September 2009

Bezemer, 30 September 2009

Did economists not see this crisis coming? This column says that analysts who used models featuring a distinct financial sector issued fairly detailed, well reasoned, and public warnings of imminent finance turmoil. It argues that mainstream models missed the crisis because they use a “reflective finance” view in which financial variables are wholly determined by the real sector. “Flow of funds” models may be the way forward for anticipating finance-induced recessions.

Jermann, Quadrini, 29 September 2009

The financial crisis has made it clear that macroeconomic models need to allocate a more prominent role to financial frictions. This column provides a framework where the financial sector can be the “source” of business cycle fluctuations. The model suggests that credit shocks have played an important role in all major recessions experienced by the US economy during the last two and a half decades.

Beck, Martinez Peria, 28 September 2009

Remittances impact development along a number of dimensions including poverty alleviation, education, and entrepreneurship. However, such transactions are expensive. This column shows that a bigger stock of migrants and more competition are associated with lower transaction costs. It says policymakers should focus on improving competition in the remittance market, as regulations have only a limited effect.

Gylfason, 26 September 2009

The Icelandic collapse revealed shortcomings in the international community’s ability to respond to such an event. This column examines the IMF’s central role and recommends that it formulate rules to address potential conflicts between its own lending and external bilateral creditors. It should also establish a mechanism for international investigation when a country’s banks impose severe financial losses on their foreign creditors.

Jäger, 26 September 2009

Can the BRICs replace the much-touted US consumer as the world’s main growth engine? This column says the Chinese economy will continue to increase relative to all others, while the US share of global output will stagnate. But while China’s relative contribution to global growth will increase, it won’t be “driving” growth in the developed economies.

Rydqvist, Strebulaev, Spizman, 26 September 2009

Since World War II, direct stock ownership by households has largely been replaced by indirect stock ownership by financial institutions. This column argues that tax policy drove that shift.

Spilimbergo, Giuliano, 25 September 2009

Economic events can have long-lasting non-economic effects. This column shows how economic circumstances affect individuals’ life-long beliefs. Individuals growing up during recessions tend to believe that success in life depends more on luck than on effort and support more government redistribution, but they are less confident in public institutions. The current severe recession may be forming a generation that is more risk-averse and believes more in redistribution.

Klemperer, 25 September 2009

The crisis set policymakers scrambling for appropriate mechanisms to respond to financial turmoil. This column proposes a new auction design that can be used for toxic asset purchases and central bank liquidity auctions in a credit crunch.

De Grauwe, 24 September 2009

A key issue at the G20 is coordinating exit strategies. Empirical research suggests that demand spillovers from fiscal policy are sufficiently small that uncoordinated exits from fiscal stimulus are unlikely to threaten global demand. This column argues that research is flawed as it was based on data and theory for economies near full employment – not today’s situation. G20 leaders need to address fiscal and monetary stimulus coordination exit strategies.

Repullo, Saurina, Trucharte, 24 September 2009

One widespread concern about Basel II’s risk-sensitive bank capital requirements is that they may amplify business cycle fluctuations. This column argues that the best way to correct this procyclicality is to use a business cycle multiplier of the Basel II capital requirements that is increasing in the rate of growth of the GDP. Under such a scheme, riskier banks would face higher capital requirements without regulation exacerbating credit bubbles and crunches.

Jappelli, Hackethal, Haliassos, 24 September 2009

Do financial advisors aid their clients in making wise investments? This column shows that investors who delegate their portfolio management achieve better results. But that’s due to the fact that advisors tend to be matched with richer, older investors. In fact, financial advisors tend to lower returns and raise risk relative to clients who manage their own investment.

Evenett, 24 September 2009

Simon Evenett of the University of St Gallen talks to Romesh Vaitilingam about ‘Broken Promises’, the latest report from Global Trade Alert, which collates information on state measures taken since last November that discriminate against foreign commercial interests, and reveals how the G20 countries have broken their 'no protectionism' pledge. The interview was recorded in Geneva at the inaugural Thinking Ahead on International Trade conference in September 2009.

Giannetti, Simonov, 23 September 2009

Is there any evidence that bank bailouts will improve the real economy? This column uses micro-level evidence from the Japanese banking crisis to assess bank recapitalisation efforts. It says that bailouts do increase lending, but banks continue to lend to low-quality borrowers, and borrowers may hold the cash on their balance sheets rather than investing or hiring.

Draper, Samuel, 22 September 2009

What agenda should South Africa take into the G20 meeting in Pittsburgh? This column highlights crisis funding for distressed African economies, IMF reform, global financial governance, and resisting protectionism.

Evenett, 22 September 2009

Economists have been particularly wary of protectionism since the recession’s onset. This column presents new evidence that numerous governments, including G20 nations, have implemented protectionist measures. It calls for G20 members to halt further trade-distorting measures and review those identified by major monitoring initiatives.

Galasso, Nannicini, 22 September 2009

Political competition may produce better governance. This column shows that Italian politicians shirk less when they are from a more closely contested district. But it’s not simply a re-election incentive – parties are more likely to choose qualified candidates rather than loyalists to run in contestable district, therefore putting better politicians in office.

Giavazzi, 21 September 2009

What’s the proper exit strategy from the crisis? This column says the key question is how to coordinate the withdrawal of fiscal stimulus and accommodative monetary policy. It recommends that Eurozone governments commit to future spending cuts so that they do not undermine the efforts of the European Central Bank.

Levintal, Zeira, 21 September 2009

Problems of regulation appear whenever financial innovations change the ways capital markets operate. This column describes the 18th century emergence of the inconvertible banknote, a "toxic asset” ended by government regulation. The lesson is that free financial markets promote financial innovation, but government must provide adequate regulation keeping the market on track.

Campbell, Meissner, Novy, Jacks, 19 September 2009

Trade has declined massively during the crisis. This column assesses the relative roles of falling demand and rising trade costs in explaining the collapse and compares it to the Great Depression. Surprising, the increase in trade costs today is as large as in 1929, despite the absence of any modern protectionism resembling Smoot-Hawley. It appears that reviving global demand alone will be insufficient to revive world trade.

van Ours, Williams, 19 September 2009

There is growing evidence of a link between mental health problems and cannabis use. Is it causal? This column shows that cannabis use, particularly frequent use, does have an adverse effect on mental health. Unobserved factors that make individuals more likely to use cannabis do also make them more susceptible to mental illness, but using marijuana has an additional causal impact.

Saint-Paul, 19 September 2009

Has economics failed us? Should economists have seen this crisis coming? This column offers a defence of contemporary economics against those demanding forecasts of crises and complaining about the profession’s mathematical intensity. It says that the economy’s extraordinary complexity necessitates that economists remain modest, not that they abandon their training for a multidisciplinary melting pot.

Heller, 18 September 2009

At the Global Economic Symposium in Schleswig-Holstein in September 2009, Peter Heller of Johns Hopkins University spoke at a session on ‘dealing with the new social divides’. Afterwards, he talked to Romesh Vaitilingam about the challenges of restoring sustainable public finances after the fiscal stimulus – and the potential impact on growth in the developing countries and on the ageing populations of the industrial countries.

Ellman, Germano, 18 September 2009

Is there a crisis in the media and journalism? This column argues that advertising has seriously interfered with the quality, accuracy, and breadth of content and programming in the media. It calls for vigorous competition in media markets and public funding of informative media as a public good.

Gandal, 17 September 2009

Is increasing obesity due to changes in relative food prices? High-energy density foods are less expensive per calorie than fresh fruits and vegetables. Using data from Israel, this column shows that price sensitivity has a significant impact on obesity. In fact, price sensitivity may be more crucial than income.

Bottazzi, Jappelli, Padula, 16 September 2009

Pensions reforms are shifting retirement burdens onto private households. How will they respond? This column uses Italian data to show that households better informed about their future entitlements save more for retirement, but private wealth increases considerably less than one-for-one with the social security decreases.

Kawai, Wignaraja, 15 September 2009

East Asian economies adopted numerous preferential trade agreements over the last decade. This column summarises the results of a survey of firms in the region examining the effects of those trade deals. The region’s exporting manufacturers largely view trade preferences positively, though further policy action is needed to maximise the potential benefits.

Booth, 14 September 2009

Women are underrepresented in high-paying jobs and upper management. Is that due to gender differences in risk aversion and facing competition? This column describes an experiment in which girls were found to be as competitive and risk-taking as boys when surrounded by only girls. This suggests cultural pressure to act as a girl could explain gender differences that are not innate.

Williamson, 12 September 2009

Latin America is much more unequal than Asia and the rich post-industrial nations, and some have argued that high inequality appeared very early in the post-conquest Americas. This column says that Latin America was indeed unequal on the eve of its industrial revolution, but less unequal than Western Europe on the eve of its industrial revolution. The uniqueness of Latin American inequality is its twentieth century history, not the four centuries prior.

Jacks, 12 September 2009

The sensitivity of bilateral trade flows to distance has remained unchanged or increased over the last half century, even in the face of unprecedented levels of global trade. This column shows that the effect of distance dramatically declined during the nineteenth century as trade costs fells, suggesting that trade costs may have not declined nearly as dramatically in recent decades as has been assumed.

Zhang, Sun, 12 September 2009

Emerging economies have been hit hard by the global crisis. This column assesses the nature and severity of China and Hong Kong’s vulnerability to the turmoil originating from the US. It warns that China cannot decouple from US financial and monetary conditions, so it must participate in coordinating international policy and manage its capital account openness.

Spence, 11 September 2009

In fifty years, 3.4 billion people in developing countries will approach advanced country income levels with consumption, energy use, and emissions patterns to match. In this column, Nobel Laureate Michael Spence argues that advanced countries should lead the way with technology and a global strategy to reduce the carbon intensity of their economies. That will lay the groundwork for developing economies to follow a sustainable path as they graduate to higher income levels.

Moran, 11 September 2009

When does a foreign acquisition of a company constitute a national security threat? This column says analysts may start by determining how “critical” the goods or services provided by the target of the proposed acquisition are. However, when competition among rival suppliers is high and switching costs are low, there is no genuine national security rationale for blocking a proposed acquisition, no matter how crucial the goods and services the target company provides.

Favero, Giavazzi, 10 September 2009

Christina and David Romer have recently produced new estimates of the tax multiplier by using the narrative record to identify exogenous tax changes. This column says that their estimates assume that tax changes are orthogonal to shifts in other macroeconomic variables, such as productivity, taxes, and monetary policy. Relaxing that assumption yields much smaller estimates of the tax multiplier.

Sumner, 10 September 2009

Do most macroeconomists hold views of this crisis that are entirely at variance with modern monetary economics? This column says that tight monetary policy caused the crisis. Economists seem not to believe what they teach about the fallacy of identifying tight money with high interest rates and easy money with low interest rates.

Snower, 10 September 2009

Dennis Snower, President of the Kiel Institute for the World Economy, talks to Romesh Vaitilingam about the 2009 Global Economic Symposium, which meets this week at Plön Castle in Schleswig-Holstein, Germany. He calls for a new age of global cooperation to supplement the age of globalisation, and to tackle such challenges as the financial crisis, climate change, failed states and failed multilateralism. The interview was recorded in September 2009.

Gros, Roth, 10 September 2009

Most observers agree that central banks can claim partial credit for the stabilisation that have been achieved and the prospect of a recovery. This column warns that the general public seems to hold a completely different opinion; trust in central banks has declined and the reaction of central banks to the crisis is generally judged as unsatisfactory. Central bankers all over the world should redouble their efforts to regain the trust of the people towards their institution.

Levinson, 09 September 2009

If governments supply public goods that market forces will not, they ought to assign monetary values to those goods so that they can prioritise projects. This column discusses the difficulties of estimating those values using happiness surveys. Using a new method, it estimates that people value a one-standard-deviation improvement in air quality at $40.

Reade, Volz, 08 September 2009

The global financial crisis has revived euro deliberations in Sweden. This column argues that Sweden ought to join the eurozone. It says that Swedish monetary independence is an illusion, as Swedish money market rates are driven by the policies of the ECB. Sweden would gain more by taking a seat at the ECB table than remaining a passive bystander.

Hartmann, Kwast, Praet, 08 September 2009

The financial crisis has exposed serious weaknesses in risk measurement and management practices. This column argues for both market practitioners and their supervisors to make concerted efforts to achieve a more integrated measurement and management of different forms of risk.

Görg, Hanley, 07 September 2009

This column examines the impact of offshore outsourcing on firms’ profits and innovation. Using data on 2,000 Irish firms, it shows that the purchase of foreign inputs raises both profits and innovation. Offshore outsourcing seems to improve competitiveness and bode well for an economy’s long-term economic health.

Wieland, 05 September 2009

Eurozone governments have engaged in substantial fiscal stimulus. This column argues against further fiscal measures, claiming that forward-looking firms and households will cut their expenditure in response to governmental expansions. It warns that further fiscal efforts risk eroding financial and monetary policies that are combating the crisis.

Bosch, van Ours, van der Klaauw, 05 September 2009

Female part-time work is much more popular and persistent in the Netherlands than in any other OECD country. A 2001 tax reform that raised the after-tax hourly wage increased female labour force participation but actually reduced hours worked. This column explains why Dutch women are happy to work part-time.

Chauffour, Farole, 05 September 2009

In April, G20 leaders agreed to massively support trade finance. Should international trade finance be a significant concern in current circumstances? This column cautions against overestimating the trade finance “gap”, yet highlights the possible rationales and conditions for an effective intervention in support of trade finance.

Shin, 04 September 2009

Hyun Song Shin of Princeton University talks to Romesh Vaitilingam about the role of securitisation, mark-to-market accounting and banks’ incentives in the current financial crisis, making an analogy between the feedback mechanisms that made London’s Millennium Bridge wobble dramatically when it was first opened and those that operate within the modern financial system. The interview was recorded in Princeton in August 2009.

Acharya, 04 September 2009

Financial institutions enjoy a large number of government guarantees. This column says that we ought to be charging banks for such subsidies and doing so in a way that promotes financial stability. It uses the example of demand deposit insurance in the US to explore the poor design of funding for such guarantees.

Carraro, Massetti, 03 September 2009

Mitigating global warning is a pressing and daunting task for the world’s major economies. This column says that the 2°C target set by G8 leaders is both politically and technologically unrealistic. It argues they must adopt more realistic targets and long-term commitments to adaptation plans.

Hersh, Voth, 03 September 2009

There is a broad consensus that living standards stagnated for millennia before the Industrial Revolution. This column attributes that conclusion to a measurement error in real wage indices. The introduction of new goods such as coffee, sugar, and tea to England in the 1700s and 1800s dramatically raised living standards – perhaps more than 15%.

Weil, Henderson, Storeygard, 02 September 2009

GDP data is often poorly measured, especially for sub-Saharan Africa. This column shows that satellite data on lights at night can be used to enhance the quality of GDP growth measures. Using rainfall and satellite data, it also shows that growth of immediate agricultural hinterland of a sub-Saharan city spurs growth of the city.

Hanna, Linden, 01 September 2009

Education is often cited as a way of “levelling the playing field” for children from disadvantaged minority groups, opening up both social and economic opportunities. But is education itself level? This column provides evidence that Indian schoolteachers may discriminate against minority students.

Iacovone, Zavacka, 01 September 2009

Both financial turmoil and falling demand have hit exporters hard. This column confirms the importance of financing problems by showing that sectors relatively more dependent on external finance suffer larger export drops during banking crises.


CEPR Policy Research