August 2017

Murnane, Reardon, 31 August 2017, 6964 reads

The distribution of private elementary school enrolments in the US has changed over the last half century. This column shows that, overall, fewer middle-class children are now enrolled in private schools. Non-Catholic religious schools play an increasing role in private school enrolments, and today serve more students whose family incomes are in the bottom half of the distribution than Catholic schools do. The increase in residential segregation by income in the US means that urban public schools and urban private schools have less socioeconomic diversity today than they had several decades ago.

Dix-Carneiro, Soares, Ulyssea, 31 August 2017, 4570 reads

Local economic shocks induced by the Brazilian trade liberalisation had substantial effects on homicides. This column examines these effects and attempts to disentangle the mechanisms through which they occurred. Reductions in employment rates appear to have been the main driving force.

Caballero, Simsek, 30 August 2017, 14308 reads

Interest rates continue to decline across the globe, while returns to capital remain constant or increasing. The reasons for this widening risky-safe gap are wide-ranging. This column illustrates the secular rise of risk intolerance in the global economy, and summarises a new macroeconomic framework suitable for this environment. It uses this framework to discuss the current global macroeconomic context, its underlying fragility, and the coexistence of low equilibrium interest rates and high speculation.

Cecchetti, Schoenholtz, 29 August 2017, 10219 reads

There is still a notable lack of consensus over when exactly the 2007-09 financial crisis started. This column argues that the crisis began on 9 August 2007, when BNP Paribas announced they were suspending redemptions. In 2007, the US and European financial systems lacked two key shock absorbers: adequate capital to meet falls in asset values, and adequate holdings of high-quality liquid assets to meet temporary liquidity shortfalls. Lacking these, the financial system was vulnerable to even relatively small disturbances, like the BNP Paribas announcement.

Coibion, Gorodnichenko, Koustas, 28 August 2017, 6584 reads

Rising income inequality has received extensive attention from economists in recent years. However, changes in consumption inequality – which is potentially more relevant for welfare – have been largely neglected. Using US data, this column explores measurement issues and trends in household consumption. A key trend identified is that US households have been shifting towards stockpiling behaviour – shopping less frequently but purchasing larger quantities per trip.

Paolo, Parisi, 28 August 2017, 17346 reads

In the European single resolution framework, there are three potential paths for failing banks: bail-in, private intervention, or liquidation. This column proposes combining a new market-based early warning measure of credit risk based on CDS spreads to investigate potential losses and systemic contagion for each path. Applying this to Italy's banking system suggests that private intervention and a bail-in minimise losses compared to liquidation, and, bail-in slightly reduces contagion effects compared to private intervention.

Blinder, 27 August 2017, 15452 reads

When William Baumol passed away in May 2017, he left behind an intellectual legacy that is remarkable for its volume and longevity, its scope, the practical importance of some of the theories he developed, and its enduring value. This column, written by a long-time colleague and co-author, outlines his amazing scholarly career, which spanned nearly 70 years and produced more than enough for two lifetimes.

Ginsburgh, 26 August 2017, 8590 reads

William Baumol, who passed away in May, initiated the field of cultural economics when he conceived the idea of the cost disease. This column outlines his thinking about the economics of music, paintings, and other creative and performing arts – as well as his own output as a painter and sculptor.

Boonstra, 25 August 2017, 7029 reads

Measured in dollars, the US is by far the most indebted country in the world. As this column describes, however, the country still has a positive capital income in spite of its high net debt position, and its external debt position is much smaller than one would expect based on cumulated current account deficits. Furthermore, fluctuations in the dollar exchange rates have a strong direct effect on the country’s international investment position. As long as it can finance its external obligations in dollars, its international debt position is no cause for concern for the US. For the rest of the world, however, the story may be different.

Mori, 25 August 2017, 4612 reads

The population sizes of cities are highly indicative of their industrial structure. This column identifies the cities in Japan in which manufacturing industries have significant agglomeration, and reveals that the number of these agglomeration cities differs widely across industries, with industries that are located in a smaller number of cities being found in larger cities. There is also considerable churning of population and industrial activities among Japanese cities, with population growth reflecting the development of highway and high-speed railway networks.

García, Heckman, Ermini Leaf, Prados, 25 August 2017, 7866 reads

The costs and benefits of early childcare for working women and their children are hotly debated. This column explores the long-term benefits and costs of a programme in the US providing high-quality childcare services for disadvantaged families. The programme has a two-generation impact, improving mothers’ labour income, work experience, and education, as well as outcomes for the children. The results also suggest that the benefits of high-quality compared to low-quality formal care are higher for boys than for girls. Overall, the benefits more than recoup the costs.

Gürkaynak, Weil, 24 August 2017, 7554 reads

This column presents the first bi-annual report from CEPR’s Euro Area Business Cycle Dating Committee on the state of the Eurozone business cycle. The main findings are that the Eurozone expansion is continuing slowly, but is creating employment at a rapid pace; the recovery is commensurate with the US recovery once the Eurozone’s double-dip sovereign debt recession is factored in; and the heterogeneity in the pace of recovery of individual member countries is driven by the heterogeneity in their recessions.

Coibion, Gorodnichenko, Ulate, 24 August 2017, 7038 reads

Estimates of potential output around the world have been systematically revised downward since the Great Recession. This column argues that the methods used to create these estimates do not distinguish between transitory and permanent shocks, or demand and supply shocks. Taking these differences into account suggests US output is almost 10 percentage points below potential output. This has important immediate implications for policymakers, and raises questions for those who estimate potential output.

Dustmann, Eichengreen, 23 August 2017, 4771 reads

Christian Dustmann and Barry Eichengreen discuss the first report in CEPR’s Monitoring International Integration series, which analyses the roots of the decline in trust in both national and European political institutions and asks whether, as a result of these developments, the EU is at risk of disintegration.

Dustmann, Eichengreen, Otten, Sapir, Tabellini, Zoega, 23 August 2017, 30807 reads

Recent years have seen a decline in trust in established political institutions and parties and a surge in support for populist movements and policies, not least in Europe where scepticism and, in some places, outright hostility towards the European Union is evident. This column introduces the first report in CEPR’s Monitoring International Integration series, which analyses the roots of the decline in trust in both national and European political institutions and asks whether, as a result of these developments, the EU is at risk of disintegration.

Nordhaus, 23 August 2017, 5456 reads

The change in the structure of global supply has important implications for US President Donald Trump as he contemplates tearing up existing international trade deals. This column argues that he risks destroying the fruits of almost 100 years of global trade cooperation, the benefits of which to citizens in the US far outweigh the costs. This spirit of cooperation is also the basis for coordinated global action on issues such as climate change.

Dix-Carneiro, Kovak, 23 August 2017, 4904 reads

The effects of foreign competition have been shown to vary substantially across regions within a country. Using administrative and household survey data from Brazil, this column examines the various margins of adjustment in response to trade-induced regional shocks. The results demonstrate a key role for the non-tradable sector and informal employment in the adjustment process.

Lakatos, Ohnsorge, 22 August 2017, 3292 reads

Trade growth has slowed sharply since the Global Crisis. Using a unique dataset on US trade, this column argues that arm’s-length trade between unaffiliated firms, as opposed to intra-firm trade between firms linked by control or ownership, accounts disproportionately for the overall post-Crisis trade slowdown.

Nordhaus, 22 August 2017, 6607 reads

President Trump’s doctrine on trade represents a radical break with previous US policy. This column, the first of two examining the Trump doctrine, argues that he embraces fallacies as facts, and that the efforts to reform tax are flawed and will make tax law more complex. If enacted, the Auerbach-Ryan Tax Plan would be a mechanism by which the US government collects taxes to benefit rich citizens at the expense of the country's trading partners.

Byrne, Sichel, 22 August 2017, 17786 reads

One explanation given for the apparent recent slowdown in labour productivity growth in advanced economies is poor measurement. This column argues that while the available evidence on mismeasurement does not in fact provide an explanation for the slowdown, innovation is much more rapid than would be inferred from official measures, and on-going gains in the digital economy make the productivity slowdown even more puzzling. At the same time, this continued technical advance could provide the basis for a future pickup in productivity growth.

Bughin, Hazan, 21 August 2017, 37819 reads

Artificial intelligence has been around since the 1950s, and has gone through many cycles of hype and ‘winters’. Based on a survey of senior executives from over 3,000 companies in ten countries, this column describes how artificial intelligence is experiencing a new spring and is here to stay. The authors also argue that it can bring firm-level productivity and profit growth, with employment dynamics that may not be as bad as anticipated by some.

Fenichel, Kotchen, Addicott, 20 August 2017, 13379 reads

How the future is discounted in cost-benefit analyses is a contested issue, with economists disagreeing on whether approaches to discounting should be prescriptive or descriptive. This column presents a new way to model individuals’ discounting based on a demographic approach. The advantages of a purely mortality-based approach are transparency, an empirical basis, and broad data availability.

Ganau, Rodríguez-Pose, 19 August 2017, 6233 reads

Whether organised crime undermines productivity has been studied extensively in broad terms, but not at the firm level. This column uses extensive firm-level data from across Italy to suggest that this is firmly the case, both through direct and indirect channels. The results point to a substantial negative direct effect of organised crime on firms' productivity growth. Moreover, any positive impact derived from industrial clustering and agglomeration economies is thoroughly debilitated by a strong presence of organised criminality.

Cruz, Milet, Olarreaga, 18 August 2017, 7480 reads

The reduction in the cost of exporting offered by international transactions over the internet helps small firms in developing countries reach consumers all over the world. This column argues that this bias in favour of small firms has an impact on labour markets, as small firms tend to hire unskilled workers disproportionately. By levelling the playing field between small and large firms in terms of access to international markets, online trade can contribute to reducing wage and, ultimately, income inequality.

Aksoy, Dalla Pozza, De Haas, 17 August 2017, 6827 reads

Since the fall of the Iron Curtain in 1989, post-communist countries have experienced an overhaul of their economic and political institutions. This column highlights five core messages from the most recent Life in Transition Survey, which is conducted periodically by the EBRD and the World Bank to monitor how the transition process impacts people’s perceptions and attitudes. Understanding the process is important as personal experiences largely determine whether people (continue to) support the economic and political institutions that underpin their society.

Aghion, Bergeaud, Boppart, Klenow, Li, 16 August 2017, 17552 reads

Slowing growth of total factor productivity has led some to suggest that the world is running out of ideas for innovation. This column suggests that the way output is measured is vital to assessing this, and quantifies the role of imputation in output measurement bias. By differentiating between truly ‘new’ and incumbent products, it finds missing growth in the US economy. Accounting for this missing growth will allow statistical offices to improve their methodology and more readily recognise the ready availability of new ideas, but also has implications for optimal growth and inflation targeting policies.

Erken, Marey, Wijffelaars, 15 August 2017, 8478 reads

Since taking office, US President Donald Trump has been an increasingly vocal proponent of protectionist measures. This column presents five reasons why he is unlikely to resort to full-blown protectionism: political motivations, WTO membership, the possibility of retaliation, the existence of global value chain integration and revenue streams, and the fact that automation rather than trade has caused most job losses in the US. If Trump does resort to protectionism, however, and other countries retaliate, US GDP could face cumulative losses of up to 4.5% over two years.

Kraay, Van der Weide, 15 August 2017, 7937 reads

Current approaches to measuring top and bottom incomes cannot track the fortunes of the same group of individuals over time. This column addresses this shortcoming by developing a new method for measuring income mobility. After accounting for mobility, the incomes of those who start out rich grow considerably more slowly, and incomes of those who start out poor grow faster, compared to commonly reported growth rates of top and bottom incomes.

Rose, 14 August 2017, 6534 reads

Policymakers in small countries fear the ‘global financial cycle’ that is apparently driven by US fundamentals. This column argues, in contrast, that 25 years of financial data show that the global financial cycle has explained at most a quarter of the variation in capital flows in these countries. This result gives more wiggle room for small-economy policymakers, but it also means they cannot realistically blame the global financial cycle for domestic economic problems.

Cordella, Ospino, 14 August 2017, 6875 reads

While some studies suggest that financial globalisation increases volatility and leads to economic instability, others appear to show that it leads to more efficient stock markets, with higher returns but no increase in volatility. Using a new measure of financial globalisation, this column argues that, on average, it has no significant effect on stock market volatility in developed markets, but it decreases volatility in emerging and frontier markets, where domestic shocks are likely to play a relatively greater role.

Huxley, Peacey, 13 August 2017, 6429 reads

In an attempt to improve incentives for university teaching, the UK government recently introduced a Teaching Excellence Framework. This column uses data on contact hours and class size to measure how much teaching students receive at university. The results reveal large variation across disciplines, and even larger variation within disciplines.

Dreher, Gassebner, Schaudt, 12 August 2017, 7182 reads

Stricter immigration and visa policies are a common reaction to terrorist attacks. This column uses historical data from 20 OECD countries to show that while the number of terror attacks increased with the number of foreigners living in a host country, migrants were not more likely to become terrorists than the locals of the country in which they were living. The results also show that bans on Muslim immigration would be more likely to increase the risk of terror than make the domestic population safer.

Snyder, 12 August 2017, 31599 reads

With the press continuing to cast economics in a negative light, it is worth rethinking how our field is described to a lay audience. This column argues that even elementary principles can surprise non-economists with their power to explain a broader set of questions than most would think possible.

Obstfeld, Ostry, Qureshi, 11 August 2017, 11123 reads

The synchronous rise and fall of cross-border capital flows, domestic credit, and asset prices across countries has raised questions about the relevance of the exchange rate regime in a world of high capital mobility. This column presents evidence from emerging market economies, which shows that exchange rate regimes do matter. The transmission of global financial shocks to domestic financial and macro-economic conditions, as well as to capital flows, is magnified under fixed exchange rate regimes relative to more flexible regimes.

Bua, Dunne, 10 August 2017, 6999 reads

By the end of April 2017, the Eurosystem's balance sheet contained €1.8 trillion of assets, mainly as a consequence of asset purchase programmes. This column analyses the portfolio rebalancing effects of the ECB’s programme. The original holders of the assets eligible for purchase by the ECB mainly purchased bonds of deposit-taking corporations outside the Eurozone. Investment funds and their investors did not rebalance significantly toward Eurozone equities or corporate bonds. While exchange rate and cost of capital effects are positive outcomes from the programme, local rebalancing effects appear to be non-existent.

Atolia, Li, Marto, Melina, 09 August 2017, 13906 reads

Despite investment in education appearing to be a more pressing need in many developing countries, spending on roads often exceeds that on schools. This column argues that the different pace with which roads and schools contribute to economic growth is central to governments’ optimal allocation decision. Investment in schools tends to lead to a larger long-run increase in output, but the effects are more delayed than for investment in roads. This trade-off contributes to the bias towards roads, in particular when government concerns about debt sustainability and policymakers’ myopia are taken into consideration.

Eriksson, Rodríguez-Pose, 08 August 2017, 6034 reads

While job-related mobility is key to knowledge sharing, it may also undermine on-the-job training through labour poaching, and assessing its overall impact on productivity and growth is not straightforward. This column uses data on nearly 2.7 million new hires in Sweden to analyse the impact of labour mobility on plant performance. The greatest positive impact is seen in the country’s three largest cities, while firms in other large urban and university regions emerge as the biggest losers from job mobility.

Cerasi, Deininger, Gambacorta, Oliviero, 07 August 2017, 6557 reads

Since 2011, the Financial Stability Board (FSB) has implemented compensation principles and standards for executives and material risk-takers in many financial institutions. This column presents evidence that banks in jurisdictions that adopted them changed their compensation policies more than other banks. Compensation in these banks is less linked to short-term profits and more linked to risk, and the CEOs of risky banks now receive less in bonuses and other variable compensation than their peers at less risky banks.

Senses, 06 August 2017, 9481 reads

There is some evidence that communities hit hardest by globalisation shifted away from centrist candidates towards ideologically extreme candidates in the most recent US election. This column, taken from a recent Vox eBook, asks what policies those who were elected on a promise of turning the tide of globalisation away will implement, and what the prospects of success for these policies are.

Roland, Yang, 05 August 2017, 7016 reads

Studies have shown that there is strong inertia in culture because values and beliefs are formed through intergenerational transmission. Much less is known about how culture changes, and which aspects of the changes in values and beliefs are permanent or temporary. This column examines the effects of the Cultural Revolution in China on urban elites, and reveals that the lack of access to higher education affected people’s beliefs throughout their life. Also, while the ‘lost generation’ passed down their greater mistrust in the government to their children, their changed beliefs on the roles of effort versus luck were transmitted to a much lesser degree.

Bughin, Mischke, 04 August 2017, 7492 reads

The economic narrative of the EU since the Global Crisis has focused on successive debt crises and persistent stagnation. This column addresses the accompanying, but less well studied, investment slump that occurred over the last decade, using evidence from an extensive survey of business decisionmakers across Europe. Business sentiment towards increased investment is affected not just by historic cash flows and expected future demand, but also the growth of digital economies as well as political concerns such as anti-Europe sentiment.

Fernández-Villaverde, 03 August 2017, 17870 reads

If the share of payments made by cryptocurrencies increases, government-issued money will face market competition from private issuers. The column argues that, even if this system could maintain price stability in an economy, the market would not provide the socially optimum amount of money. A government could still, however, maximise social welfare using monetary policy in response to peg the real value of money. The threat of competition from private monies may therefore impose welcome market discipline on any government that issues currency.

Faber, Fally, 02 August 2017, 6857 reads

A recent literature has documented the impact of firm heterogeneity on workers’ earnings. This column assesses firm heterogeneity in the context of its impact on households’ cost of living. Rich and poor households source their consumption differently, and are therefore impacted differently by asymmetries in heterogeneous firms. An analysis suggests that moderate trade liberalisation could lead to a 1.5-2.5% lower cost-of-living inflation in retail consumption for the richest 20% of US households compared to the poorest 20%.

Gerlach, 01 August 2017, 22399 reads

With the Eurozone in recovery, at some stage the ECB will raise interest rates. This column examines the conditions that might lead to this happening. A statistical analysis suggests that the likelihood of an interest rate increase is currently about 7%, but a combination of stronger growth and higher price pressures could quickly raise this to about 30%. A return of the ECB to its pre-crisis behaviour would also lead to a dramatic rise in the likelihood of an interest rate increase.

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