February 2018

Lane, Langfield, 28 February 2018, 7345 reads

The euro area’s macro-financial framework is incomplete and fragile. This column highlights how a market for sovereign bond-backed securities could help to enhance financial stability by providing automatic stabilisation. Drawing on a recent feasibility study published by a High-Level Task Force of the European Systemic Risk Board, it outlines how to pave the way for market development by removing regulatory obstacles.

Gautier, Siegmann, van Vuuren, 27 February 2018, 9043 reads

In 2005, flat-fee real estate brokers entered the Dutch housing market, charging a substantially lower up-front fee than the average traditional brokers’ fee based on sale price. This column uses house sale data to demonstrate that flat-fee agents sell properties faster, and at an average price that is 2.7% higher than traditional agents. This suggests that the profits of traditional brokers are at least partly driven by rents, rather than performance.

Deconinck, Gay, Matthey, 26 February 2018, 7941 reads

As the world’s population becomes more numerous, more prosperous, and more urbanised, it is often assumed that growth in global demand for food will accelerate. This column argues, however, that for most agricultural commodities a slowdown in demand growth over the next ten years is more likely, allowing policymakers to focus on the parallel requirements of using the earth’s natural resources sustainably and making an effective contribution to climate change mitigation.

Garretsen, Stoker, Soudis, Martin, Rentfrow, 25 February 2018, 6516 reads

The outcome of the UK’s referendum on EU membership came as a shock to most academic and policy experts. This column uses an extensive dataset of personality traits combined with socioeconomic data to show how the clustering of personality traits contributes to an understanding of the regional dispersion of the Brexit vote. Openness appears to be the trait that matters most – modest changes in this openness could actually have swung the vote across UK districts.

Karaman, Pamuk, Yıldırım-Karaman, 24 February 2018, 17691 reads

There is a notable lack of long-run analyses of monetary systems and their stability. This column addresses this gap by looking at the monetary systems of major European states between 1300 and 1914. The evidence collected suggests that, despite many switches between standards and systems, fiscal capacity and political regimes ultimately shaped patterns of monetary stability. Theories of monetary stability that rely on the mechanics of monetary systems perform poorly when such a long-run perspective is taken.

Piopiunik, Schwerdt, Simon, Woessmann, 23 February 2018, 12608 reads

Applicants use CVs to signal cognitive and non-cognitive skills to potential employers, but we know little about how effective those signals are. Based on an experiment in which HR managers chose between CVs, this column argues that signals of cognitive skills, social skills, and maturity matter for successful entry into the labour market. The relevant signals depend on gender and entry stage.

Fratzscher, Menkhoff, Sarno, Stöhr, 23 February 2018, 7282 reads

Central bank interventions in foreign exchange markets have long been viewed with scepticism by academics. This column examines foreign exchange interventions for a sample of 33 advanced and developing economies. Interventions occur frequently, in episodes that can last several days, and are often successful in smoothing exchange rates. These results show that central bankers, particularly in emerging markets, appreciate the efficacy of interventions.

Cecchetti, Schoenholtz, 22 February 2018, 12797 reads

Investment is shifting from tangible physical assets to intangible goods like software, data, and R&D. This column analyses the impact of this shift on the structure of firm financing. The financial system’s shift from public to private equity is, on the whole, an encouraging reflection of its response to the changing needs of the economy.

Demetriades, 21 February 2018, 11851 reads

Europe’s new framework for resolving banks includes a ‘bail-in’ mechanism that aims to ensure that banks’ shareholders and creditors pay their share of costs, and which was first used to resolve the 2013 banking crisis in Cyprus. This column, written by the economist who was the country’s central bank governor at the time, examines the unintended consequences of the bail-in, which have proved more toxic than could ever have been imagined, and not just in Cyprus. Several euro area central banks and their governors have found themselves in the eye of political and legal storms when taking actions to resolve failing banks and/or restore stability in their banking systems.

Stansbury, Summers, 20 February 2018, 15987 reads

Since 1973, there has been divergence between labour productivity and the typical worker’s pay in the US as productivity has continued to grow strongly and growth in average compensation has slowed substantially. This column explores the causes and implications of this trend. Productivity growth appears to have continued to push workers’ wages up, with other factors to blame for the divergence. The evidence casts doubt on the idea that rapid technological progress is the primary driver here, suggesting rather that institutional and structural factors are to blame.

Ostry, Berg, Kothari, 19 February 2018, 6856 reads

While there is consensus that structural reforms can increase growth, there is also a fear that certain reforms can exacerbate inequality. This column argues – based on a dataset covering financial, institutional, and real sector reforms – that certain reforms do indeed increase inequality but despite this, the net effect on growth remains positive.

Coviello, Gneezy, Götte, 18 February 2018, 8123 reads

Measuring the returns to search engine marketing accurately is difficult, but one study suggested that if eBay were to suspend its branded search ads, the volume of traffic to the site would remain virtually unchanged. Based on a field test involving a website for automotive information in the US, this column argues that money spent on search engine marketing by smaller brands may be more effective than previously documented. Only about half of the traffic normally flowing through branded search ads still flowed to the site when it relied only on organic search links.

Villena-Roldán, Banfi, 17 February 2018, 5588 reads

Researchers often pick a random or a directed search model based on convenience and theoretical implications, but distinguishing between the two is important as many labour market regulations may be welfare-improving under random search, but not under directed search. This column uses data from Chile to show that job-seekers respond to information posted by employers, suggesting that policy design should consider the prescriptions of directed search models.  However, the evidence also shows that relevant features of these markets are not well captured by existing models.

Sterck, Roser, Ncube, Thewissen, 16 February 2018, 5412 reads

Large multilateral organisations like WHO and the UN rely heavily on average income data in determining eligibility for, and the allocation of, development assistance for health. This column tests this paradigm by analysing the determinants of health outcomes for 99 countries. A country’s epidemiological surroundings, poverty gap, and institutional capacity appear to be much better predictors of health outcomes than gross national income. These findings suggest alternative metrics that could be leveraged in allocating development assistance for health.

Anderson, Baba, Danielsson, Kang, Das, Segoviano, 15 February 2018, 8080 reads

Current stress testing of banks is focused on the resiliency of individual banks to exogenous shocks. This column describes how the next generation of macroprudential stress tests aim to capture the endogenous nature of systemic risk caused by the interaction of all the institutions and markets making up the financial system. This will lead to a better policy mix aimed at preserving financial stability.

Frick, Rodríguez-Pose, 14 February 2018, 11596 reads

Urban concentration is typically deemed to lead to greater national economic growth. This column challenges this view, using an original dataset covering 68 countries over the past three decades. Urban concentration levels have decreased or remained stable on average, though these averages hide widely diverging trends across countries. Although concentration has been beneficial for high-income countries, this hasn’t been the case for for developing countries.

Danielsson, 13 February 2018, 25271 reads

Cryptocurrencies are supposedly a new and superior form of money and investments – the way of the future. The author of this column, however, does not see the point of cryptocurrencies, finding them no better than existing fiat money or good investments.

Ito, Nakamura, Morita, 13 February 2018, 5696 reads

For regional firms to survive, they need to find export markets using wholesalers as intermediaries. This column uses a dataset of export activity in Japan to show that this type of indirect export activity occurs predominantly from metropolitan areas, with the probability of direct exports negatively correlated with the distance between manufacturer and wholesaler. Wholesaler productivity (though not manufacturer productivity) was correlated with the probability of these indirect exports, suggesting that wholesalers search for suitable manufacturers, but not vice versa.

Kose, Ohnsorge, Sugawara, 12 February 2018, 6339 reads

The availability of fiscal space has been at the centre of recent debates on the effective use of fiscal policy. This column introduces a new cross-country database of fiscal space indicators and applies it to the analysis of the evolution of fiscal space over the past quarter century and during oil price plunges. Fiscal space has weakened materially in many emerging and developing economies since the Global Crisis. Fiscal space tends to deteriorate in energy-exporting emerging and developing economies during oil price plunges but later improves, often because of procyclical fiscal tightening.

Eijffinger, Masciandaro, 12 February 2018, 10386 reads

The role of the monetary policy decisions in influencing markets and economies has increased sharply over the past 30 years. A new VoxEU eBook presents the state of the art of the economics and politics of modern monetary policy governance as a story of two tales: on the one side, the tale of how monetary policy decisions are reached; on the other side, the tale of how such decisions can influence the shape of the markets via central banks’ communication policies.

Boz, Gopinath, Plagborg-Moller, 11 February 2018, 10893 reads

In international macroeconomics, it is typically assumed that the exchange rate between two trading partners matters most for trade prices, quantities, and terms of trade. This column presents evidence supporting an alternate view – that a country’s exchange rate relative to the US dollar is most important. This is because invoicing in dollars is common, even when the US is not part of a transaction. The findings have important implications for the conduct of monetary and exchange rate policies.

Fujii, Saito, Senga, 10 February 2018, 6404 reads

Firms develop inter-firm networks throughout their lifecycles, continually adding and dropping trading partners. This column examines the role that the dynamics of these networks play in firm growth. The findings point to the importance of searching for potential trading partners and learning match-specific productivity for younger firms. Surviving older firms, in contrast, tend to enjoy a stable set of customers and suppliers to keep their operations.

Cerutti, Zhou, 09 February 2018, 21604 reads

Chinese banks have continued to expand rapidly both domestically and abroad. Together, they constitute the largest banking sector in the world by far. This column places the Chinese banking system in a global context. Although very small relative to their domestic claims, Chinese banks’ foreign claims are substantial for many borrower countries in Asia, Africa, and the Caribbean in particular. Many of these banking connections are related to Chinese outward foreign direct investment, with fewer related to trade linkages.

Miles, Taylor, Steger, Chadha, 08 February 2018, 6657 reads

Long-run trends in house prices are inextricably linked to growing inequality and other macroeconomic policy challenges. In this special edition of Vox Talks, Tim Phillips speaks to participants of the CEPR-Imperial College Business School conference, 'Housing – Learning from the past and looking to the future', which took place at Imperial College on 19th January 2018.

Buti, Döhring, Leandro, 08 February 2018, 7082 reads

The outlook for the euro area economy depends to a large extent on whether the impact of the crisis will turn out to be permanent or transitory. This column attempts to chart out the path ahead, starting from what different narratives of the 'atypical recovery' imply about the further trajectory of GDP and inflation. In view of remaining slack, and barring an exogenous shock or policy mistakes, there is scope for solid GDP growth above potential for some time. The factors that should eventually drive an increase in core inflation are gaining force, but only gradually.  The current supportive policy mix is thus appropriate for the euro area as a whole, but reforms that raise productivity and increase the economy's resilience to shocks should be accelerated.

Giannone, Lenza, Primiceri, 08 February 2018, 16725 reads

The availability of large datasets has sparked interest in predictive models with many possible predictors. Using six examples of data from macroeconomics, microeconomics, and finance, this column argues that it is not usually possible to identify sparse models by selecting a handful of predictors from these larger pools. The idea that economic data are informative enough to identify sparse predictive models might be an illusion.

Bova, Kinda, Woo, 07 February 2018, 6943 reads

Understanding the distributional consequences of fiscal adjustment measures is important for equity, but also to ensure the sustainability of the measures. This column shows that fiscal adjustments increase inequality, including through unemployment. Spending-based adjustments worsen inequality more significantly than tax-based adjustments. Progressive taxation and targeted social benefits and subsidies introduced in the context of a broader decline in spending can help offset some of the distributional impact of fiscal adjustments.

Miles, 07 February 2018, 6934 reads

Over recent decades houses have become increasingly expensive in the UK, leading to what is routinely described as a ‘housing crisis’. This column assesses whether, over the long term, the UK experience is so unusual and explores the underlying forces at work. Two key elasticities and one technological factor are highlighted as being central to the story and will determine what happens over the next 50 years.

Fernández, Martínez Turégano, 07 February 2018, 5291 reads

European labour force participation has increased over recent decades, fuelled in large part by increased female labour participation, improvements in education levels, and socioeconomic factors. This column explores whether this trend will continue, or whether we will see a decline similar to that in the US. Results indicate that while Europe’s labour participation is not on the verge of a reversal, targeted policies will need to take over from socio-educational developments in driving further growth.

Rodríguez-Pose, 06 February 2018, 33243 reads

Persistent poverty, economic decay and lack of opportunities cause discontent in declining regions, while policymakers reason that successful agglomeration economies drive economic dynamism, and that regeneration has failed. This column argues that this disconnect has led many of these ‘places that don’t matter’ to revolt in a wave of political populism with strong territorial, rather than social, foundations. Better territorial development policies are needed that tap potential and provide opportunities to those people living in the places that ‘don’t matter’.

Lanotte, Tommasino, 05 February 2018, 6398 reads

Late last year, the Basel Committee decided to maintain the status quo regarding regulation of banks’ sovereign debt holdings. This column summarises the reasons to be cautious of stricter regulation of banks’ sovereign exposures. Theory and experience suggest small net benefits from such a reform, with possible increases in tail risks. The best instrument to tackle the problem is not microprudential regulation, but sounder public finances and the completion of the banking union.

Parker, Souleles, Goodman, 04 February 2018, 8608 reads

The most accurate way to determine how people respond to an economic policy is to observe how they did in fact respond to that policy, but this approach is not always possible. This column uses a 2008 tax rebate in the US to compare the traditional revealed preference approach and a reported preference approach where people are simply asked how they would, or did, behave. The results suggest that reported spending data are valuable in predicting behaviour and in estimating population aggregates, but are not sufficiently accurate to provide reliable quantitative measurements of household-level spending responses.

Landais, Nekoei, Nilsson, Seim, Spinnewijn, 03 February 2018, 6201 reads

Unemployment insurance is compulsory in almost all countries, with no choice for workers over the level of coverage. But why restrict choice if it can improve the targeting of individuals who value the insurance the most? This column uses evidence from Sweden to examine whether the issue of adverse selection justifies a universal mandate for unemployment insurance. Workers who purchased more generous unemployment insurance were more than twice as likely to be unemployed in the following year. A universal mandate combats such adverse selection, but forces workers to buy insurance even when insurance costs are higher than the value they assign to it.

Giuntella, Rieger, Rotunno, 02 February 2018, 12691 reads

The majority of obese adults are now found in developing countries This column presents new evidence on the effects of trade on obesity in Mexico. The results indicate that across Mexican states, a one standard deviation increase in the unhealthy share of food imports from the US increases the likelihood of individuals being obese by about 5 percentage points. As developing countries around the world open up their food markets to industrialised countries, they may be accelerating their ongoing nutrition transition and imposing high future costs on their health systems.

Manasse, Katsikas, 01 February 2018, 7872 reads

The basic ingredients of the policy prescriptions in response to the euro area debt crisis were quite similar across Southern Europe. This column explores the economic, political, and institutional factors that differentially affected the success of these prescriptions from country to country. Policy timing and sequencing, the balance between fiscal consolidation and structural reforms, and external constraints all play crucial roles. Future reform programmes should be calibrated to the distinct economic, social, and political features of targeted countries.

Brown, Evangelou, Stix, 01 February 2018, 6969 reads

A cornerstone of new bank resolution policies across the world is the introduction of bail-ins to redistribute the costs of bank failures from taxpayers to bank creditors. This column uses the bail-in of two banks in Cyprus to examine how bank depositors react to this way of resolving a crisis. In the short run, customers who experienced deposit or bond bail-ins increased their holdings of cash and reduced deposits, while those who faced only an equity bail-in did not change their behaviour. In the medium run, confidence in the banking system among all depositors remained low.

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