September 2017

Palali, van Ours, 30 September 2017, 5547 reads

Despite decades-long efforts to deter its consumption, tobacco continues to be one of the world’s biggest health threats. Studies of tobacco control policies show they have had little impact on overall smoking rates. This column assesses the impact of such policies – from bans to advertising controls – on rates of smoking initiation across Europe. Control policies have no significant effect on the age of onset of smoking, and do not seem to discourage young individuals from starting to smoke. To prevent take-up of smoking, policies must address this directly.

de Haan, van den End, 29 September 2017, 6095 reads

High asset prices can foreshadow tail risks in inflation. Based on data from 11 advanced economies since 1985, this column shows that high asset prices usually signal future high inflation episodes, but can occasionally signal low inflation or deflation instead. The transmission time of asset prices to inflation can be quite long. For central banks, this implies that the signalling content of asset prices for inflation is uncertain, both in timing and direction.

Constâncio, Hartmann, McAdam, 29 September 2017, 15563 reads

The European Central Bank’s 2017 Sintra Forum on Central Banking built a bridge from the currently strengthening recovery in Europe to longer-term growth issues for, and structural change in, advanced economies. In this column the organisers highlight some of the main points from the discussions, including what the sources of weak productivity and investment are and what type of economic polarisation tendencies the new growth model seems to be associated with.

Xing, 28 September 2017, 11491 reads

The last few decades have seen the US running its largest ever trade deficit. This column uses the case of Apple to demonstrate that the failure of trade statistics to capture flows of intellectual property embedded in exports explains a significant share of this deficit. Reforming trade statistics by including the value added of intellectual property embedded in products manufactured abroad is an essential step towards a better understanding of how trade benefits all countries involved, in particular countries specialising in exporting intangible intellectual property.

Dustmann, Ku, Kwak, 28 September 2017, 16440 reads

Some studies have shown that pupils from single-sex schools outperform their counterparts at mixed-gender schools. This column attempts to disentangle the causal effects by exploiting a government policy in South Korea that led to some single-sex schools converting to co-ed one grade at a time. Academic performance fell for boys when their schools became co-ed even if their class remained single-sex, but performance only fell among girls whose classes became mixed. These results suggest different mechanisms for the effects of mixed-gender schools on boys’ and girls’ academic performance.

Cecchetti, Schoenholtz, 27 September 2017, 5434 reads

Financial firms have paid fines totalling more than $9 billion for manipulating LIBOR, yet this flawed benchmark has not been replaced. This column argues that there are reduced incentives for banks to participate in setting the LIBOR rate, and so the potential of, and incentives for, manipulation remain. Although LIBOR is unsustainable, international regulators are working to produce more robust alternatives and to smooth the transition.

Adam, Weber, 26 September 2017, 7966 reads

The productivity of many firms evolves over time, which impacts the optimal inflation rate, that is, the rate of price increase with the least distortionary effect on relative goods prices. This column presents estimates for the US that suggest that, due to firm-level productivity changes, the optimal inflation rate has dropped from somewhat over 2% in the mid-1980s to a current level of roughly 1%.

Campos, Fidrmuc, Korhonen, 26 September 2017, 6170 reads

The debate about the future of the Economic and Monetary Union entails a careful examination of the costs and benefits of the European single currency. This column takes stock of the empirical evidence on the euro’s effects on business cycle synchronisation. We find that synchronisation across European countries increased by 50% after 1999 (the year the euro was introduced) and that this increase was more pronounced in euro area countries.

Costa, Garred, Pessoa, 24 September 2017, 6493 reads

In addition to being a competitor for other countries’ industries, China has also become an increasingly important consumer of goods produced elsewhere. This column looks at how the steep rise in ‘commodities-for-manufactures’ trade with China has affected workers in Brazil. While the analysis confirms a negative effect of Chinese import competition on employees of manufacturing firms, it also suggests that growth in trade with China has created some winners in Brazil, with wages rising more quickly in parts of the country benefiting more from increasing Chinese demand.

Cherif, Hasanov, Pande, 24 September 2017, 9892 reads

The motor vehicle was very quick to replace horses in the early 20th century, and the advent of the electric car suggests that another profound shift in transportation and energy could be around the corner. This column projects how different rates of electric car adoption will effect oil demand and consumption over the next three decades. In a fast-adoption scenario, oil prices could converge to the level of current coal prices by the early 2040s. Even under a slow adoption scenario, oil could become obsolete before it is depleted.

Bordo, Levin, 23 September 2017, 14433 reads

Central banks across the world are considering sovereign digital currencies. This column argues that these currencies could transform all aspects of the monetary system and facilitate the systematic and transparent conduct of monetary policy. In particular, a central bank digital currency can serve as a practically costless medium of exchange, a secure store of value, and a stable unit of account. To achieve this, the currency would be account based and interest bearing, and the monetary policy framework would target true price stability.

Bayoumi, 22 September 2017, 6105 reads

Nine years ago, Lehman Brothers collapsed and the economic world changed. This column introduces a new book that asks how the North Atlantic economy became so unstable that the failure of a medium-sized US investment bank could topple the entire North Atlantic region into deep recession, and the Eurozone into a depression. The answer lies in serial but different regulatory mistakes in Europe and the US starting in the 1980s.

Manova, Yu, 22 September 2017, 5558 reads

Pinpointing how multi-product firms organise their operations is key for understanding the drivers of global competitiveness. This column presents a theory on the behaviour of multi-product firms when cost and quality competitiveness jointly determine export performance. Using Chinese data, it finds that firms’ production and sales activity across products and markets is governed by a product hierarchy based on quality. This phenomenon also determines how firms respond to economic shocks.

Krebs, Krishna, Maloney, 22 September 2017, 5452 reads

Research on economic mobility has failed to disentangle the underlying economic drivers. In particular, opportunities for upward movement represent welfare-enhancing mobility, while risky income shocks represent welfare-reducing mobility. This column presents a framework for differentiating between these factors, and applies the model to Mexican data. Results show that opportunity and risk are equally important drivers of income mobility, with large but opposing welfare effects. This challenges the idea that societies with higher measured income mobility are better.

Haberis, Harrison, Waldron, 21 September 2017, 5666 reads

In New Keynesian models, a promise to hold interest rates lower in the future has powerful effects on economic activity and inflation today. This result relies on a strong link between expected future policy rates and current activity, and also a belief that the policymaker will make good on the promise. This column argues that a tension between both of these creates a paradox – the stronger the expectations channel, the less likely it is that people will believe the promise in the first place. As a result, forward guidance promises are much less powerful than standard analysis suggests.

Enke, 21 September 2017, 5715 reads

Daily life requires us to cooperate with a large number of – potentially unrelated – people. This column argues that cultural variation in the ways people cooperate with each other are empirically associated with fundamentally different religious beliefs, moral values, emotions of shame and guilt, social norms, and institutions. This suggests that various psychological, biological, and institutional mechanisms co-evolved to support specific social cooperation systems.

Bloom, Jones, Van Reenen, Webb, 20 September 2017, 55530 reads

The rate of productivity growth in advanced economies has been falling. Optimists hope for a fourth industrial revolution, while pessimists lament that most potential productivity growth has already occurred. This column argues that data on the research effort across all industries shows the costs of extracting ideas have increased sharply over time. This suggests that unless research inputs are continuously raised, economic growth will continue to slow in advanced nations.

den Haan, Ellison, Ilzetzki, McMahon, Reis, 20 September 2017, 4748 reads

The European Commission president’s suggestion that joining the euro should be compulsory for all EU members is not well received by over three quarters of leading economists responding to the latest Centre for Macroeconomics and CEPR survey. This column also reveals how, when asked a broader question about the success of the common currency, half the experts think it has had more benefits than costs, while only a quarter think the opposite. The majority view is that there have been significant benefits, but the way the Eurozone has been operated has also imposed significant costs.

Dauth, Findeisen, Südekum, Woessner, 19 September 2017, 61339 reads

Recent research has shown that industrial robots have caused severe job and earnings losses in the US. This column explores the impact of robots on the labour market in Germany, which has many more robots than the US and a much larger manufacturing employment share. Robots have had no aggregate effect on German employment, and robot exposure is found to actually increase the chances of workers staying with their original employer. This effect seems to be largely down to efforts of work councils and labour unions, but is also the result of fewer young workers entering manufacturing careers.

Faia, Paiella, 19 September 2017, 7594 reads

Over the past decade, there has been substantial growth in peer-to-peer lending through digital platforms, which come with unique benefits and risks compared with traditional funding and investment instruments. This column presents an empirical analysis of the two largest platforms in the US. The results show that various hard and soft information signals have emerged to address inherent information asymmetries. The growth of the sector was further helped by fragility of the banking sector in the wake of Global Crisis.

Cantoni, Hagemeister, Westcott, 18 September 2017, 15919 reads

Economists and political scientists alike have tried to provide explanations for the rise of populist parties across the globe. This column examines the role of history in explaining the recent rise of the far-right in Germany. It finds that municipalities with high vote shares for the Nazi party in the late 1920s/early 1930s had also higher vote shares for the right-wing Alternative für Deutschland party in 2016/17 state elections, suggesting that historical persistence, together with a major shift in the German political landscape, can explain the rise of far-right populism.

Hanousek, Shamshur, Tresl, 18 September 2017, 4035 reads

Bribery and corruption still present a significant cost to many countries today. This column examines how the efficiency of Eastern European private firms is affected by the level of corruption in their operating environment. An environment of high corruption has an adverse effect on firm efficiency, with ‘honest’ firms – typically foreign-owned and/or with female CEOs – penalised even more.

Glaeser, Ponzetto, 18 September 2017, 5173 reads

Psychologists have long documented that we over-attribute people's actions to innate characteristics rather than to circumstances. This column shows that when we commit this ‘fundamental attribution error’ as voters, we over-ascribe politicians´ success to personal characteristics that merit re-election. Although this mistake can improve politicians’ incentives in ordinary times, the theory also explains lack of institutional reform and poor institutional choices, such as decreased demand for a free press and preferences for dictatorship.

Vickers, 18 September 2017, 6872 reads

The general opinion expressed by those in the financial sector and its regulators is that reform since 2008 has got us to about the right place in terms of limits on bank leverage. But the majority view of economists outside the financial sector is that Basel III goes nowhere near far enough. This column argues that while it represents a huge improvement on Basel II, Basel III should be seen as a staging post, not an end-point, and built upon in the years ahead.

Cook, Fletcher, 17 September 2017, 4877 reads

While diversity can lead to more innovation and better problem solving, it can also cause competition and conflict. This column examines the effect of genetic diversity among high school students in Wisconsin on their socioeconomic outcomes later in life. Genetic diversity is associated with more years of schooling, and higher job prestige and income. Students from more genetically diverse schools score higher on indexes of openness and extraversion.

Blanchflower, Oswald, 16 September 2017, 13421 reads

Most textbooks in social psychology teach students the idea that happiness and psychological wellbeing are essentially independent of age. Based on data on 1.3 million randomly sampled individuals across a large number of countries, this column argues instead that humans have a fundamental tendency to a midlife low which is apparently substantial and not minor. This puzzling phenomenon seems an important and fundamental one, and its existence should not be ignored.

Corsetti, Müller, Kuester, 16 September 2017, 11108 reads

The classic rationale for flexible exchange rates was that policymakers would be unconstrained by currency targets. The Great Recession, however, saw numerous central banks constrained instead by the zero lower bound. This column considers which exchange rate regime is best for small open economies in a global recession. The model suggests that if the source of the shock is abroad and foreign interest rates become constrained at their zero lower bound, then flexible exchange rates do provide a great deal of insulation to the domestic economy.

Ravallion, Chen, 15 September 2017, 7950 reads

Past studies have measured poverty in either relative terms (mostly in the developed countries) or absolute terms (the developing world). This column presents a new unified approach to global poverty that assumes that people care about both their own income and their income relative to others in their country of residence. The study finds that global poverty has declined more in absolute terms than in relative terms. The vast bulk of the relatively poor now live in the developing world. The advanced countries have seen little progress against poverty, unlike the developing world.

Aaronson, Dehejia, Jordan, Pop-Eleches , Samii, Schulze, 15 September 2017, 5032 reads

Women’s fertility and labour supply decisions are made simultaneously, making it difficult to identify the effect of the former on the latter. This column explores the relationship using a dataset spanning 200 years and 103 countries, leveraging twin births to isolate causal effects. The key finding is that as countries develop, women’s labour supply becomes more responsive to additional children. The global decline in fertility over the last century has played a positive role in increasing women’s work in developed countries, but a negligible one in developing countries.

Konishi, 15 September 2017, 7983 reads

The latest AI boom that started in 2012 shows no signs of fading, thanks to the recent availability of big data and widespread adoption of deep learning technologies. This column argues that this new combination of data and technology offers an unprecedented opportunity for society. AI will develop sustainably only if systems are in place to collect relevant data, and AI is not adopted for its own sake.

Cahuc, Nevoux, 14 September 2017, 4930 reads

Short-time work reduces job destruction by subsidising firms to reduce hours of work and provide earnings support to workers facing lower hours. Since 2008, firms in France that stand to benefit have lobbied successfully to expand the programme massively. This column argues that the expansion primarily benefited large firms using short-time work recurrently to deal with seasonal fluctuations. Making employers contribute to the cost of short-time work would make the policy more efficient.

Adrian, Fleming, Shachar, 14 September 2017, 6719 reads

The potential adverse effects of regulation on market liquidity in the post-crisis period continue to receive significant attention. This column shows that dealer balance sheets have continued to stagnate and that various measures point to less abundant funding liquidity. Nonetheless, there is little evidence of a wide-spread deterioration in market liquidity. Liquidity remained resilient even during stress events like the 2013 ‘temper tantrum’.

Hoekman, Shingal, 13 September 2017, 4644 reads

Research on the effects of Aid for Trade has focused mostly on merchandise trade and investment in developing countries. This column discusses the relationship between Aid for Trade and trade in services and finds that while most Aid for Trade is allocated to service sectors, this is not associated with greater trade in services, in contrast to what is observed for trade in goods. These findings suggest that Aid for Trade could do more to target capacity weaknesses that constrain growth in services trade.

Cettolin, Suetens, 13 September 2017, 4925 reads

Studies have shown that ethnic discrimination occurs in many countries across Europe and the rest of the world, but distinguishing between discrimination based on ‘stereotypes’ and on ‘tastes’ is difficult. This column presents results from an experiment in the Netherlands that isolated taste-based discrimination. The results suggest that native Dutch participants reciprocate trust placed in them by immigrants of non-Western less than they reciprocate the trust of fellow Dutch natives. Since trustworthiness involves no behavioural risk, this implies that discrimination is the consequence of not only stereotyping, but also of tastes.

Bianchi, Marra, Masciandaro, Pecchiari, 13 September 2017, 6376 reads

Economic theory doesn’t provide a clear prediction on how a firm’s performance will be affected if some of its board members have ties to organised crime. This column explores this issue using a unique Italian dataset that includes confidential information about ongoing investigations. Seven percent of firms are found to have at least one director under investigation, and these firms demonstrate, on average, lower levels of cash holdings and worse profitability compared with ‘untainted’ firms.

Costa-i-Font, Norton, Siciliani, 12 September 2017, 5459 reads

Long-term care services are at the forefront of a new wave of reforms extending public intervention into healthcare, but it is unclear how the government should intervene to fund and organise such services. This column suggests some strengths and weaknesses of public financing and organisation of long-term care, including its weak financial sustainability and some potential knock-on effects on saving behaviour. However, publicly funded systems deliver better equity of access. Non for profit and autonomous organisations provide better care.

Hampl, Havranek, 12 September 2017, 5124 reads

Seven out of every ten Europeans live in their own homes, yet Europe’s most important inflation measure excludes the costs associated with owner-occupied housing. This column argues that including the costs of home ownership would prove beneficial to the conduct of monetary and macroprudential policy. It would also bring the measure closer to what most people consider inflation to be.

Bruche, Malherbe, Meisenzahl, 11 September 2017, 4384 reads

Syndicated loan issuance has grown dramatically over the last 25 years. Over the period, the syndicated loan business model has evolved, affecting the nature of the associated risks that arranging banks are exposed to. This column introduces the concept of ‘pipeline’ risk –the risk associated with marketing the loans during the syndication process. Pipeline risk forces arranging banks to hold much larger shares of very risky syndicated term loans, which results in reduced lending by the arran­­ging bank not only in the syndicated term loan market, but in others as well.

Robertson, Ye, 11 September 2017, 6952 reads

The conventional wisdom is that labour reallocation has been a key driver of China’s growth miracle, and slowing migrant labour flows and rapid wage growth have raised concerns over whether this source of growth has run its course. This column argues that the literature on growth and labour reallocation in China has been dominated by a method that, relative to the now standard growth accounting model, substantially overstates the gains. Allowing for this and for human capital differences across sectors, sectoral labour reallocation has not been a key source of productivity growth in China.

Dotsis, 10 September 2017, 9713 reads

Option trading has grown phenomenally in the last 40 years, but option markets have existed since the early 17th century. This column reviews an option trading manual written by a London trader in 1906. It shows that traders in the 19th century developed sophisticated techniques for determining the prices of short-term calls and puts. They also priced at-the-money-forward straddles the same way they are priced today.

Bagues, Campa, 09 September 2017, 4974 reads

Several countries in the EU have adopted gender quotas that regulate the composition of electoral lists in an attempt to address the underrepresentation of women in political institutions. This column examines the effect of the introduction of gender quotas in local elections in Spain. While the quotas have increased the number of women elected, they have not significantly increased the probability of women reaching leadership positions, or the type of policies that are implemented. At the same time, fears that quotas would decrease the quality of politicians have not been realised.

Kalouptsidi, 09 September 2017, 6547 reads

China’s shipbuilders have doubled their market share in recent years. It is hard to determine the role of industrial policy, particularly subsidies, in this because we do not know what policies are in place. This column argues that subsidies decreased shipyard costs in China by between 13% and 20% between 2006 and 2012. These policy interventions have led to substantial misallocation of global production with no significant consumer surplus gains. Japan, in particular, has lost market share.

Cao, Kuchler, Stroebel, Wong, 08 September 2017, 5343 reads

Systematic analyses of social connectedness and social networks have traditionally been complicated by a lack of high-quality, large-scale data. This column uses data on friendship links on Facebook to construct a new measure of social connectedness between US counties, and between US counties and foreign countries. Social networks in the US are quite local, and both national and international networks are substantially shaped by historical events and migration patterns. The populations of US counties with more geographically dispersed social networks are generally richer and better educated, and have higher life expectancy and greater social mobility.

Dao, Das, Koczan, Lian, 08 September 2017, 12776 reads

In both developing and advanced economies, labour’s share of income has been declining since the 1970s, presenting a puzzle for classical trade theory. This column proposes that the globalisation of trade and ‘routinisation’ of tasks can reconcile declining labour shares in both advanced and developing economies. Countries with higher initial exposure to routinisation and a greater increase in participation in global value chains are shown to have experienced stronger declines in the labour income share of medium-skilled workers.

Ibert, Kaniel, Van Nieuwerburgh, Vestman, 08 September 2017, 3709 reads

Empirical analysis of mutual funds has focused on the relationship between funds and fund investors, and little is known about the nature of compensation contracts between firms and managers. This column uses Swedish data to provide novel insights on the relationship between mutual fund firms and manager compensation. In contrast to how investors compensate the fund company, a concave relationship is observed between pay and revenue. The sensitivity of pay to performance is surprisingly weak, with firm-level characteristics playing an important role in dynamic compensation.

Marin, 07 September 2017, 14172 reads

Previous research has shown that China's entry into the WTO in 2001 has had a profound impact on jobs and wages of low-skilled workers in the US in sectors exposed to Chinese imports. The same is not true for Germany. This column argues this is because the import-side trade adjustment to low-cost competition had already happened before the rise of China, because the rise of Eastern Europe offered new export opportunities for German firms, and because China’s love for product quality found a perfect match in German products.

Bowles, Carlin, 07 September 2017, 47414 reads

Our intro courses fail to reflect the dramatic advances in economics – concerning information problems and strategic interactions, for example – since Samuelson’s paradigm-setting 1948 textbook. Missing, too, is any sustained engagement with new problems we now confront and on which economics has important insights for public policy – climate change, innovation, instability and growing inequality amongst them. This column introduces a free online interactive text – now used as the standard intro at UCL, Sciences Po, and Toulouse School of Economics – which responds.

Campello, Ferrés, Ormazabal, 07 September 2017, 4045 reads

Strategies for cartel detection and prosecution differ across countries. This column uses a US dataset to show that independent directors of cartel-indicted firms favour the implementation of corrective actions in order to mitigate damage to their personal reputations. Firms with a larger fraction of independent directors on their boards observe smaller value losses and lower cartel duration during cartel-busting episodes.

Ben Zeev, Pappa, 06 September 2017, 7299 reads

Kim Jong Un’s dictatorship has grabbed the attention of the whole world with its nuclear brinkmanship – and global markets have responded with a flight to safe-haven assets. This column reports research showing that such an escalation in international tensions can also have real effects for the US economy in the short to medium run. According to the authors’ analysis of the macroeconomic effects of anticipated increases in defence spending, North Korea’s insistent and rapid test-firing of missiles could boost the US economy.

Vaitilingam, 06 September 2017, 3893 reads

Although we like to see ourselves as sensible and logical decision-makers, studies show that our decisions are driven by many other (often subconscious) factors. The Think Forward Initiative is exploring how people can be empowered to make better financial decisions. This column summarises findings presented at the Initiative’s second Summit, which focused around three broad themes: daily financial affairs; finance for the future; and financial literacy.

Bouët, Laborde, 06 September 2017, 4920 reads

During his election campaign, Donald Trump repeatedly announced that he would impose tariffs on imports from China, Mexico, and Germany. This column evaluates the likely outcomes should the US instigate trade wars by imposing such tariffs. In all scenarios, the net effect on US welfare and GDP is either zero or negative. Such trade wars would also have wider negative effects for the trading partners, and potentially, the world economy.

Beetsma, Furtuna, Giuliodori, 05 September 2017, 4902 reads

Research has shown that planned fiscal consolidations have been less recessionary when carried out through public spending cuts rather than through increases in government revenues. This column argues that this may be at least partly due to differences in follow-up for the two consolidation strategies. Better follow-up of announced spending contractions may result in negative Keynesian responses similar to those that follow announced revenue increases, and so they may not necessarily provide a 'cheaper' route to budgetary consolidation than revenue increases.

Bergeaud, Cette, Lecat, 04 September 2017, 9614 reads

Over the 20th century, GDP growth was mainly driven by total factor productivity growth. Since the mid-2000s, however, productivity growth has been in decline. This column explores the history and future of growth focusing on four developed economies: the US, the Eurozone, the UK, and Japan. Simulated scenarios for the 21st century show a wide range of potential growth outcomes, dependent on whether total factor productivity growth stays indefinitely low, and whether the digital economy delivers a new productivity growth wave.

Bonhomme, Hospido, 04 September 2017, 5383 reads

The link between the rise in unemployment and the housing market in the US during the Great Recession is well documented. This column shows that in the case of Spain, the rise and fall in demand for construction workers following developments within the housing market had a big impact earnings inequality as well as employment. While there has been no apparent trend in the recent evolution of earnings inequality in Spain, countercyclical fluctuations have been substantial, with the construction sector playing a key role in this.

Margo, 03 September 2017, 16853 reads

Specialist economic historians in the US today behave, and are rewarded, in similar ways to other economists. Mainstream economists also publish articles on economic history. This column argues that this is the culmination of a process of integration of history and econometrics that started with the cliometrics revolution in the 1950s. If this continues however, there is a risk that the demand for economic historians with the skills to ‘get the history right’ might dry up.

Weinzierl, 03 September 2017, 3858 reads

Under a welfarist approach, tax policy is judged on its implications for the well-being of those in the society to which it applies. An implicit vulnerability of this approach is that judgements are based on necessarily incomplete cost and benefit calculations. This column investigates people’s preferences for welfarist and non-welfarist approaches by exploring responses to envy. A narrow majority of respondents reject a redistribution of resources that raises overall welfare by assuaging envy. These respondents seem to be using non-welfarist principles to encode concerns about indirect policy consequences.

Couharde, Delatte, Grekou, Mignon, Morvillier, 02 September 2017, 7505 reads

Academics have traditionally computed their own measure for assessing whether a currency is over- or undervalued, while policymakers rely on scarce public information with inconsistent data. This column introduces a new database, EQCHANGE, which includes nominal and real effective exchange rates, as well as equilibrium real effective exchange rates for more than 180 countries from 1973 onwards. It represents the longest and largest publicly available database on equilibrium exchange rates and corresponding misalignments.

Baskaya, di Giovanni, Kalemli-Ozcan, Ulu, 01 September 2017, 8409 reads

Most models assume capital flows are endogenous to the business cycle, and that inflows increase during an economy’s ‘boom’ periods. This column shows that the international no-arbitrage condition in fact does not hold, and that capital flows are pushed into an economy due to high global risk appetite. Controlling for domestic monetary policy responses to capital flows and changes in the exchange rate, exogenous capital inflows lower real borrowing costs and fuel credit expansion.

Auricchio, Ciani, Dalmazzo, de Blasio, 01 September 2017, 4299 reads

The nature of the relationship between public and private employment is ambiguous, with studies showing that increased public employment can have both crowding-in and crowding-out effects on private employment. This column explores this relationship across Italian municipalities. It finds evidence of strong crowding-out effects across municipalities, which is partially explained by increased competition in the housing market.

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