Paolo Manasse, Graziano Moramarco, Giulio Trigilia, 17 February 2020

The pound depreciated overnight by about 7% against the euro and other main currencies following the Leave victory in the UK’s EU referendum, suggesting that the markets expected Brexit to harm the British economy. Yet currency markets hailed the overwhelming victory of Brexiter Boris Johnson’s Conservative Party in the 2019 general election with a 2% appreciation of the pound. This column argues that this apparent contradiction can be explained by disentangling the effects that politics has on exchange rate expectations and a political risk premium.

Alejandro Cuñat, Robert Zymek, 17 February 2020

Most countries exhibit large variation in bilateral trade balances across their trade partners. This column argues that it is possible to use gravity trade models to describe the sources of this variation with greater clarity, but that a large portion of the variation still remains poorly understood. It also shows that tariffs imposed during the US-China trade war will reduce the US-China trade deficit in the long run, but only by worsening the US trade balance with other trade partners almost one-for-one.

Kym Anderson, 16 February 2020

Global alcoholic beverage markets have changed dramatically in recent years due to globalisation, income growth in emerging economies, changes in individual preferences, policy initiatives to curb socially harmful drinking, and, in particular, the dual trade policy shocks of Brexit and the US’s unilaterally imposed discriminatory tariffs. This column provides an overview of the major trends and projects the possible effects of Brexit and the US tariffs on the global alcohol market. It concludes that both shocks would reduce world trade in wine. Even countries not targeted by US tariffs can be worse off if those tariffs sufficiently reduce global consumption. 

Hyejin Ku, Uta Schӧnberg, Ragnhild C. Schreiner, 15 February 2020

Previous research has told us little about whether place-based payroll tax incentives successfully boost employment. The column estimates their effect using a natural experiment in Norway, which was temporarily forced to abolish its place-based incentives. It finds that a rise in payroll taxes reduced employment. Downward wage rigidity meant that employers could not simply pass the tax increase on to workers.

Ran Abramitzky, Leah Boustan, Katherine Eriksson, James J Feigenbaum, Santiago Pérez, 14 February 2020

A number of vital questions in the social sciences, relating to intergenerational mobility or assimilation of migrants for example, require data that follow individuals over time. The recent digitisation of historical population censuses for the US and other countries has increased their availability, but linking such historical data is challenging. This column compares the performance of various linking methods and concludes that automated methods perform no worse on key dimensions than (more expensive) hand linking using standard linking variables.

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