August 2017

Aksoy, Dalla Pozza, De Haas, 17 August 2017, 905 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, 4301 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.

Kraay, Van der Weide, 15 August 2017, 4326 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.

Erken, Marey, Wijffelaars, 15 August 2017, 3705 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.

Cordella, Ospino, 14 August 2017, 4181 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.

Rose, 14 August 2017, 3653 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.

Huxley, Peacey, 13 August 2017, 4511 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, 5044 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, 21083 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, 6436 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, 5348 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, 9439 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, 5005 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, 5603 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, 7651 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, 6221 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, 6593 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, 14869 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, 6067 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, 20165 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.

Events