August 2007

Monacelli, 31 August 2007

The public is overreacting to the current turmoil in financial markets. The turmoil is most likely a situation where very specific problems are spread out extensively across investors and countries and thus the defaults are benign.

Harding, Javorcik, 30 August 2007

Investment promotion agencies can help developing countries attract FDI inflows. However, their efforts can be hindered by competition in FDI incentives from other countries in their region.

Koeniger , Prat, 29 August 2007

Recent empirical research shows that EPL has quite different effects across worker and firm types. Low-skilled workers bear most of the adverse consequences of EPL, and it drives small or less efficient firms out of the market. Reformers of EPL should take account of these differences, especially the interactions with product and financial market structure.

Neal, Schanzenbach, 28 August 2007

New research suggests that the US incentive system built around test scores almost guarantees that academically disadvantaged children do not benefit and may actually be harmed. Policy-makers should take incentive design issues more seriously or follow the lead of many private sector firms and look for other ways to monitor and motivate teachers.

Cecchetti, 27 August 2007

The problem: About $1 trillion of commercial paper will mature in coming months. If issuers can’t roll it over, firms will turn to lines of credit that they have arranged as insurance against such events. Banks will be forced to make these loans, and credit conditions elsewhere will tighten. Such a credit crunch will inevitably slow the economy. This column explains the what's, why's and how's of the unfolding crisis and provides a progress report on the Fed's actions.

Frey, 24 August 2007

Economic logic suggests that politicians are overprotected and therefore too isolated from citizens; the social cost of a political assassination is much lower than its private cost to the politicians, and the private cost of protection is lower than the social cost. Moreover, authoritarian rulers are more overprotected and isolated than democratic politicians since assassinating them has more impact on policy.

Le Grand, 24 August 2007

Properly designed public services whose delivery includes elements of choice and competition deliver higher quality and more efficient services, and are both more equitable and more responsive

Boeri, Guiso, 23 August 2007

The subprime crisis has its origin in Greenspan’s low interest rate policy. His successor should take care to reassure the markets in the short run without laying the foundations for a new overreaction “a la Greenspan”.

Grosjean, Senik, 23 August 2007

Empirical evidence based on an innovative new dataset suggests that democracy generates some popular support for the market, but economic liberalisation does not clearly enhance the support for democracy.

Goodfriend, Prasad, 22 August 2007

US and EU pressure on China to revalue the renminbi create the mistaken impression that there is an unavoidable conflict of interests. A switch by China to a more flexible exchange rate regime, accompanied by a shift to a new nominal anchor, would serve China’s domestic interests and simultaneously defuse protectionist sentiments abroad. A politically savvy recasting of this issue as one of Chinese monetary-policy independence could help solve many problems.

Weichselbaumer, Winter-Ebmer, Zweimüller, 21 August 2007

Recent empirical work finds a strong negative correlation between competitive markets and gender wage gaps, in particular when competitive markets are measured by the components “free trade”, “absence of regulation” and “legal structure”.

Ekholm, Ulltveit-Moe, 20 August 2007

The economic logic linking globalisation and offshoring to wage inequality is more subtle than the received wisdom admits. Impeding free trade as a means of dampening negative distributional effects may well turn out to be misguided.

Onado, 19 August 2007

The market participants who profited from creating the faltering debt instruments are not the ones who will pay most of the cost of the crisis; the losses will fall on the shoulders of final investors. Three things need fixing: credit ratings, evaluations of asset marketability, and transparency in the retail market for financial assets.

Buiter, Sibert, 18 August 2007

The Fed’s 17-8-07 move was a missed opportunity. It should have effectively created a market by expanding the set of eligible collateral, charging an appropriate "haircut" or penalty interest rate, and expanding the set of eligible borrowers at the discount window to include any financial entity that is willing to accept appropriate prudential supervision and regulation.

Editors, 18 August 2007

Ignore this

Wyplosz, 17 August 2007

The Fed move, to cut the discount rate while keeping the Fed Funds rate unchanged, is both innovative and shrewd. It allows banks to liquefy discredited mortgage assets at low cost while leaving open the decision on monetary policy. It also leaves in the Fed’s hands the more powerful tool of cutting the Fed Funds rate if its action does not succeed in quieting market fears.

Boeri, Brugiavini, 16 August 2007

Italy’s Agreement on pensions has been signed, but it’s not the start of a new pact between generations. It’s a plug to buy time while holding out for new corrective measures. All the fundamental problems remain unresolved.

Wyplosz, 16 August 2007

A basic principle of high uncertainty is to be careful. This principle also applies to analyses of the situation, even if decisiveness in the face of turmoil is at a premium. Better wait than make things worse. Here a few observations to sort through the emerging debate.

Bottazzi, Da Rin, Hellmann, 16 August 2007

Research shows that human capital is a key driver of the investment activities of venture capital firms. Improving graduate education, including executive education or other professional training is likely boost professionalism in the industry. Simplifications of tax rules and cross-border investment regulations would boost integration of the European venture capital industry.

Cecchetti, 15 August 2007

A revised and updated version of the 13 August column on the basic how's and why's of what the Fed has been doing to calm financial markets.

Maskus, 15 August 2007

New research shows that visa policies that restrict foreign grad students in general, and favour those with greater financial resources, harm the research output of US science and engineering departments. American policy currently makes both of these mistakes, and needs fundamental reform.

Carlin, Soskice, 14 August 2007

Private supply-side reforms in Germany are what caused the recovery – not government labour market and welfare state reforms. Further real wage cuts, generic labour and welfare reforms, or radical changes in corporate governance might not help. Future reform should focus on the functioning of the labour market without undermining the core labour system.

Cecchetti, 13 August 2007

Here are the basic how's and why's of what the Fed has been doing to calm financial markets.

Buiter, Sibert, 13 August 2007

Last week's actions by the ECB, the Fed and the Bank of Japan were not particularly helpful – a classic example of trying to manage a credit crisis or liquidity squeeze using the tools suited to monetary policy-making in orderly markets. Monetary policy is easy; preventing or overcoming a financial crisis is hard; managing the exit from a credit squeeze without laying the foundations for the next credit and liquidity explosion is harder still. Central bankers should earn their keep by acting as market makers of last resort.

Draper, 12 August 2007

The EU must finalise trade deals with developing nations by January 2008. Problems abound and EU special interest politics threaten to stand in the way of an outcome supportive to African development needs.

Pannenberg, 09 August 2007

Empirically, the German unemployed – unlike others in Europe – do not respond to temporary sanctions on their unemployment benefits. Recent research suggests that the effectiveness of such sanction depends on attitudes towards risk. This may explain why benefit sanctions work in some countries but not in others.

Lederman, Olarreaga, Perry, 08 August 2007

Chinese and Indian growth has generally helped by pushing up prices of commodities where Latin America has a comparative advantage and by encouraging positive trade and FDI spillovers. Some industries and firms in some countries, however, have been hurt.

Frazer, Van Biesebroeck, 07 August 2007

Recent research shows that the much-discussed African problems – poor infrastructure, poor public services, etc. – did not stop Africa from boosting its exports when the US lowered it tariffs and limited other subtle trade barriers. Other OECD countries should re-consider their trade policies towards Africa in this light.

Draca, Machin, Witt, 06 August 2007

The reverse causality problem makes it difficult to test empirically the impact of additional police on crime rates. The massive re-deployment of police after the July 2005 London bombings provides a natural experiment that gets around this. Results show that more police do indeed reduce crime.

Spagnolo, 06 August 2007

Competing firms are on the frontline of a ‘war’ to serve customers; they have little time or resources to grant favours to politicians. Politicians that manage to shield companies from competition can expect to share the ‘fat’ thus created. Maybe this is why many of Europe’s politicians embrace protectionism?

Klemperer, 03 August 2007

Three critical questions need to be answered by scientists, sociologists and philosophers to get climate change policy right.

Berglöf, 02 August 2007

The “fear of being left behind” helped initiate and sustain reforms in the earlier phases of transition, but the same fear now jeopardises the sustainability of growth and institutional change in Eastern and Central Europe.

Cipriani, Giuliano, Jeanne, 01 August 2007

Through an experimental game in which participants had incentives to reveal their true preferences, we show that, surprisingly, there is no intergenerational transmission of public-mindedness between parents and their children.


CEPR Policy Research