December 2011

Kotchen, Potoski, 24 December 2011

Many spheres of economic activity rely on expert ratings to guide individuals’ choices. An obvious concern arises when evaluators have incentives to distort ratings for private gain. This column uses data from the USA Today Coaches Poll of the top 25 teams in US college football to study whether agents are able to overcome conflicts of interest and provide unbiased rankings. It finds strong evidence that coaches distort rankings for reputation benefits and financial rewards.

Görg, Geishecker, Krieger-Boden, 24 December 2011

The effects of offshoring on wages remain a hotly debated issue. This column explores the case of UK firms between 1992 and 2004, recognising that offshoring in one particular industry may also affect labour demand in other industries. It suggests that services and materials offshoring increase the wages of high-skilled workers and decreases the wages of low- and medium-skilled workers, thus contributing to a rising wage inequality.

Blanchard, 23 December 2011

2011 was supposed to be the year that saw the back of the Global Crisis. Alas, the crisis is still with us as the North Atlantic banking part of the crisis morphed into the Eurozone crisis, and slow growth in advanced countries once again threatens emerging economies. In this column, IMF chief economist Oliver Blanchard draws the lessons from 2011’s economic and policy developments.

De Haas, Attanasio, Augsburg, Fitzsimons, Harmgart, 23 December 2011

Microfinance institutions across the world are moving from group lending to individual lending. Yet, there is not much rigorous evidence on the borrower impact of both types of microcredit to either support or challenge such a strategic shift. This column presents such evidence from a randomised field experiment in Mongolia.

Whalley, 23 December 2011

In terms of new emissions reductions, little materialised at the climate-change negotiations in Durban in November. This column argues that trade policy could widen the range of jointly beneficial potential outcomes and in this sense be a potential facilitator of an agreed global climate regime. Moreover, trade provides a mechanism for achieving an internalisation outcome for the global externality that climate change represents.

Etro, 23 December 2011

To some, the world of art and world of economics are diametrically opposed. To others, such as the author of this column, they are part of the same. This column looks at the wages of painters during the 17th century Baroque art movement and asks what insights it can provide for art lovers, economists, and those who consider themselves both.

Frank, 23 December 2011

Robert Frank of Cornell University talks to Romesh Vaitilingam about his book, ‘The Darwin Economy: Liberty, Competition and the Common Good’. He argues that Charles Darwin's understanding of competition – in which individual and group interests often diverge sharply – describes economic reality far more accurately than Adam Smith's. They discuss the implications of this view for current debates about inequality, taxation, and policies to get out of economic stagnation. The interview was recorded in London in November 2011. [Transcript available]

Guindon, Nandi, Chaloupka, Jha, 23 December 2011

In India, 1 in 5 of all adult male deaths and 1 in 20 of all adult female deaths at ages 30-69 are due to smoking. This column estimates that raising the price of cigarettes by 1% would decrease smoking by about 1.1% and even more so for poorer households.

Rubin, 22 December 2011

The economic rise of Europe and its offshoots relative to the rest of the world is of intrinsic interest to those concerned with the mechanisms underlying economic success and stagnation. This column argues that differences in the legitimising relationship between political and religious authorities in Europe and the Middle East have contributed to the economic divergence between the two regions in the last half-millennium.

Véron, 22 December 2011

Despite emergency summits and last-minute reforms, there is still a large question mark hanging over the euro. This column argues that a chief cause of this is the management of Europe’s banks. It epitomises many of the contradictions at the heart of the Eurozone and unless resolved could be the cause of a slow and painful death of the single currency.

Caselli, Tesei, 22 December 2011

Oil and other natural resources can be both a blessing and a curse. Incomes may rise, but the politics can soon turn nasty. This column looks at a large panel of countries and finds that this isn’t always the case. Discovering natural resources has no effect on the political system – if the country is already a democracy.

Bush, Farrant, 21 December 2011

According to the architects, the latest financial regulations are designed to reduce the risks from large global capital flows – a key driver of the global crisis. But this column argues that such reforms do not go far enough and that the increasing risk of a second global financial crisis stemming from the Eurozone debacle re-emphasises the need for more changes.

Bisio, Jurcevic, Quagliariello, 21 December 2011

In a bid to restore stability and confidence in the markets, the European Banking Authority (EBA) has recommended a plan to raise the required capital buffers of major European banks by summer 2012. This column, by economists at the EBA, describes how the capital targets have been calculated and outlines the main drivers of bank shortfalls with respect to these targets.

Speller, Thwaites, 21 December 2011

Will international capital flows play a lead role in the next global crisis? This column summarises a new Bank of England study that provides simulations of gross and net capital flows between now and 2050. It shows that however great the challenges policymakers may now face, there are many more to come.

Whalley, Weisbrod, 21 December 2011

In the three years before the global crisis, the average GDP growth in sub-Saharan Africa was around 6%. This period also saw significant Chinese foreign direct investment flowing into the continent. This column uses growth-accounting methods to assess what portion of this growth can be attributed to Chinese FDI. Although for some countries and years the effects were negligible, some countries saw total GDP growth from 2002 to 2009 increase by 0.5 percentage points due to Chinese FDI alone.

Shin, 20 December 2011

It has become commonplace to assert that current-account imbalances were a key factor in stoking subprime lending in the US. This column says the ‘global banking glut’, i.e. the rise in cross-border lending, may have been more culpable for the crisis than the ‘global savings glut’. As the European banking crisis deepens, the deleveraging of the European global banks will have far-reaching implications not only for the Eurozone, but also for credit supply conditions in the US and capital flows to the emerging economies.

Kézdi, Willis, 19 December 2011

How to ordinary people form their beliefs about the economy? These beliefs then shape the decisions they make and can, if widely held, prove to be self-fulfilling. This column looks at surveys of ordinary people in the US and finds that the beliefs people hold and the reasons behind them vary almost as much as the outcomes they try to predict.

Gros, 19 December 2011

If Italy is too big to fail and too big to save, how can it save itself? This column suggests a survival strategy. The Italian households should finance their own government by buying its debt, and the ECB should prevent a collapse of the Italian banking system.

Ali Abbas, Belhocine, El-Ganainy, Horton, 18 December 2011

As policymakers continue to grapple with high debts and the troubles that come with them, this column looks at the lessons from data on public debt in 178 countries stretching back as far as 1880. It argues that when faced with an unsustainable debt burden, slow but steady adjustment is the way to go.

O'Sullivan, Kinsella, 17 December 2011

The capital shortfall at EU banks is 8% higher than originally thought, according to the latest assessment from the European Banking Authority. This column examines the evolution of loan-to-deposit ratios in big European banks. It says banks have been buying back their debt securities, hoarding profits, limiting bonuses, and deleveraging. However, write-downs of sovereign debt have largely offset these efforts.

Hummels, Cristea, Puzzello, 17 December 2011

It is well known that international trade leads to greenhouse-gas emissions but policymakers often focus their attention on the production of goods and not their shipment. This column presents findings based on a unique database that allows researchers to calculate emissions for every dollar of world trade. It suggests that international transport emissions warrant serious attention in current climate-change negotiations.

De Grauwe, 16 December 2011

Paul De Grauwe talks to Viv Davies about the Eurozone crisis and the Brussels summit. De Grauwe suggests that the fiscal compact is incomplete and fails to address the problem of imbalances between the north and south in the Eurozone. He maintains that the ECB needs to act decisively and questions why its moral hazard considerations should not apply equally to both banks and sovereigns. They also discuss the idea of a sovereign-debt guarantee fund. The interview was recorded on 15 December 2011.

Annunziata, 16 December 2011

As Eurozone leaders move towards fiscal integration, critics say the focus on fiscal rules will condemn countries to austerity and deep recession. This column argues that the latest proposals are not nearly so fearsome.

Berman, Berthou, Héricourt, 16 December 2011

The synchronised poor growth in European countries can be explained by many factors, including trade and financial linkages. This column argues that firms’ domestic sales are directly affected by the fall in their exports. Using French firm-level data and the Asian Crisis as a foreign-demand shock, it finds that domestic sales were 5% lower for firms exposed to the crisis. It suggests that this is because the cash flow generated by exports may be used by firms to finance domestic operations in the short term.

Fratzscher, Mehl, 15 December 2011

Is the international monetary system tripolar – with the US dollar, the euro, and the Chinese renminbi at each corner? This column presents empirical evidence to suggest that the renminbi is already well on its way to being the dominant currency in Asia.

Goodhart, Schoenmaker, 14 December 2011

The euro crisis continues to deepen, as European leaders continue with their ‘too little too late’ policy reforms. This column argues that fixing the Eurozone problems requires a strong direction of fiscal and banking policy, but that this in turn requires deeper political integration including an elected president of the European Commission and a two-chamber parliament representing EU citizens and EU member states.

De Haas, van Lelyveld, 14 December 2011

In the current financial turmoil, does it pay to have domestically owned banks or foreign-owned ones? This column looks at the lending behaviour of multinational banks the last time financial markets were in crisis in late 2008. It concludes that while multinational banks may contribute to financial stability during local bouts of financial turmoil, they also increase the risk of ‘importing’ instability from abroad.

Moon, 13 December 2011

Little is known about North Korea’s economy as official statistics are scant. But North Korea cannot be ignored, especially when it comes to the size of its army. This column suggests that the true number is hidden between the lines of the census. It provides an estimate based on missing population, that is, the difference between the whole population and the number of registered citizens.

Whelan, 12 December 2011

A recent Vox column argues that the Bundesbank is selling off assets to lend to peripheral central banks, that this process is about to end, and the result will be a catastrophe. This column argues that such claims are based on a misrepresentation of the Bundesbank’s accounts and a misunderstanding of ECB monetary policy. The Eurozone may be in crisis but for entirely different reasons.

Ghani, Grover Goswami, Kharas, 12 December 2011

Policymakers in both developed and developing countries now see services as the source of jobs and growth. This column argues that modern services sophistication now surpasses that of the manufacturing sector and explores the reasons why.

Ugolini, 11 December 2011

While many central bankers feel they are now in unchartered territory, this column argues that history may provide guidance. Going back to a time before central banks, it argues that there are long-term cycles in the evolution of monetary policy – governments have alternatively internalised and externalised money creation. The key to success is not who runs monetary policy, but how credible they are.

Hummels, Jørgensen, Munch, Xiang, 10 December 2011

With stagnating wages and lingering unemployment, income inequality is back in the headlines. Is globalisation to blame for this inequality? Is more education a solution? This column argues that focusing on university education misses important effects. It presents evidence that wage effects vary markedly among those with degrees depending on their specific skill sets, and that globalisation can often benefit workers without degrees

Wyplosz, 09 December 2011

The night of Thursday 8 December saw a meeting to save the euro. Judging by reactions Friday morning, there is some way yet to go, but this column argues that Europe is getting there, slowly. A significant step has been made in the right direction; the principle is right but the details are missing.

Healy, 09 December 2011

At this week’s summit on the future of the euro, Angela Merkel will be one of few women in a room full of men. This column provides experimental evidence to suggest that women are often less driven by the desire to compete and have less belief in their abilities than men. The result is that even the highest ranks of power may be bereft of the most able of candidates.

Wyplosz, 08 December 2011

Charles Wyplosz talks to Viv Davies about the Eurozone crisis and the current summit. Wyplosz suggests that the political leaders should agree a decentralised fiscal discipline for the Eurozone countries, allow the ECB to play a more effective role and that there should be a moratorium on EU summits. He also dismisses the recent suggestion that the crisis is about balance-of-payments issues. The interview was recorded in London on 8 December 2011. [Also read the transcript]

Piketty, Saez, Stantcheva, 08 December 2011

The top 1% of US earners now command a far higher share of the country's income than they did 40 years ago. This column looks at 18 OECD countries and disputes the claim that low taxes on the rich raise productivity and economic growth. It says the optimal top tax rate could be over 80% and no one but the mega rich would lose out.

Wagner, 08 December 2011

As government advisors and central bankers race through the different options to save the euro, this column argues that one such proposal, Eurobonds, will actually increase the risk that several Eurozone countries fail together. It shows using basic arithmetic that these bonds, sometimes labelled ‘stability bonds’, may actually be more likely to harm Eurozone stability.

Wang, 08 December 2011

The financial system is like an organ in the body of the economy. But is it the heart or the appendix? This column, part of the Vox Debate on whether we need a financial sector, argues that we should measure the value banks create through their management of risk, not simply their bearing of risk. Under this measure, banks may well be less valuable to the economy.

Krishna, Poole, Senses, 07 December 2011

What are the effects of globalisation on wages and jobs in international and domestic firms? This column finds that data on employers and employees in Brazil tell a more nuanced story than the typical findings from firm-level data.

Onado, Resti, 07 December 2011

The newborn European Banking Authority has been fiercely criticised in the few months of its life. This column argues that most of the criticisms have been driven by lobbying interests more than by noble worries on the future of the European economy. It adds that the current market turmoil requires a pan-European guarantee scheme for banks, a ‘big bazooka’ for sovereign debt which does not boil down to a pop gun, and stronger bank supervision at the EBA level.

van Ours, 06 December 2011

In many Western countries, between one quarter and one third of the population admit to having used cannabis at least once in their lives – according to the official statistics. This column provides an in-depth review of existing economic, social, and media evidence for and against legalisation. It concludes that although there is of course uncertainty surrounding the long-term implications, prohibition is not working and it is time to legalise.

Cingano, Barone, 06 December 2011

Many European countries face the challenge of credibly reducing their debt-to-GDP ratios. Boosting output growth is therefore an urgent and key political and economic priority. This column argues that increasing competition in the market for key upstream service activities – in particular, energy and professional services – could have sizeable effects on growth by improving the performance of downstream manufacturing industries.

Tornell, Westermann, 06 December 2011

If you thought the Eurozone crisis was coming to an end this week, this column argues that we may barely be reaching the end of Act One.

Wyplosz, 05 December 2011

This week’s announcements by German Chancellor Angela Merkel and ECB President Mario Draghi that the Eurozone is taking steps towards a closer fiscal union seem to be calming markets and restoring confidence in the decision-making of Eurozone leaders. This column argues, however, that the devil is still in the detail.

Reisen, 05 December 2011

China’s currency has appreciated substantially in recent years. While many in the west still argue that this is not sufficient and focus on the effects on their domestic industry, this column asks what the effects have been for the world’s poor countries.

Subramanian, 05 December 2011

The Indian growth miracle, including the experience of the 2000s, continues to confound. This column examines the numbers across states and establishes four facts: growth was faster in the 2000s than the 1990s in most states, divergence in the growth performance across states continues, faster growing and more globalised states took a bigger hit during the crisis, and the demographic dividend seems to be disappearing.

Ghani, Kerr, O'Connell, 04 December 2011

With millions of young people entering the global labour market each year, the question on their lips as well as policymakers’ on high is whether there will be enough jobs for them. But fewer are asking who actually creates these jobs. This column looks at data from India suggesting that young and small firms play a vital role. It argues that entrepreneurship works; policymakers just need to support it.

Thorstensen, Ferraz, Marçal, 04 December 2011

Persistent exchange-rate misalignments have created trade frictions worldwide. This column argues that the WTO should adopt trade rules that allow nations to neutralise the effects of exchange-rate misalignments. Otherwise, the WTO might become a diplomatic-juridical fiction.

Coyle, 03 December 2011

Have economists been asleep at the wheel? This column reports from a conference on the psychology and economics of ‘scarce attention’. Among the ideas discussed is whether too much information can blind decision-making and whether this can explain why so many economists missed the warning signs of a crisis.

Manasse, 02 December 2011

Paolo Manasse talks to Viv Davies about Italy and the Eurozone crisis. They discuss the economic and political challenges currently facing Italy, how a eurozone fiscal union might work in practice and the role of eurobonds. Manasse explains the trade-off between addressing sovereign debt in the peripheral economies and establishing broader financial stability across the Eurozone; he maintains that an expansionary ECB monetary policy is an important part of the solution. The interview was recorded on 30 November 2011. [Also read the transcript]

Philippon, 02 December 2011

Has the financial industry become less efficient? This lead commentary in the Vox debate on the financial sector argues that, despite all of its fast computers and credit derivatives, the current financial system is no better at transferring funds from savers to borrowers than the financial system of 1910.

Philippon, Hellwig, 02 December 2011

Fiscal union is now officially on the European agenda, but the issue of Eurobonds remains controversial. This column argues that the Eurozone needs Eurobills, ie debt of maturities less than a year. Issuing Eurobills – up to 10% of Eurozone GDP – would help with crisis management as well as financial regulation, and monetary policy, while minimising the risks of moral hazard.

Bovi, 02 December 2011

The countries most affected by the Eurozone debt crisis seem also to be characterised by bad institutions and large shadow economies. This column describes the bad equilibrium in which bad governments offer few and low-quality public services and make people less willing to pay for services. Firms stay underground, public receipts stay low, and governments remain inefficient. In sum, the presence of inept bureaucracy may be strongly associated with the shadow economy.

Ebenstein, Hazan, Simhon, 02 December 2011

For years, policymakers trying to influence the decisions of would-be parents have tried to change the ‘price’ of having children. In France they have made it cheaper; in China more expensive. This column looks at whether such policies are likely to have their desired effect. It examines unique evidence of a shock to the cost of having a child in Israeli communities between 1990 and 2000.

Michaels, Lei, 01 December 2011

Do natural resource windfalls, such as those arising from the discovery of giant oil fields, increase the risk of internal armed conflict? This column argues that giant oil field discoveries, which are largely down to chance, significantly increase the incidence of conflict. This is especially so in countries with recent histories of political violence, where locals may have little to gain from such discoveries

Doménech, 01 December 2011

Those following developments in Europe fear another Lehman Brothers disaster, where one failure triggers several others and a global recession follows. This column suggests that recent history may already be repeating itself – but with even more severe consequences unless drastic action is taken.


CEPR Policy Research