September 2011

Persaud, 30 September 2011

The ‘Tobin tax’ has once again appeared in the headlines having been proposed by the European Commission and opposed by the US. This column argues that such taxes are more feasible than most think when they are linked to legal enforceability, and that the burden would be disproportionately borne by high-frequency traders that provide liquidity only when the markets don’t really need it.

Jinjarak, Aizenman, 30 September 2011

In the immediate fallout from the global crisis, governments around the world responded by spending big. Yet despite the talk of international coordination, this wasn’t the case in all countries. This column explores why. It finds that trade openness, fiscal space, and exchange-rate policy played a pivotal role.

Harding, Javorcik, 30 September 2011

A large literature documents the benefits brought by foreign direct investment to recipient countries in terms of productivity and economic growth. This column argues that another effect is the boosting of the quality of exports. It shows that investment promotion leads to more inflows of FDI, which in turn allow developing countries to upgrade their export basket.

Kahn, 30 September 2011

Matthew Kahn of the University of California, Los Angeles, talks to Romesh Vaitilingam about global warming – and the incentives for individuals, cities and nations to reduce their greenhouse gas emissions or to adapt their lives to a warmer planet. He explains how free market capitalism might drive effective climate change mitigation or adaptation. The interview was recorded at Growth Week in London in September 2011. [Also read the transcript]

Wignaraja, 29 September 2011

With the global economy in the treatment room, Asia’s economic giants are under examination as among the few exciting sources of world trade and growth. This column summarises the results of research on reforms, regionalism, and exports in China and India. It finds that China is likely to remain ahead in world trade in the next decade, although India has the opportunity to narrow the gap using policy measures.

Tornell, Westermann, 28 September 2011

With economists’ eyes fixed squarely on Greece, this column tries to solve a puzzle. Since 2008, tens of billions of euros have fled Greek bank accounts. Yet somehow the country still has a current-account deficit. Where has this money come from?

Farole, 28 September 2011

As competition for FDI and trade share intensifies in a tightening global environment, more and more countries are looking at the potential of special economic zones to kickstart growth. But China aside, do these zones work? This column asks: what have we learned from the experiences of developing countries over recent decades?

Yu , Eberhardt, Helmers, 27 September 2011

The number of domestic patent filings in China increased at an annual rate of 35% from 1999 to 2006. But the reasons behind this ‘patent explosion’ are unclear. By compiling a new dataset of 20,000 Chinese manufacturing firms, this column shows that the explosion has been ignited by the ICT sector.

Miller, Driffill, 27 September 2011

Just what on earth is going on in the global economy? Rather than get caught up in the hysteria, this column says the answers are best found by looking through the pages of history and dusting down some old textbooks.

Frey, Osterloh, 26 September 2011

As the bonus culture in the financial sector once again comes under attack, this column challenges the typical defence that banks need to pay top dollar to attract the best talent.

Wyplosz, 26 September 2011

Last weekend, Eurozone policymakers were shaken into admitting that something more needs to be done to save the Eurozone and avoid a major crisis that would reverberate around the world. This column proposes a three-step solution to finally end the crisis.

Yilmaz, 25 September 2011

The IMF claims that European banks are in need of capital injections; the ECB disagrees. This column looks at the issue from a different angle. It uses daily bank stock price data to calculate a volatility connectedness index as a measure of how shocks to bank share prices are spread to others. As of 7 September, the index reached its historical high, indicating that major European bank stocks are connected in a state of high volatility.

Kuhn, 24 September 2011

Another week, another set of crisis talks over the future of the euro. This column argues that the currency’s problem is one of incentives. It says that interventions since early 2010 have been completely ineffective and that most current proposals to foster budget discipline will fare no better. It calls for new decision-making mechanisms as a matter of urgency.

Belley, Frenette, Lochner, 24 September 2011

As scores of young men and women wave goodbye to their parents and prepare to start their university educations, this column asks whether providing more financial aid would increase the number of students enrolling from the poorest backgrounds. It looks at data from the US and Canada to see if the differences in funding for disadvantaged students can explain some of the differences in educational and social outcomes between the two countries.

Dadush, Eidelman, 23 September 2011

Currency wars are a pressing concern in the international arena. This column introduces a new online book that argues the real cause of today’s currency tensions are misguided domestic policies in the world’s major economies. The cure is not to overhaul the exchange-rate system – which has worked well during a global crisis. The solution lies in incremental change by the US, the EU, and China.

Persaud, 23 September 2011

The financial crisis revealed substantive problems that need to be solved, especially in the banking sector. This column argues that Basel III, the new accord on international banking, is an overdue step in the right direction. It should be defended against attempts by bankers and their friends to cut it down, dilute it, and postpone it.

Acharya, 23 September 2011

Viral Acharya of New York University talks to Viv Davies about the recent report issued by the UK's Independent Commission on Banking. They discuss capital requirements and the proposal to ringfence bank’s retail versus investment activities. They also discuss the likely costs of the proposals and what the implications may be for competition in the banking sector. Acharya stresses in particular the importance of appropriate risk weights even with ringfencing, especially in context of the current Eurozone debt crisis. The interview was recorded on 16 September 2011. [Also read the transcript]

Aleksynska, Havrylchyk, 22 September 2011

Foreign direct investment is a vital tool for building infrastructure and raising economic activity in the world’s poorer countries. This column describes the emergence of FDI between developing and transition economies (the South). It argues that these are different from traditional North-South flows. Although investors from the South are sometimes deterred by countries that have bad institutions, this is often outweighed by the presence of natural resources.

Raddatz, Schmukler, 22 September 2011

As the financial crisis spread throughout the world, attention fixed on those working in the stock and bond markets, with many accusing them of making the crisis worse. This column looks at data on international mutual funds since 1996 and finds that when there is a crisis, equity funds tend to amplify the shock by acting procyclically, while bond funds transmit the crisis across countries by acting countercyclically.

Bordo, Jonung, Markiewicz, 21 September 2011

The single European currency is the first of its kind – a union where monetary policy is decided centrally and fiscal policy decided nationally – something that many argue is the root cause of its troubles. This column looks to history to find examples of federal states with a common currency but without the frailties currently being exposed in the Eurozone. The main lesson: No bailouts.

Eichengreen, Prasad, Rajan, 20 September 2011

Central banks have massively broadened their remit in recent crisis-laden years, but the standard analytic framework – ‘flexible inflation targeting’ – has not changed. This column argues that it is time to properly flesh out an alternative framework. Financial stability should be an explicit mandate of central banks, and international coordination among central banks should be boosted by forming a small group of systemically significant central banks that regularly meets and issues reports to the G20 on their financial-stability policies.

Farhi, Gourinchas, Rey, 19 September 2011

Some prominent economists argue that failures in the international monetary system are the root cause of the global crisis. This column introduces a new eReport arguing that, at the very least, the international monetary system is inefficient and destabilising for the global economy. It proposes a number of reforms, the common thread of which is to increase the conditional supply of liquidity and reduce its unconditional demand.

Einav, Kuchler, Levin, Sundaresan, 18 September 2011

The internet has reduced dramatically the cost of varying prices, displays, and information provided to consumers. This column discusses how this change enables both passive and active experimentation by retailers, and how this experimentation can be used by economic researchers in a way that takes advantage of the scale and heterogeneity of online markets.

Beck, Wagner, Uhlig, 17 September 2011

While almost everyone is agreed that the Eurozone is in crisis, there is much less agreement about how to stop it. This column argues that policymakers should move beyond the current proposal for Eurobonds – something the authors label as “economically wrong and politically indefensible”. Instead, they call for “synthetic Eurobonds” that would insulate the financial sector – and much of the economy – from the current debt crisis.

Wyplosz, 16 September 2011

Europe’s debt crisis is unfolding while Japanese and US debt problems are on hold. The problem of public debt in advanced economies will be with us for decades. This column introduces a new Geneva Report on the World Economy that addresses the nuts, bolts, and worries surrounding the issue.

Maingard, Recuero Virto, 16 September 2011

Is privatisation of infrastructure a cheap road to development? This column argues that policymakers should recognise that what works for some situations won’t work for all. When it comes to infrastructure, the column suggests that governments and international financial institutions should look beyond the private sector.

Masciandaro, 16 September 2011

Credit-rating agencies have come in for strong criticism for their role in the global crisis. This column asks whether by communicating their opinions rating agencies can make a crisis worse and outlines some of the policy implications if they do.

Brückner, Pappa, 16 September 2011

Does hosting the Olympic Games provide the economic benefits that so many politicians proclaim? This column argues that hosting the Games raises the expectations of future output and in doing so promotes investment, consumption, and overall activity. It suggests that the Olympic Games can be seen as having a positive anticipation effect on the aggregate economy.

Cooley, 16 September 2011

Thomas Cooley of New York University talks to Viv Davies about the debt crisis and why the Eurozone needs a credible institutional commitment and a strong fiscal authority. They discuss the role of the ECB, the banking system, ‘forced borrowing’ and the prospect of a two-track Eurozone. Cooley maintains that investment in education will be key to stimulating growth and competitiveness in the failing Eurozone economies. The interview was recorded on 15 September 2011. [Also read the transcript]

Beck, 16 September 2011

Financial systems can be a powerful tool for economic development across Africa. This column, which summarises a new report on finance in Africa, argues that in order to become such a tool, more competition, an increased focus on the necessary financial services, and more attention to demand-side constraints are needed.

Sibert, 15 September 2011

The European Central Bank was once known for its focus on price stability. Since the global economic crisis, however, its role has extended to saving banks and sovereign countries. This column argues that such a move has badly harmed the institution’s legitimacy – something that will damage both its policy effectiveness and confidence in the governing bodies of the EU as a whole.

Gandal, 15 September 2011

The open source software-development model gives free access to a software’s source code, allowing further users to modify and extend the program. This column argues that the success of Wikipedia and other users of open source methods show that it is likely to continue to be a cornerstone of the digital economy.

Bluedorn, Decressin, Terrones, 14 September 2011

There are concerns that the recent sharp drop in equity prices in the advanced economies may signal a rise in the risk of a double-dip recession. This column examines the performance of equity prices as predictors of new recessions in the G7 economies. The findings suggest that equity prices are useful predictors of recessions in most of these countries. Recent drops in equity prices suggest that the probability of a double-dip recession in France, the UK, and the US has increased substantially.

Ma, 14 September 2011

Recent research stresses the key role of a nation’s 'legal origin' – for example, common law versus civil law regimes – in determining economic performance. This column explores the much-overlooked origin of Chinese law and the role it is playing in the country’s development.

Acharya, Krishnamurthy, Perotti, 14 September 2011

Liquidity risk – which was at the heart of the September 2008 financial meltdown and explains regulatory concerns about a Greek default today – remains an open issue in financial regulatory reform. This column presents a consensus view of several leading academics on what more needs to be done to close this regulatory gap.

Alesina, Giavazzi, 13 September 2011

As Italy’s Prime Minister Silvio Berlusconi announces a new austerity bill based on tax rises, this column argues that the country’s leaders are in denial – it is as if they are trying to take aspirin to hide the symptoms of pneumonia. The authors predict that, with the current political class in power, Italy will soon enter another recession and, eventually, another crisis.

Gual, 13 September 2011

The IMF has recently suggested the recapitalisation of Europe’s banks as the most prudent way out of the continent’s economic crisis. This column argues that such thinking is based on a flawed analysis of the problem and is an unhelpful distraction at best. Europe is facing a crisis of government debt. The true problem of the Eurozone is not its banking system.

Alford, 12 September 2011

Ever since public money was used to bail out banks, the public has been demanding change in the way they are run. This is particularly the case in the UK, where the Independent Banking Commission presents its final report today. If it calls for a breakup of Britain’s banks into deposit and investment banks, this column argues that to follow such advice would be a grave mistake.

Irwin, 11 September 2011

The swift policy response to the recent financial crisis helped the world economy avoid a replay of the Great Depression of 1929-32. But can we avoid a replay of 1937-38? With the world economy weakening once again, this column addresses the question with a renewed urgency and comes up with an oft-overlooked explanation – the Treasury Department's decision to sterilise all gold inflows starting in December 1936.

Braguinsky, Branstetter, Regateiro, 10 September 2011

Portugal was the third member to join the unenviable club of bailed-out Eurozone countries. This column explores one of the central weaknesses of the Portuguese economy – its low productivity. It finds that this is in part the result of the shrinking size of Portugal’s companies, which is in turn caused by distortions in its labour market that need to be fixed.

Aumann, 09 September 2011

Nobel laureate Robert Aumann of the Hebrew University of Jerusalem talks to Romesh Vaitilingam about his work on ‘rule rationality’, the development of game theory and its potential for understanding conflict – from the Pax Romana to the modern day Middle East. The interview was recorded in August 2011 at the Fourth Lindau Meeting on Economic Sciences, which brought together 17 of the 38 living economics laureates with nearly 400 top young economists from around the world. [Also read the transcript]

Guadalupe, Kuzmina, Thomas, 09 September 2011

Studies have shown that foreign-owned firms are typically more productive. This column presents evidence from Spain that suggests this is mainly due to foreign firms buying the most productive domestic companies.

Gersbach, 08 September 2011

Many economists are calling for new rules in European governance to put a stop to the Eurozone crisis, with some going so far as to suggest steps towards political union. This column outlines an institutional framework – a proposal the author calls “Reciprocal Parliamentary Approval” – that may help to restore the fiscal stability many see as vital to the survival of Europe’s single currency without states surrendering their sovereignty.

Aizenman, Jinjarak, Hutchison, 08 September 2011

Bond markets provide sleepless nights for even the most powerful of political leaders. This column estimates the pricing of sovereign risk for over 60 countries during the last five years. It finds that fiscal space and other macroeconomic factors are important determinants of market prices of sovereign risk. But when looking at the Eurozone crisis, it finds that the market is excessively pessimistic.

Gersbach, 07 September 2011

Current regulation imposes fixed capital requirements on banks. However, this makes it impossible to use regulatory capital as a buffer against negative macroeconomic shocks. This column explains how this paradox could be resolved by basing capital requirements each year on average bank equity capital in the industry.

Bradlow, 06 September 2011

Many economists have called on the IMF to reform, particularly in light of the shifting centre of gravity in the global economy towards emerging markets. This column argues that global financial governance, which includes the role of the IMF, should be based on five principles: A holistic vision of development, comprehensive coverage, respect for applicable international law, coordinated specialisation, and good administrative practice.

Buiter, Rahbari, Michels, 06 September 2011

The Eurozone money transfer system, TARGET2, has huge imbalances whose meaning is subject to much debate. This column introduces a new CEPR Policy Insight by Citigroup Chief Economist Willem Buiter and co-authors that sorts out the issues. It argues that the imbalances show some banks can’t fund themselves without public support. This is a wakeup call – Eurozone banking systems must rapidly be put on sound footing.

Farmer, Plotnikov, 05 September 2011

Can government spending help the economy recover from a recession by boosting job creation and lowering unemployment? Or is it a waste of money? This column addresses this question and others using a unique framework. It explains why fiscal policy was effective at ending the Great Depression but it argues that a big fiscal expansion may not be the best solution this time round.

Micossi, 05 September 2011

This column takes stock of what we have learned from the Eurozone crisis and the policy responses. It discusses how Europe can put in place policies to reduce the chances of such a crisis repeating itself. By strengthening the Eurozone’s ability to withstand speculative attacks, it argues that policymakers would make them much less likely.

Baldwin, 05 September 2011

The Eurozone crisis moved into phase 2 this August when the contagion spread to Italian debt, Spanish debt, and most EZ banks. Radical ECB actions prevented a disaster. This column argues that the ECB emergency policies are unsustainable politically and perhaps legally. The only policy combination that EZ leaders could agree on quickly enough involves political cover for ECB bond buying in exchange for national fiscal reforms of the German “debt brake” type.

Vandenbussche, Viegelahn, 04 September 2011

Has there been a protectionist backlash by the EU since the outbreak of the global crisis? This column, part of a collection of four columns on trade responses to the crisis, finds that thus far this has not been the case. It does not find any major trade policy changes during the crisis compared with the pre-crisis path.

Kang, Park, 04 September 2011

How have South Korean trade flows responded to the financial crisis of 2008-09? This column, part of a collection of four columns on trade responses to the crisis, finds that although relatively few antidumping duties were initiated, the Korea Trade Commission was more active in imposing these duties.

Karacaovali, 04 September 2011

Turkey has been one of the more active users of antidumping policies since 1989. This column suggests trade policy commitments with the EU may explain the recent rise in such temporary trade barriers. It adds that China has borne the brunt of Turkey’s protection over the 2000s, being involved in 43% of all antidumping cases and 82% of investigations.

Chandra, 04 September 2011

As tariffs have decreased around the world, many countries have started using other measures of protection, such as antidumping duties. This column explores China's imposition of such duties during 1997-2009. It finds that China’s antidumping duties disproportionally targeted high-income countries and were almost all in five sectors – chemicals, paper and pulp, plastics and rubber, steel, and textiles.

Canuto, Mohapatra, Ratha, 03 September 2011

Sovereign ratings are important for countries to access international capital, but even today 58 developing countries are not rated by Standard and Poor’s, Moody’s, or Fitch. This column presents an exercise to predict “shadow” sovereign ratings for these unrated countries. Contrary to popular perception, the unrated countries are not all at the bottom of the rating spectrum.

Diamond, 02 September 2011

Nobel laureate Peter Diamond of MIT talks to Romesh Vaitilingam about of the impact of improved longevity and the resulting demographic change on the retirement and healthcare systems of the advanced economies. The interview was recorded in August 2011 at the Fourth Lindau Meeting on Economic Sciences, which brought together 17 of the 38 living economics laureates with nearly 400 top young economists from around the world. [Also read the transcript]

Hau, 02 September 2011

The latest proposed solution to the Eurozone crisis is Eurobonds. This column argues that such a move would be politically poisonous and would shift the losses of the continent’s richest to the taxpayer. Instead, Europe’s policymakers should follow the strategy outlined by the new IMF chief Christine Lagarde. She calls for the recapitalisation of banks so that they can absorb the worst of the losses should Eurozone countries default.

Onado, 02 September 2011

Growing pessimism and a spread of contagion is still haunting the Eurozone. This column argues that if the crisis moves beyond Greece, Ireland, and Portugal, no capital injection can reassure markets about possible losses on a few big Eurozone countries. What is needed is a credible restructuring of the debt of peripheral countries to ring-fence the damage.

Giavazzi, Alesina, 01 September 2011

One major problem with the Eurozone as a currency area is that its economies are not in sync. With growth in Germany now slowing, this column argues that this could be the blessing the ECB has been praying for.

Puglisi, Snyder, 01 September 2011

Is the US media biased? According to a controversial new book, it is – and, perhaps surprisingly, to the left. This column takes a different analytical approach and argues that the press is actually much closer to the average voter’s sentiments than we might think. Might all these claims that the media is biased in one direction or the other be adding a whole new set of distortions?


CEPR Policy Research