January 2018

Eggertsson, Juelsrud, Getz Wold, 31 January 2018, 15807 reads

Economists disagree on the macroeconomic role of negative interest rates. This column describes how, due to an apparent zero lower bound on deposit rates, negative policy rates have so far had very limited impact on the deposit rates faced by households and firms, and this lower bound on the deposit rate seems to be causing a decline in pass-through to lending rates as well. Negative interest rates thus appear ineffective in stimulating aggregate demand.

Jansen, Pauwelyn, Carpenter, 31 January 2018, 5566 reads

International economic dispute settlement is under increased scrutiny. How are decisions made about the ‘fairness’ of national or foreign policies? How are damages to be paid by governments to private investors calculated? This column introduces a book with contributions from academics and practitioners that explore whether economists can be of use in addressing these and other contentious questions in international trade and investor–state disputes.

Bertay, Demirgüç-Kunt, Huizinga, 30 January 2018, 4745 reads

Banks that internationalise can enjoy additional profit opportunities and diversification benefits as national business cycles are not perfectly synchronised. This column uses an international sample of banks in 113 countries during 2000-2015 to show that the relative valuation of international banks from high-income countries rose following the Global Crisis as they experienced lower increases in loan losses, adjusted their international asset allocations, and received generous ‘too-big-to-fail’ subsidies. International banks headquartered in developing countries experienced no such revaluation following the crisis.

Beetsma, Debrun, 29 January 2018, 9048 reads

The proliferation of independent fiscal councils raises the question as to how toothless watchdogs can effectively prevent harmful policies. Even though these councils do not control any policy lever, high hopes rest in their ability to foster more stabilising and financially responsible fiscal policies. Are such hopes justified considering sketchy theory and limited evidence? What factors seem to make certain councils more effective than others? And what political conditions are conducive to establishing effective institutions? This column introduces some of the key issues related to the effectiveness of independent fiscal councils and discussed in a new eBook.

Dubois, Griffith, O'Connell, 29 January 2018, 6671 reads

A growing number of jurisdictions have adopted taxes on sugary drinks to help combat excessive sugar consumption. This column simulates the introduction of a volumetric tax on sugary soda in Britain to examine how well targeted such taxes are. The simulated tax leads young people to reduce the amount of sugar they purchase via soda by around 80% more than the average consumer, but is less effective at targeting people with a high-sugar diet.

Barczyk, Kredler, 28 January 2018, 4446 reads

Ageing societies and the increase in female labour force participation are putting pressure on governments to take a more active role in caring for the elderly. Using European and US data, this column investigates the responses of families to long-term care policy. The results suggest that care arrangements are strongly influenced by policy, and highlight the importance of accounting for informal care when evaluating reform proposals.

Kelly, Ó Gráda, 27 January 2018, 19618 reads

The consensus among economic (but not maritime) historians that maritime technology was more or less stagnant for 300 years until iron steamships appeared in the mid-19th century is largely based on indirect measures, such as changes in the cost of shipping freight or the length of voyages. This column instead looks directly at how the speed of ships in different winds improved over time. The speed of British ships rose by around half between 1750 and 1830 (albeit from a low base) thanks to innovations like the copper plating of hulls and the move from wooden to iron joints and bolts.

Börsch-Supan, Ferrari, Goll, Rausch, 26 January 2018, 4886 reads

Retirement ages in industrialised countries have been rising over the last three decades as more people work later into their lives. This column focuses on Germany, examining this trend and the contributing factors. Despite comparable trends in health, educational attainment, and spouse’s labour force participation, these three factors do not appear to explain the rise in retirement age. Instead, changes to public pension rules seem to be the key driver.

Iaria, Schwarz, Waldinger, 26 January 2018, 7420 reads

Access to existing knowledge fuels basic scientific progress and is key to the development of new technologies. This column studies how the decline in scientific cooperation that occurred during and after WWI affected science and innovation. The interruption of international knowledge flows led to stark declines in both the volume and quality of scientific production. This points to the merits of opening up access to scientific journals and of discerning what constitutes frontier research.

Bolt, Inklaar, de Jong, van Zanden, 25 January 2018, 9896 reads

Research on long-run economic development has relied heavily on the database compiled by Angus Maddison. This column presents a new version of the Maddison Project Database based on historical growth data, but also incorporating historical cross-country income comparisons. The revisions shed new light on patterns of long-term development and cross-country income convergence.

Amendolagine, Presbitero, Rabellotti, Sanfilippo, 24 January 2018, 7968 reads

A new wave of foreign direct investment has swept sub-Saharan African countries, with inflows becoming more diversified both geographically and sectorally. This column presents an analysis that shows a high degree of complementarity between involvement in global value chains and FDI. Policies supporting the entry and upgrading of countries in such chains – especially via a strong institutional setting and a well-educated labour force – can help maximise the spillovers from foreign investment.

Doeme, Kerbl, 24 January 2018, 7797 reads

Risk weights define each bank's minimum capital requirements, but many doubt the comparability of the risk weights that banks report. This column quantifies the variability of these weights across banks, and finds that the country where a bank is headquartered creates statistically significant and economically important differences. Model output floors, as recently agreed upon by the Basel Committee, would reduce this unintended risk weight heterogeneity.

Bachmann, Ehrlich, Ruzic, 24 January 2018, 5243 reads

There has been limited research on how groups’ collective reputations are affected by the misbehaviour of individual members. This column uses the Volkswagen emissions scandal as a natural experiment to explore group reputation externalities. German auto manufacturers that weren’t implicated in the scandal suffered significant declines in sales, stock returns, and public sentiment in the US. Volkswagen’s malfeasance appeared to materially harm the group reputation of German car engineering.

Evenett, Fritz, 24 January 2018, 5200 reads

On 22 January 2018, President Trump imposed safeguard duties on imported washing machines and solar panels and cells. This column analyses import surges into the US from 2006 to 2016 to put these tariff increases in perspective. Using a simple, theory-inspired method for identifying surges, it finds that during 2014-6 a category of manufactured good in the US had a one-in-32 chance of witnessing an import surge each year. US import surges aren’t concentrated in sectors where China has severe excess capacity either.

Carlin, Soskice, 23 January 2018, 11400 reads

Following the post-financial crisis recession, the UK and other high-income countries have experienced slow growth and stagnant productivity, along with both low inflation and, more recently, low unemployment. This column introduces an intuitive macroeconomic model that helps explain this puzzling combination.

Ito, Deseatnicov, Fukao, 23 January 2018, 4268 reads

The study of global value chains has become increasingly relevant as production becomes more and more fragmented across countries. This column uses evidence from Japan to evaluate recent theories that such chains have caused some of the country’s industries to become less competitive. The findings suggest that considering production for exports and domestic sales separately may provide a more complete picture of firm heterogeneity within industries, and a more complete picture of interconnected countries at the industry level.

Cherchye, De Rock, Griffith, O'Connell, Smith, Vermeulen, 22 January 2018, 4243 reads

The impact of variation in diet quality across individuals on obesity and diet-related disease has received much attention, but variation in individuals’ diet quality over time less so. This column combines British data on food purchases with a model in which individual choice is driven by the influence of a healthy self and an unhealthy self to examine self-control problems in food choice. The results indicate that self-control problems in food purchases are important, and that the interaction of the mechanisms at play merits investigation.

Mueller, Rohner, 22 January 2018, 3011 reads

Power sharing has been proposed as a potential solution to political violence in ethnically or religiously diverse countries. Using data from the Troubles in Northern Ireland, this column shows that power sharing has significant and substantial effects in terms of curbing violence. These positive effects disappear when power sharing ends, however, implying that that political cooperation and inclusion need to be maintained in the long run if the benefits of lower violence are to continue.

Dohmen, Falk, Golsteyn, Huffman, Sunde, 21 January 2018, 6534 reads

Many developed countries have ageing populations, with potentially major economic, political, and social consequences in the near future. Using Dutch and German panel data to control for cohort and period effects, this column investigates the relationship between age and risk attitudes. The results suggest that willingness to take risks declines with age, implying that societies may become more risk-averse as their population ages.

Ater, Rigbi, 20 January 2018, 5349 reads

The ability to compare prices openly and easily is widely thought to foster competitiveness, but mandatory disclosure of pricing information can also facilitate collusion between sellers. This column uses evidence from before and after the introduction of price disclosure regulation in the Israeli supermarket industry to evaluate how price transparency affected food prices. Mandatory disclosure decreased the dispersion and, to a lesser extent, the levels of prices. On average, Israeli consumers saved about $27 per month thanks to the regulation.

Proto, Rustichini, Sofianos, 19 January 2018, 9503 reads

Three attributes are often suggested to generate cooperative behaviour – a good heart, good norms, and intelligence. This column reports the results of a laboratory experiment in which groups of players benefited from learning to cooperate. It finds overwhelming support for the idea that intelligence is the primary condition for a socially cohesive, cooperative society. Warm feelings towards others and good norms have only a small and transitory effect.

Ebeke, Eklou, 19 January 2018, 6555 reads

The economics profession has generally explained large movements in macroeconomic aggregates such as GDP or employment by shocks to other aggregates. This is in part due to the difficulty of translating micro or localised shocks into macro-relevant ‘news’. This column argues that idiosyncratic shocks at the biggest European firms are behind 40% percent of aggregate GDP fluctuations in Europe. These results have implications for the effectiveness of traditional demand-side policies in the fine-tuning of granular economies.

Basker, Simcoe, 18 January 2018, 8429 reads

ICT fuelled rapid growth in US retail during the 1990s and 2000s. This column maps the adoption of universal product codes and scanners to show that the barcode was one of the main drivers of this growth. Companies adopting barcodes employed 10% more employees, delivered a wider range of products, and were more likely to procure from abroad.

Feenstra, Ma, Sasahara, Xu, 18 January 2018, 19927 reads

International trade has become a focus of political debates in the US and around the world, but while previous studies focus on the job-reducing effect of the surging imports from China or other low-wage countries on the US employment, the job-creating effect of exports has receive much less attention. This column employs two approaches – an instrumental variable regression analysis and a global input-output approach – to argue that the negative effects of import competition on US employment are largely balanced out once the country’s job-creating export expansion is taken into account.  

Mayer, Micossi, Onado, Pagano, Polo, 18 January 2018, 6225 reads

This column draws on a new book presenting the results of a two-year research programme that brought together leading economists from around the world to examine whether finance and public policy contributed to the deep and prolonged decline in European investment after the financial crisis. The findings point consistently to the importance of debt overhang as a contributory factor and the role of both tax and regulatory policy in exacerbating the problems.

Glaeser, Kim, Luca, 17 January 2018, 7226 reads

Economic and policy research can often suffer from a scarcity of up-to-date data sources. This column explores the potential for digital data to supplement official government statistics by providing more up-to-date snapshots of the economy. A comparison of data from Yelp with US County Business Patterns data reveals that the Yelp data provide a good indication of underlying economic trends. But although digital data from online platforms offer faster and geographically detailed images of the economy, they should be seen as a complement rather than a substitute for official government statistics.

Bénassy-Quéré, Brunnermeier, Enderlein, Farhi, Fratzscher, Fuest, Gourinchas, Martin, Pisani-Ferry, Rey, Schnabel, Véron, Weder di Mauro, Zettelmeyer, 17 January 2018, 33372 reads

The euro area continues to suffer from critical weaknesses that are the result of a poorly designed fiscal and financial architecture, but its members are divided on how to address the problems. This column proposes six reforms which, if delivered as a package, would improve the euro area’s financial stability, political cohesion, and potential for delivering prosperity to its citizens, all while addressing the priorities and concerns of participating countries.

Biancotti, Cristadoro, 17 January 2018, 6166 reads

Cyber attacks are becoming more frequent and increasingly costly. This column discusses some of the challenges involved in measuring the economic damage caused by these attacks, including a lack of agreement on how to assess damage, an asymmetrical distribution where a few large-scale incidents account for most costs, and externality effects. A measurement framework, estimation strategy, and reliable data will all be needed for successful policy evaluation.

Borgonovi, Hitt, Livingston, Sadoff, Zamarro, 16 January 2018, 7091 reads

The Programme for International Student Assessment is a global standardised test of students’ mathematics, reading, and science skills. This column describes how the results of various studies using different approaches all find evidence that many students who take the PISA do not try as hard as they can, and that the level of effort varies widely across countries. The findings illustrate that a combination of ability and motivation may be more important than ability alone.

Di Tella, Freira, Gálvez, Schargrodsky, Shalom, Sigman, 16 January 2018, 5083 reads

Governments in Latin America seemingly go unpunished at election times for high crime rates. This column examines whether the region’s high tolerance for crime is the result of ‘desensitisation’, with people reacting less to crime the more they are exposed to it. It finds that victims of crime become desensitised compared with non-victims, helping to explain tolerance to crime and a weak relationship between crime and happiness in high-crime areas.

Hasenzagl, Pellegrino, Reichlin, Ricco, 15 January 2018, 11308 reads

The ECB's Survey of Professional Forecasters supports the ECB’s view that inflation in the Eurozone will pick up and will be back within the central bank's target range in 2019.  This column disagrees.  Using a model that formalises the widely held view that inflation dynamics are a function of three components – long-term expectations, the Phillips curve, and oil price movement – it forecasts Eurozone inflation in 2019 at only 1.1%, a rate which is close to that implied by the bond markets.

Meyer, Sullivan, 15 January 2018, 13489 reads

Concerns about rising inequality inform important debates on some of our most significant policy issues, but the debate over inequality relies almost exclusively on income data. This column argues that consumption data show how changes in inequality in economic wellbeing are more nuanced than a simple story of rising dispersion throughout the distribution. In the bottom half of the distribution there is little evidence rising consumption inequality, and in the top half of the distribution the rise in consumption inequality has been much more modest than the rise in income inequality, particularly since 2000. 

Kovak, Oldenski, Sly, 15 January 2018, 7750 reads

The impact of offshoring on domestic employment is hotly debated as the US looks to renegotiate trade treaties, but the existing literature is conflicting in its conclusions. This column employs the variation in the timing of US treaties to infer the causal effect of tax treaty-induced changes in foreign affiliate employment on changes in US domestic employment. Employment declines at some firms are offset by expanded employment at others, yielding a modest positive net effect of offshoring on US employment, albeit with substantial employment dislocation and reallocation of workers.

Klein, Ogilvie, 14 January 2018, 6192 reads

A famous hypothesis posits that serfdom was caused by factor endowments, specifically high land-labour ratios. Historical evidence seems to refute this idea, but with substantial identification problems. This column uses microdata for more than 11,000 Bohemian villages in the year 1757 to control for other potential influences on serfdom. The results support the factor endowments hypothesis, with higher land-labour ratios intensifying serfdom, suggesting that institutions are partially shaped by economic fundamentals.

Bar, Hazan, Leukhina, Weiss, Zoabi, 13 January 2018, 9240 reads

Over recent decades, the trend for high-skilled, career-focused women to have fewer children, if any at all, has reversed. Using US data, this column shows that rising wage inequality is behind the reversal. Greater income inequality enables high-income families to outsource household production to lower-income people. Changes to minimum wage laws are thus likely to affect the fertility and career decisions of the rich.

Basso, Peri, Rahman, 12 January 2018, 13447 reads

The US and Europe have both seen wage polarisation in the last three decades, in parallel with increasing technical automation. This column analyses the impact of immigration on this wage divergence via its effect on the labour supply side. It finds that immigration partially reverses natives’ polarisation of employment opportunities and wages by expanding aggregate demand and allowing natives to move to better paying occupations. Policies to reduce low-skilled migration with the aim of favouring native middle-class labour market opportunities may in fact do the opposite.

Acemoğlu, 12 January 2018, 9586 reads

Concerns that industrial robots will replace human labour are widespread. Daron Acemoglu discusses how automation creates a displacement and a productivity effect. Furthermore, the effect of automation on employment heavily depends on the sector it is used in.

Cecchetti, Schoenholtz, 11 January 2018, 8477 reads

The likelihood of another crisis-induced plunge in GDP is much lower today than it was a decade ago, but we are still at an early stage of building a financial stability policy framework that corresponds to the inflation-targeting framework that forms the basis for monetary policy. This column describes a step forward in developing such framework – the concept and measurement of GDP at risk, which helps us to understand the linkages between the financial sector and the real economy at an aggregate level.

Lipton, McGeary, Dave, Roeper, 11 January 2018, 6678 reads

Many regions in the US have enacted 100% smoke-free laws in public places to reduce harmful second-hand smoke exposure, but if these laws simply displace smoking to the home, the children of smokers may suffer. The column uses data on infant and child health since the first ban in 1990 to show that children are healthier in many dimensions when there is a 100% smoke-free law. Partial smoking bans have a much smaller impact.

Obstfeld, Duval, 10 January 2018, 15812 reads

The widespread and persistent productivity slowdown witnessed since the Global Crisis had already begun in advanced and low-income countries prior to the crisis. This column argues that the crisis amplified the slowdown by creating ‘productivity hysteresis’, and that monetary policy played an ambiguous role. Policymakers must now address the legacies of the crisis through innovation, education policies, and structural reforms.

Cahuc, Carcillo, Le Barbanchon, 09 January 2018, 5815 reads

Despite their widespread use in the US and across Europe during the Global Crisis, the empirical evidence on the effectiveness of hiring credits is unclear, particularly in the context of recessions. This column uses the French hiring credit programme of 2008-09 to show that credits can be very effective at boosting job creation at low cost when they are unanticipated and temporary.

Moscona, Nunn, Robinson, 09 January 2018, 6895 reads

In recent years, it has become clear that characteristics of pre-colonial African societies are an important determinant of their current economic development. This column evaluates the hypothesis that segmentary lineage organisation – a common social structure among ethnic groups in sub-Saharan Africa – causes more conflict today. Ethnic groups in Africa with a social structure marked by kinship are found to show a greater propensity for violent conflict.

Sampson, Novy, 08 January 2018, 4347 reads

The average British household is already worse off than it was before the Brexit vote. Dennis Novy and Thomas Sampson discuss how much of the rise in inflation is due to Brexit. Higher prices are costing the average household £404 a year. Click for full study.

Kanbur, 08 January 2018, 8107 reads

Technological innovation is broadly accepted as a driving force behind diverging wage trends in the last three decades. If this is set to continue, policymakers must choose how to respond to the ensuing income inequality. This column assesses two established policy response ideas – state-sponsored formal education, and tax and transfer mechanisms – and postulates a third, namely, that the pace and distributional effects of technological change should themselves be policy goals. A policy intervention that would make innovation more labour intensive would be the most powerful response of all.

Dautovic, Hau, Huang, 08 January 2018, 7734 reads

Minimum wage policies are controversial in developed and emerging economies alike. This column focuses on China, where minimum wage changes have been particularly frequent and heterogeneous across counties. Results show that Chinese low-income households fully spend their incremental income, with no differences in consumption behaviour across more or less financially constrained households. Only households without a child generally consume a lower proportion of their additional income.

Wright, Kircher, Julien, Guerrieri, 07 January 2018, 5577 reads

Search models have vastly improved our understanding of important market events that are not explained by classical economic theory, but they tend to treat price formation as an afterthought. This column introduces a survey of the literature on ‘directed search’, which aims to keep the explanatory power of search models but allows for a meaningful role of prices in determining where people search for a trading partner.  

Bazzi, Gaduh, Rothenberg, Wong, 07 January 2018, 6412 reads

Fostering a broad and inclusive sense of national identity is vital for long-term social cohesion, but it is difficult to achieve in light of rapidly growing local diversity. This column uses the example of Indonesia’s Transmigration Programme to show that residential mixing, linguistic differences, and the extent of political and economic competition between groups determine whether diversity leads to integration, social isolation, or segregation – all of which can be influenced by good policy. Properly implemented, such policies both increase social cohesion and encourage greater nation-building.

Serafinelli, Tabellini, 06 January 2018, 11906 reads

Innovation is often concentrated in certain geographic areas, or ‘creative clusters’. This column uses novel data on famous births to explore the dynamics of creativity in European cities between the 11th and 19th centuries. The results show that creativity tends to precede economic prosperity, and that city institutions that protect personal and economic freedoms are conducive to radical innovation in a variety of domains.

Camuffo, Cordova, Gambardella, 06 January 2018, 7907 reads

Entrepreneurs often predict future revenues using rules of thumb. The column argues that by testing precise hypotheses, 'scientist-entrepreneurs' would be less likely to invest in failures. A randomised controlled trial among Italian start-ups showed that this technique increased average returns for entrepreneurs. Used more generally, the precision effect may help screen out bad business ideas at an early stage.

Gasparini, Cruces, Galiani, Acosta, 05 January 2018, 10283 reads

While income dispersion significantly increased over the 1990s in most Latin American countries, the 2000s were characterised by a widespread fall in socioeconomic and labour disparities. This column uses a supply-demand framework to explore changes in labour market returns to education in the region. The relative supply of skilled labour rose consistently over the period, while the wage skill premium rose then fell. Supply-side factors seem less important than demand-side factors in accounting for changes in the skill premium, especially between workers with a tertiary education and the rest.

van der Ploeg, Rezai, 05 January 2018, 8681 reads

Trump’s election has brought climate change deniers to the centre of global policymaking. This column uses Pascal’s wager as a model to explore optimal policy given uncertainty over the fundamental causes of global warming. This agnostic approach finds that assigning even a high probability to climate change deniers being correct has insignificant effects on policy. Pricing carbon is shown to be optimal in either case, and robust to whether policymakers want to maximise global welfare, or minimise regret in the worst case.

Amromin, De Nardi, Schulze, 04 January 2018, 7586 reads

A widening gap between rich and poor has been extensively documented for many countries and economies. This column explores how the wealth gap affects output and consumption changes in response to aggregate shocks. Lower- and higher-wealth households face different borrowing constraints, and have different marginal propensities to consume. Different levels of access to financial liquidity thus play a major role in the overall consumption dynamics during an economic downturn.

Raj, 04 January 2018, 14582 reads

In medieval Europe, trade depended on personal relationships, which were usually mediated by merchant guilds. The column argues that increasing incentives to do business with merchants outside the guild system, and the availability of better information about those trading partners, led to the decline of merchant guilds in the 16th century. This occurred first in coastal cities that were early adopters of printing technology.

Behrens, Boualam, Martin, 03 January 2018, 6237 reads

Policymakers strive to encourage resilience among firms. We often assume that industry clustering creates resistance to shocks. This column uses the evidence from Chinese imports in the Canadian textile industry to show that firms in clusters were in fact no more resilient to the ‘China shock’.

Albanesi, Sahin, 03 January 2018, 6973 reads

The gender unemployment gap which had persisted in the US until the early 1980s disappeared after 1983 (except during recessions, when unemployment among men has always exceeded that among women). This column argues that the convergence in female and male labour force attachment accounts for most of the closing of the gender unemployment gap. It also shows that gender differences in industry composition are the main source of the cyclicality of the unemployment gap.

Redding, Weinstein, 02 January 2018, 7726 reads

Existing research on export heterogeneity between countries has typically focused on the importance of individual factors. This column presents a unified framework for understanding these contributions in concert. Using US and Chilean data, it demonstrates that products within firms, firms within sectors, and sectors in aggregate are indeed imperfect substitutes. It further shows that models that assume no quality shifts and no changes in variety perform poorly on trade data.

Jordà, Knoll, Kuvshinov, Schularick, Taylor, 02 January 2018, 33646 reads

The rate of return on capital plays a pivotal role in shaping current macroeconomic debates. This column presents findings from a new dataset covering returns of major asset classes in the advanced economies over the last 150 years. The data offer new insights on several long-standing puzzles in economics, and uncover new relationships that seem at odds with some fundamental economic tenets. 

Eichengreen, Mehl, Chiţu, 02 January 2018, 13857 reads

Economists have provided detailed analyses of the economic basis of international currency status, but they have paid less attention to the geopolitical underpinnings.  This column sheds light on the geopolitical premium enjoyed by the US thanks to its security alliances and ‘dollar diplomacy’.

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