of today’s prosperous cities and regions within each country is closely correlated with the location of indigenous population centres before the arrival of Christopher Columbus in 1492. Policymakers seeking to make radical changes in the spatial distribution of economic activity should be mindful of the centuries-old, even pre-colonial, forces working against them.

Maffioli, Pietrobelli, Stucchi, 14 June 2016, 9364 reads

Cluster development programmes (CDPs) aim to support industrial clusters of agglomerated firms to achieve higher productivity and sustainable development. Such programmes have been prominent in Latin America over the past decade, but there have been few impact evaluations. This column presents the findings from an evaluation of Latin American CDPs. Various case studies show positive medium-term effects of the programmes on employment, exports, and wages. CDPs are also found to have positive spillover effects on untreated firms, and to improve the network connectivity and technology-transfer ties between firms.

Javorcik, Poelhekke, 13 June 2016, 3791 reads

The superior performance of foreign affiliates has been well documented, with foreign ownership bringing boosts to productivity, exports and innovation. This column uses data from Indonesia on foreign affiliates that were sold by their parents to local owners to examine how persistent these benefits are. The superior performance of foreign affiliates observed around the world appears to be driven by continuous injections of headquarter services from the parent company to their overseas affiliates, rather than by a one-time knowledge and know-how transfer.

Boltho, Carlin, Scaramozzino, 13 June 2016, 13381 reads

Since Italy’s monetary unification some 155 years ago, income per capita in the South (the Mezzogiorno) has fallen from virtually the same level as in the Centre-North to little more than 55% of the Centre-North’s level. This column asks why East Germany hasn’t suffered the same fate since German monetary unification 25 years ago.  East Germany is not like the Mezzogiorno because of labour market flexibility, different evolutions of the tradeable sector, and the weight of history.

Buera, Oberfield, 12 June 2016, 7806 reads

Free trade often comes hand in hand with economic growth. The opportunity for gain is relatively small, according to quantitative models that rely on standard static mechanisms. This column introduces a model to study the diffusion of ideas across countries as a means of increasing productivity, and a quantitative assessment of the role of trade in the transmission of knowledge. How much the transmission of knowledge will impact productivity depends on the openness of the trading countries, current stock of knowledge, and a diffusion parameter.

van Leuvensteijn, van Rixtel, Xu, 12 June 2016, 5341 reads

The unprecedented accommodative monetary policy stance implemented across the world in recent years has pushed interest rates to the zero lower bound, and even into negative territory. Based on an analysis of regulated floors and ceilings in bank loan and deposit interest rates in China, this column argues that when lending rates are close to regulatory imposed floors and hence cannot fall much further, the measurement of bank competition using more traditional measures of competition is flawed. This is important because lower bank competition has detrimental effects on the pass–through of interest rate changes and reduces risk-taking by banks.

Héricourt, Nedoncelle, 11 June 2016, 5388 reads

The idea that exchange rate volatility generates additional costs and uncertainty that are detrimental to international trade is widely accepted. This column argues that big, multi-destination firms – which account for the bulk of aggregate exports – reallocate exports across countries as a foreign exchange hedge. When bilateral volatility increases relative to multilateral volatility, exports towards the considered market are hampered, but exports remain mainly unchanged at the macro level.

Benmelech, Meisenzahl, Ramcharan, 11 June 2016, 6055 reads

The US government’s ‘bailout of bankers’ in 2008-09 remains a highly controversial moment in economic policy. Many critics suggest that intervention to relieve household debt may have been more effective in stimulating economic recovery. This column suggests that without federal intervention to stabilise financial markets and recapitalise some non-bank lenders, the magnitude of the economic collapse might have been much worse. While household debt was incredibly important in reducing demand, the financial sector dislocations and the lack of credit also played a critical role.

Lumsdaine, 11 June 2016, 5006 reads

As happens eight times a year, next week financial markets will again turn their attention to what, if any, change the Federal Reserve will make to its policy rate. This column discusses research on the anticipation of such decisions via the Fed funds futures markets, which indicates that markets ‘set up’ much farther in advance than has been previously documented. This finding emphasises the importance of clarity in central bank communications.

Niepmann, Schmidt-Eisenlohr, 11 June 2016, 8438 reads

To mitigate the risks of international trade for firms, banks offer trade finance products – specifically, letters of credit and documentary collections. This column exploits new data from the SWIFT Institute to establish key facts on the use of these instruments in world trade. Letters of credit (documentary collections) cover 12.5% (1.7%) of world trade, or $2.3 trillion ($310 billion). 

Danielsson, Fouché, Macrae, 10 June 2016, 21905 reads

The threat to the financial system posed by cyber risk is often claimed to be systemic. This column argues against this, pointing out that almost all cyber risk is microprudential. For a cyber attack to lead to a systemic crisis, it would need to be timed impeccably to coincide with other non-cyber events that undermine confidence in the financial system and the authorities. The only actors with enough resources to affect such an event are large sovereign states, and they could likely create the required uncertainty through simpler, financial means. 

Muellbauer, 10 June 2016, 10785 reads

The Eurozone faces a lost decade or worse under current fiscal policy and restrictions on monetary policy. The ECB now faces a fundamental contradiction in its mandate between the Lisbon Treaty’s Article 127 (price stability, plus the ECB target of under but close to 2% inflation) and Article 123 (no overt monetary finance of governments). This article discusses three options – two ways in which the fiscal rules could be improved; and the temporary abeyance of Article 123, making it ‘state-dependent’. It also explains why recent arguments against the effectiveness of ‘helicopter money’ are mistaken.

Gerlach, Di Giamberardino, 10 June 2016, 10891 reads

The outcome of the UK’s referendum on EU membership could have a significant effect on sterling. This column estimates the potential size of this effect by looking at the relationship between daily changes in the sterling exchange rate and bookmakers’ odds of Brexit. Movements of between 5% and 15% seem plausible.

Giannetti , Kahraman, 09 June 2016, 5737 reads

Theoretical corrections of price deviations in trade are not reflected in empirical evidence. This is surprising because institutional investors should be able be able to identify mispricing. This column explores how the organisation of the asset management industry may hamper trading against mispricing. Asset managers that are less subject to redemption risk exhibit a higher propensity to trade against mispricing. Organisational structures lowering the sensitivity of investor flows to performance strengthen asset managers’ incentives to trade against mispricing.

Attanasio, Cattan, Krutikova, 09 June 2016, 6166 reads

The importance of investment in children’s pre-school years for their later life outcomes is increasingly recognised by policymakers. This column surveys the evidence on early childhood development policies in both developed and developing countries. Research suggests that effective education programmes can be implemented at scale even in low-income settings, but the quality of the service and adapting it to the local context are crucial. Sustaining the gains from intervention in the ‘early years’ is also likely to require continuing investment at later stages of childhood.

Naumer, 08 June 2016, 5558 reads

The line of argument in Thomas Piketty’s book, Capital in the Twenty-First Century, revolves around an inequality formula according to which the rate of return on capital exceeds overall economic growth. But this overlooks the fact that different rates of return can be expected from different kinds of investment. This column argues that this is the driver of inequality. If you want more equality, you have to embrace the risk premium.

Margo, 08 June 2016, 4845 reads

Racial income inequality continues to be a major problem in the US. To devise a coherent policy response, this persistent inequality must be understood in its historical context. This column uses data from over 130 years to suggest a model in which income in the US is a function of racial identity and human capital. While racial identity is transmitted inter-generationally, human capital is also affected by race, for example through educational attainment. Furthermore, shifts in labour market prices inhibit the convergence of wages across race. 

Wickens, 08 June 2016, 3154 reads

This second column in a two-part series takes a closer look at the proposals in the Five Presidents’ Report for Fiscal, Banking, and Capital Markets Unions and much closer political integration among Eurozone countries. It goes on to give evidence of the failure of financial markets to price risk correctly prior to the Eurozone Crisis. By pricing risks better, financial markets may be able to provide the discipline required to avoid future crises in the Eurozone without the need for greater political interference in national fiscal policy-making as proposed in the Report. 

Bofinger, 07 June 2016, 15326 reads

At first sight, it is difficult to explain why the macroeconomic debate and macroeconomic policy in Germany differ considerably from other countries, despite the same academic textbooks and models being used as elsewhere. This column explains how a specific paradigm of macroeconomics, developed by Walter Eucken and diametrically opposed to Keynesian economics, is behind the German formal theoretical apparatus. The success of German macroeconomic policy can be attributed to the openness of the German economy, which allows it to benefit from macroeconomic policies pursued in other major countries.

De Grauwe, Ji, 07 June 2016, 7535 reads

There is a high degree of correlation between the business cycles of different countries. This is particularly the case in the Eurozone, but also among industrialised countries outside of the Eurozone. Using a two-country behavioural macroeconomic model, this column shows that the main channel for the synchronisation of business cycles is the propagation of ‘animal spirits’ – waves of optimism and pessimism that become correlated internationally. 

Wickens, 07 June 2016, 4163 reads

European Monetary Union was designed to promote economic growth, price stability, full employment, and political integration. It can be argued that so far, it has achieved none of these and has in fact made things worse.  The Five Presidents' Report contained a set of proposals for making the single currency sustainable, based on giving up more national independence. This column – the first in a two-part series asking whether future crises might be avoided through market forces without the need for the sort of procrustean proposals offered in the Report – examines the causes of the Eurozone Crisis.

Morikawa, 07 June 2016, 13373 reads

The substitution of human labour by artificial intelligence and robots is a keenly debated topic. Some claim that a substantial share of jobs is at risk, while others argue that computers and robots will lead to product innovations and hence to unimaginable new occupations. This column uses a survey of Japanese firms to examine the impact of AI-related technologies on business and employment. Overall, firms expect a positive impact on business but a negative impact on employment. Firms with a highly skilled workforce, however, have a more optimistic view than firms with lower skilled employees.

Micossi, Bruzzone, Cassella, 06 June 2016, 10114 reads

Following the financial crisis, the EU banking system is still plagued by widespread fragilities. This column considers the tools and legal provisions available to EU policymakers to address moral hazard and incentives encouraging excessive risk-taking by bankers. It argues that the new discipline of state aid and the restructuring of banks provide a solid framework towards these ends. However, the application of new rules should not lose sight of the aggregate policy needs of the banking system. 

Galasso, Nannicini, 06 June 2016, 6131 reads

The first mixed-gender presidential election in US history is looking increasingly likely, and there is little to suggest that the tone of this campaign will be any less negative than in recent presidential elections. This column uses experiments based around two local elections in Italy to investigate whether men and women differ in their responses to positive and negative election campaigning.  Among female voters, positive campaigning by an opponent increases his or her share of the votes and reduces the votes for the incumbent. Among male voters, however, it is negative campaigning by the opponent that swings votes away from the incumbent.

Bown, Crowley, 05 June 2016, 9138 reads

Free trade is under fire in nations across the world. This column surveys evidence on the importance of trade barriers. There is substantial variation in applied trade policy across countries, industries, and their trading partners, both cross-sectionally and over time. The variation found in these newly available and increasingly detailed databases offer researchers the opportunity to analyse and better understand firm-level trade, aggregate trade, and the shock to the world economy precipitated by China’s phenomenal export growth.

Fuchs-Schündeln, Masella, 05 June 2016, 7846 reads

There are strong links between the nature of education in a country and its political institutions, and an individual’s education can impact their lifetime labour market choices. This column examines how being educated under a socialist regime impacts individuals in a free labour market. Using data on students from East and West Germany in the 1970s, it finds that a socialist regime education led to a larger spread in labour market outcomes – more of these individuals were not employed, but conditional on being employed, had higher wages and a higher probability of achieving a professional status in the East.

Heutel, Moreno-Cruz, Ricke, 04 June 2016, 7059 reads

At the the Paris Climate Conference in December 2015, it was agreed that annual global temperature increase must be kept below 2 degrees, and a target of a 1.5 degree annual increase was set. Most environmental policies currently focus on emissions reductions and adaptation. This column discusses a new set of technologies collectively known as climate engineering, and explores their potential effectiveness and role in climate change economics. A lot of uncertainty surrounds the costs and effects of climate engineering tools, but it is clear that they would change the optimal levels of emissions reduction currently discussed in literature.

Bick, Fuchs-Schündeln, Lagakos, 04 June 2016, 10475 reads

The development accounting literature tries to account for cross-country output per worker differences by taking stock of inputs per worker. The data employed are often measured without great precision, however, making comparisons difficult. This column presents a new, internationally comparable dataset of average hours worked per adult across the world income distribution. Adults in poor countries are found to work a lot more and with lower productivity than those in rich countries. The findings suggest that those from poorer countries are not only ‘consumption poor’, but also ‘leisure poor’. 

Önder, Yilmazkuday, 04 June 2016, 16843 reads

North American economics departments produce a substantial amount of economics PhDs, and these PhDs are responsible for a disproportionately large share of research published in top academic journals. This column provides an overview of 35 years of peer-reviewed publications by North American economics PhDs. Since 1980, the size of author teams grown and female representation steadily improved. The shares of the major research fields show relatively little variation, though international economics, development economics, and finance are exceptions to this.

Bertoldi, Pesenti, Rey, Rouxel-Laxton, 03 June 2016, 9131 reads

The issue of whether the US and Eurozone economies are on a convergent or a divergent path remains an open question, and was the topic of a recent conference hosted by the New York Fed. This column summarises the principal themes and findings of the conference discussion. Much will depend on the policy actions that will be taken in the coming years, as well as the modalities and timing of the completion of the Economic and Monetary Union.

Levine, Lin, Xie, 03 June 2016, 4606 reads

There has been much research on the effects of banking crises, but corporate resilience to systemic crises is less well understood. This column uses data from 34 countries from 1990 to 2011 to analyse the role of social trust – societal expectations that people will behave honestly and cooperatively – in building corporate resilience. It finds that social trust facilitates access to trade credit, and dampens the harmful effects of crises on corporate profits and employment.

Sampson, Dhingra, Ottaviano, Van Reenen, 02 June 2016, 26048 reads

The ‘Economists for Brexit’ recommend that the UK leaves the EU. Rather than striving for new trade deals, they recommend unilaterally abolishing all trade protection, and predict a subsequent boom of 4%. This rosy forecast stands in sharp contrast with all other economic analysis. This column explains how the modelling on which the group bases its recommendation, from Professor Patrick Minford, fails to grasp basic facts about the nature of international trade and product standards. A more realistic assessment shows that ‘unilateral trade liberalisation’ does very little to offset the steep decline in UK living standards that would follow Brexit.

Costa-i-Font, Jofre-Bonet, Le Grand, 02 June 2016, 8403 reads

Obesity, particularly in children, is a major health concern in many developed economies, where it presents a costly risk to health services. Any policy response must take into account the inter-generational transmission of overweightness and obesity to children. This column uses evidence from the Health Survey of England to assess the extent to which nature and nurture factors play a role in the overweightness of children. It finds that any effective policy action must tackle parental overweightness to lower rates of overweightness in children.

Grundke, Moser, 02 June 2016, 5667 reads

When the Great Recession hit the world economy, fears of protectionism led to close monitoring of non-tariff barriers to trade. The increase in US import protection appeared rather modest for all those trade policy measures that need to be notified to the WTO. However, stricter enforcement of given product standards does not require any notification. This column argues that the US has increasingly relied on this less transparent and trade-reducing policy instrument during the recent economic crisis.

Götz, Laeven, Levine, 01 June 2016, 9740 reads

Economists differ on whether the geographic expansion of a bank’s activities reduces risk. A key challenge when attempting to answer this question is identification – does diversification cause lower risk, or are safer banks just also more diversified? This column uses a new identification strategy to demonstrate that geographic diversification materially reduces bank holding company risk. 

Calomiris, Jaremski, 01 June 2016, 4566 reads

Liability insurance is a fundamental part of banking regulation of today, but despite being accepted as best practice now, it did not expand out of the US until the second half of the 20th century. This column discusses economic and political explanations for the spread of liability insurance availability, and finds that a political explanation reflects the empirical evidence well. Liability insurance was preferable to other policies despite being inefficient, due to its use as political leverage. 

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