October 2017

Kee, Nicita, 22 October 2017, 2246 reads

More than a year has passed since the UK voted for Brexit. This column analyses the short-term fallout of trade in goods due to potential changes in trade policies. It argues that if the UK fails to secure a new trade deal with the EU and must face tariffs with no preferences, total UK's exports to the EU would drop by at most 2%. The impact is small because the EU's import demand for UK exports is fairly inelastic, especially for products that that may face higher tariffs.

Wyness, Murphy, Scott-Clayton, 21 October 2017, 5047 reads

The question of who should pay for higher education continues to be hotly debated across the world. This column uses the case of the English higher education system to examine whether it is possible to charge relatively high tuition fees and at the same time protect enrolments, access, and university quality. The analysis shows that since the move from a free higher education system to a high-fee, high-aid system, university enrolment has increased substantially, with students from the poorest backgrounds experiencing the fastest increases in participation. Moreover, university funding per head has recovered dramatically since the introduction of fees.

Morikawa, 21 October 2017, 2015 reads

Studies predicting a substantial impact of the 2020 Tokyo Olympic games on the Japanese economy have tended to overlook substitution effects in spending as well as the characteristics of those who are expected to increase their spending. This column uses a survey of 10,000 consumers across Japan to examine the net impact on consumer spending. While the majority expect no significant change in their consumption expenditures, a greater share of respondents expect a net increase than a net decrease. In general, people in their 20s and 30s, high-income earners, those with higher educational attainment, and households with at least one pre-school child expect a net increase in consumption expenditures.

Frick, Rodríguez-Pose, 20 October 2017, 5949 reads

Big cities have historically been seen as an important prerequisite for a country’s economic growth. In recent decades, however, developing countries have rapidly urbanised, and large cities are increasingly found in relatively poor countries. This column uses a new dataset to revisit the relationship between city size and economic growth. It finds that relatively small cities (with populations under three million) have been more conducive to economic growth, while very large cities are only growth-enhancing in countries with a very large urban population.

Ellison, Scott, 20 October 2017, 7838 reads

A new dataset for the market value of British government debt makes a long-run analysis of fiscal sustainability and debt management possible. It shows that the 20th century saw a shift to financing debt by inflation and low bondholder returns, rather than through fiscal surpluses. This column uses a counterfactual analysis to show that long bonds have been an expensive way of financing debt, especially after a financial crisis. Had the government issued only three-year bonds since 1914, the level of debt in 2017 would have been lower by 28% of GDP.

Sampson, 19 October 2017, 4176 reads

While we can estimate the economic impact of Brexit, we do not yet understand what made people vote for it. This column argues that political pro-Brexit rhetoric conflates two distinct hypotheses that have different policy implications. If voters wanted to reclaim sovereignty from the EU, they may view a negative economic impact as a price worth paying. But, if 'left-behind' voters blamed the EU for their economic and social problems, post-Brexit policy should focus on the underlying causes of discontent.

Frankel, 19 October 2017, 3624 reads

Financial markets have done little, if anything, to moderate the impact of commodity price volatility on the exporting countries. This column reviews four proposals to make exporters less vulnerable to volatility – two attempts at appropriate financial engineering, and two attempts at countercyclical macroeconomic policy. One in each category is tried and tested; the other two have hardly been tried.

Bernard, Capponi, Stiglitz, 18 October 2017, 6910 reads

Worried about the cost of public bailouts, governments have proposed bail-ins whereby banks contribute to rescuing their debtors. This column analyses the conditions under which bail-in strategies can be credibly implemented, showing that this heavily depends on the network structure. While earlier work has suggested that denser networks are socially preferred to more sparsely connected networks, the opposite holds in the presence of the government’s strategic intervention.

Bordo, Siklos, 18 October 2017, 3105 reads

The role of central banks in monetary policy and financial stability has changed radically over time. This examines the similarities and idiosyncrasies of ten central banks, and also considers how inflation might have looked had the central banks been around earlier, or had they adopted different strategies. While important differences between the narrative and statistical analyses of crises indicate that neither is sufficient on its own, small open economies appear to do comparatively well across the various crisis conditions, and inflation is almost always higher in the absence of an inflation target.

Serafinelli, 17 October 2017, 3641 reads

The productivity benefits of similar firms locating near one another are well accepted, but there is little agreement on how knowledge spillovers have local effects. This column presents evidence from Italy of how firm-to-firm labour mobility enhances the productivity of firms located near other, highly productive firms. The main finding is that the recruitment of workers with experience at good firms significantly increases the productivity of the firms hiring them.

Liberini, Oswald, Proto, Redoano, 17 October 2017, 6878 reads

There has been much debate on the determinants of the vote for Brexit. This column uses newly released data from the Understanding Society study to examine the characteristics of individuals who were for and against Brexit. Unhappiness contributed to the vote to leave the EU, but this was driven by feelings about individual financial situations rather than a general dissatisfaction with life. Brexit does not appear to have been caused by the old – only those under the age of 25 were substantially pro-Remain.  

Guriev, Leipziger, Ostry, 17 October 2017, 6094 reads

Globalisation and technological change present policymakers with tremendous challenges in sustaining benefits while containing the dislocations and polarisation that are plaguing many countries. This column argues that the answer is not to roll back these forces, but rather to redouble efforts to make globalisation genuinely inclusive. This involves thinking hard about the design and rules governing globalisation itself, including with respect to finance, but also with respect to trade. It also necessitates a recalibration of national economic policies that affect who benefits and who pays, and a host of complementary policies to mitigate exclusion and allow citizens to bounce back when dislocations occur.

den Haan, Ellison, Ilzetzki, McMahon, Reis, 16 October 2017, 5204 reads

The outgoing German finance minister, Wolfgang Schäuble, has recently expressed concerns about the risks posed to the world economy by high levels of debt. This column presents the latest Centre for Macroeconomics and CEPR survey of leading economists, in which a strong majority of respondents agree that an excess of public and private debt together with inflated asset prices mean that the world economy faces heightened risks. A similarly strong majority of the experts also agree that the loose monetary policy of major central banks is responsible for the recent increase in global leverage and asset values.

Busso, Cristia, Hincapié, Messina, Ripani, 16 October 2017, 3005 reads

Skills-development policies are needed in Latin America and the Caribbean to close the region’s productivity gap with the rest of the world, and at the same time help close the gap between those who began life with and without advantages or opportunities. This column presents the new IADB flagship report, which aims to help governments address these issues by providing detailed, evidence-based analysis of what works and what doesn’t.

Cuñat, Zymek, 15 October 2017, 4410 reads

A large portion of international income differences remains poorly understood. It is traditionally attributed to cross-country differences in total factor productivity, which cannot be measured directly. This column argues that the importance of total factor productivity has been overstated because differences in countries’ patterns of international linkages have been overlooked. Using input-output data for 40 countries, it shows how the assumption that economies are closed has led traditional development accounting to overestimate total factor productivity.

Cook, Logan, Parman, 14 October 2017, 3830 reads

Lynchings in the American South reached their peak in the 1890s, but their impact persists today. This column applies a new measure of segregation to data on the incidence of lynchings to confirm earlier findings that counties with larger black population shares were more likely to experience lynchings, but also that greater segregation of the black population increased lynching activity. These findings demonstrate that residential segregation matters in rural areas for both intergroup relations and the economic and social outcomes that depend on those relationships.

Guiso, Herrera, Morelli, Sonno, 14 October 2017, 14389 reads

Populism – on both the left and right – has recently become a powerful force in western politics. This column uses individual data on political attitudes to argue that economic drivers are the most important factors influencing the demand for, and supply of, populist parties. Recent data also show that as these parties gain support, their political rivals adapt to embrace populism.

Shirai, 13 October 2017, 4292 reads

Japan continues to struggle with sluggish inflation despite recent economic growth. This column discusses the impact of the Bank of Japan’s normalisation monetary easing on the economy, and also specifically on the Bank’s balance sheet. Policy discussion should focus on how to taper bond purchases without causing severe disturbances to the markets, given the economy is some way off its 2% inflation target.

Baldwin, Huertas, Ogden, 13 October 2017, 13117 reads

The Global Crisis started ten years ago and proved a turning point in global economic policy. CEPR organised a high-level conference to discuss whether the regulatory reaction has been sufficient and where the next crisis might come from. This column summarises the conference discussions and introduces a set of video interviews with leading economists at the conference, including Paul Krugman, Anat Admati, John Vickers, Paul Tucker, among others.

Mattoo, Mulabdic, Ruta, 12 October 2017, 6088 reads

Trade agreements have extended their reach well beyond tariff reduction, to policy areas such as investment and competition policy. This column shows that the deepening of trade agreements has contributed to trade growth among members and had a positive spillover effect on trade with non-members. The reason is that, differently from tariffs, these new provisions are often non-discriminatory and, hence, have a public good aspect. Undoing deep agreements is likely to be painful for all.

Shefrin, 12 October 2017, 6025 reads

Richard Thaler of the University of Chicago has been awarded the 2017 Nobel Prize in Economic Sciences “for his contributions to behavioural economics”. This column, written by his first behavioural collaborator, provides a personal perspective on the development of three key areas of research to which the new laureate has been a major contributor: people’s limited rationality, their perceptions about fairness, and their lack of self-control.

Nangle, Yates, 12 October 2017, 5374 reads

Among the many in quantitative easing programmes that central banks have engaged in to combat low inflation since the Global Crisis, the Bank of Japan’s programme stands out for its size and scope. This column explores whether the Bank’s programme of purchasing Japanese equities through exchange-traded funds has succeeded in its aim of lowering risk premia of asset prices. The Bank has timed the execution of the programme to coincide with episodes of market weakness, possibly with the aim of dampening price volatility. Over the course of the programme, however, Japanese stocks de-rated against global stocks.

Buccirossi, Immordino, Spagnolo, 11 October 2017, 3851 reads

Schemes that reward whistleblowers who provide evidence of corporate fraud have been effective in the US, but have generally been resisted in Europe. This column argues that a policy that trades off rewards to those who blow the whistle against punishment for fabricating evidence would increase both detection of, and punishment for, fraud. This will only be effective, however, if whistleblowers are protected from retaliation and the policy also invests in making court findings more accurate.

Mayer, 11 October 2017, 8229 reads

Most of the current debate on the threat of robots focuses on developed countries, but robotisation clearly also concerns developing countries. This column examines whether robots will reduce the familiar benefits of industrialisation as a development strategy. It argues that robots are not yet suitable for a range of labour-intensive industries, leaving the door open for developing countries to enter industrialisation processes along traditional lines. At the same time, it suggests ways that developing countries should embrace the digital revolution.

Caliendo, Opromolla, Parro, Sforza, 10 October 2017, 5398 reads

The effects of international trade and of international migration have been central to the recent debate on economic integration. Evaluating trade and migration policies is challenging, however, because they often take place at the same time and reinforce each other, making it hard to distinguish their effects. This column uses a general equilibrium approach to quantify the effects of the 2004 EU enlargement. It finds that all EU countries gained from enlargement, but that the largest winners were the new member states, and in particular their low-skilled workers.

Fuest, Peichl, Siegloch, 10 October 2017, 5352 reads

Economists tend to think that the corporate tax burden is shared between labour and capital, but even among researchers in the field there is substantial disagreement over how much of the burden is shifted to workers. This column exploits variations in local business tax rates in Germany to identify the corporate tax incidence on wages. On average, more than half of the corporate tax burden is passed onto workers, implying a reduced overall progressivity of the German tax system.

Neumark, 09 October 2017, 5726 reads

Studies of the employment effects of minimum wages have been wide-ranging, but a consensus proves elusive. This column summarises the existing literature and proposes some key questions to better inform policy in the context of minimum wages across different states in the US. Future areas for research should include understanding why different approaches yield different answers, as well as a recognition that there is not one minimum wage effect, but several across different contexts.

Drechsel, Tenreyro, 09 October 2017, 5861 reads

Emerging economies, particularly those dependent on commodity exports, are prone to highly disruptive economic cycles. This column points to fluctuations in international commodity prices as a key driver of these cycles. Using a small open economy model, it quantitatively assesses their importance for Argentina’s economy, and finds that they explain 38%, 42%, and 61% of the variance of output, consumption and investment growth, respectively.

Galenson, 08 October 2017, 4063 reads

The abstract expressionists revolutionised the art world in the late 1940s, only to be displaced by the pop art revolution less than two decades later. This column uses auction price data to explore the life cycles of major painters from the two groups. The abstract expressionists were much older when they produced their peak value works, while the pop artists tended to be most productive in their twenties. The findings provide a systematic basis for dating these revolutions in art markets.

Yashiv, 08 October 2017, 10123 reads

The €222 million transfer of Neymar to PSG calls into question whether football superstars are a good investment. Using the financial details of the transfer, this column argues that, at the price paid, Neymar has a negative net present value. While there are other explanations for PSG's willingness to pay, in purely economic terms his contract seems a bad investment. Policymakers might use this type of calculation to justify intervening in the transfer market through regulation and taxation.

Bauernschuster, Driva, Hornung, 07 October 2017, 5741 reads

The model for today’s health insurance systems was Otto von Bismarck’s compulsory health insurance, introduced in the German Empire in 1884. This column uses contemporary mortality data to show that, by extending access to healthcare, Bismarck’s health insurance significantly reduced mortality rates for blue-collar workers, probably by increasing the public’s knowledge about communicable disease transmission. This supports theories about the fundamental role of hygiene in reduced mortality at this time.

Lang, 06 October 2017, 20989 reads

The majority of recent US bills loosen gun restrictions, thus rekindling the discussion about the relationship between guns and crime. This column presents research that investigates the effect of gun control on suicide. Using background checks as a proxy for gun ownership, the study finds a positive link between the access to guns and firearm suicide rates. This suggests that an increased availability of a particular suicide method can lead to more suicides.

Shirai, 06 October 2017, 5063 reads

Interest rates in many advanced economies have been declining since the 1990s. This column takes a close look at the case of Japan. In 2013 the Bank of Japan pursued a policy of quantitative and qualitative monetary easing that aimed to lower the real interest rate substantially below its natural rate. The evidence suggests that this policy has had mixed success at best, and that the natural rate of interest may decline in the foreseeable future.

Buti, Turrini, 06 October 2017, 4779 reads

Exceptionally low wage growth is at the heart of low Eurozone inflation, while wage growth differentials are not contributing enough to a symmetric rebalancing in the currency union. This column discusses the role that wage developments at the Eurozone level can play in supporting monetary policy and fostering external rebalancing. Although wage setting is a prerogative and not a policy under direct government control, a rationale for the coordination of a number of government policies affecting competitiveness exists, and potential benefits are apparent in the current context.

Bouton, Conconi, Pino, Zanardi, 06 October 2017, 22870 reads

Despite support from around 90% of US citizens, expanded background checks for gun purchases failed in the US Senate. This ‘gun-control paradox’ can be explained by the fact that the intensity of voters’ preferences differs across policy issues, and voters only have one vote with which to hold politicians accountable on a bundle of issues. A model incorporating these features predicts Senate voting behaviour very well. Senators closer to re-election are more likely to vote pro-gun, and only Democrats ‘flip-flop’ on guns.

Altangerel, van Ours, 06 October 2017, 3706 reads

The Immigration Reform and Control Act of 1986 was the first major reform intended to control and deter illegal immigration to the US through legalisation of unauthorised immigrants, increased border security, and sanctions on employers that hired unauthorised immigrants. This column uses data from an annual survey of Mexican households to show that the Act had a negative and significant effect on undocumented migration. However, since the Act’s legalisation programme was active for only a few years, its long-term effects appear to have been limited.

Brocas, Carrillo, 05 October 2017, 3293 reads

Strategic thinking is intrinsic to societal expectations in adulthood, but the ability to think strategically develops in childhood and adolescence. This columns studies how children learn to think strategically. The results show that strategic behaviour is multifaceted, and depends on a network of interacting abilities that develop gradually. Understanding how the development of these underlying abilities impacts the development of strategic thinking is important to assess how children and adolescents react in their own environments.

Bloom, Mizen, 05 October 2017, 7874 reads

UK economic performance has been poor since the vote to leave the EU in June 2016, but has not been the catastrophe that many predicted. This column draws four results from the evidence gathered in the new Decision Maker Panel survey of around 2,500 businesses in the UK. While most firms expect a negative impact of Brexit on sales, investment and costs, only larger firms and those that are more exposed to international markets are likely to think that they might move part of their business abroad.

Hanson, Liu, McIntosh, 04 October 2017, 4588 reads

Rising inequality and stagnating manufacturing wages have many in the Western world questioning whether immigration may be responsible. This column takes a close look at data for the US, and reveals that tighter immigration controls are unlikely to improve the fortunes of low-skilled workers. Long-term demographic changes in the Americas imply that the pressure from illegal immigrants on US labour markets is already abating and will continue to do so.

Albanesi, De Giorgi, Nosal, 03 October 2017, 24086 reads

The Global Crisis narrative has suggested that an expansion of subprime credit was the reason for rising mortgage defaults, leading to the large-scale recession in 2007-09. Taking a closer look at the characteristics of subprime credit holders over the period, this column argues that the growth in mortgage defaults did not occur predominantly amongst subprime credit holders. Instead, it was real estate investors that played a critical role in the rise in mortgage debt, specifically among the middle and the top of the credit score distribution.

Nguyen, Hagendorff, Eshraghi, 02 October 2017, 4295 reads

We know that managerial traits help explain firm performance, but we don't know whether the cultural heritage of those managers has a role in shaping performance through their behaviour. This column uses a novel dataset of bank CEO ancestry to argue that descendants of recent immigrants outperform their peers when competition is high. Banks led by CEOs whose cultural heritage emphasises restraint, group-mindedness, and long-term orientation are safer, more cost efficient, and are associated with more cautious acquisitions.

Frey, 02 October 2017, 5535 reads

One of the major effects of digitisation has been to drastically lower costs of measurement in a wide range of activities and areas. This column argues that this has prompted many to react against the domination of measurement and the loss of intrinsic preferences, often by escaping into areas not yet captured by measurement which will likely be preserved.

Boxell, 01 October 2017, 8909 reads

The internet has received a substantial amount of blame for the recent increase in political polarisation. Using US data, this column argues that, in fact, the internet has played no significant role in a generally increasing trend of political polarisation that goes back at least to the 1970s. The results highlight the importance of looking beyond convenient narrative explanations, and the need for a deeper understanding of the drivers of political sentiment.