March 2018

Morikawa, 31 March 2018, 5023 reads

The Japanese economy is suffering its worst labour shortage since 1992. This column explores the impact of this shortage, in light of the past five years’ economic expansion. The main effect has been a decline in the quality of goods and services, which translates into increases in true prices. Going forward businesses should start differentiating their goods and services to capture the growing diversity of consumers’ willingness-to-pay.

Dhingra, Freeman, Mavroeidi, 30 March 2018, 6756 reads

After Brexit, the UK will have to negotiate which provisions to include in its new arrangements, and a fundamental question is which provisions are most important in reducing non-tariff barriers to trade. This column uses a gravity model to show that trade agreements with deep provisions have the largest impact on domestic value added. The UK’s entry into a deep trade agreement with either the US or China/India that encompasses non-tariff liberalisation of services, investment, and competition can increase economic activity in industries that are key to its innovative activity.

Vogt-Schilb, Meunier, Hallegatte, 29 March 2018, 5899 reads

Traditional climate economics models recommend capturing the cheapest opportunities to reduce emissions first and keeping the most difficult options for later. This column argues that when the fact that reducing emissions takes time and requires investments in long-lived goods and assets is taken into account, the most cost efficient strategy overall is to act immediately in the sectors that are the most expensive and difficult to decarbonise, even if this means investing in options that have a higher cost right now than available alternatives. Actions on urban planning and urban transport systems are especially urgent.

Igan, Lambert, Wagner, Zhang, 28 March 2018, 4175 reads

When failed banks are sold, a would-be acquiring bank is more likely to win the auction if it spends money on lobbying. This column argues, however, that these acquirers are less effective at improving efficiency afterwards. This implies that lobbying has a double cost: it distorts the efficient allocation of failed banks, and it amplifies agency problems at the acquiring banks. Resolution frameworks will need strong accountability mechanisms and transparency to reduce this cost.

Békés, Muraközy, 28 March 2018, 5620 reads

Globalisation has provided firms with many ways to serve their foreign customers. This column suggests that the set of internationalisation modes can be described as a ladder, with the higher rungs associated with higher levels of productivity and innovation. This ladder has three main steps – indirect exports, direct exports and outsourcing, and service and manufacturing foreign direct investment – and may provide an important source of flexibility for managers to adapt to policy shocks.

Cecchetti, Schoenholtz, 27 March 2018, 13345 reads

Despite recent technological advances, the costs for migrants to send money across borders to their families remain extremely expensive, with fees often surpassing 5%. This column explores the various factors shaping remittance prices and identifies two key avenues for cost reduction: consumer education and competition. In particular, expanding mobile technology is helping to displace banks and squeeze remittance costs.

Nakajima, 27 March 2018, 7622 reads

As the global economy continues to recover, trade frictions between advanced and emerging economies have started to appear. This column considers how Japan can continue its recent trend of economic expansion by addressing domestic growth opportunities while remaining resilient to international trade challenges. Both technological innovation and new business models are key to achieving this.

Wiese, Jong-A-Pin, de Haan, 26 March 2018, 5297 reads

Empirical research concludes that austerity measures that target spending are more likely to succeed than those that target taxation. This column argues that this result arises from a methodological flaw that assumes all countries have equal variability in their budget balance. Correcting for this in data from 20 OECD countries suggests that spending-based and revenue-based adjustments have been equally successful.

Danielsson, Valenzuela, Zer, 26 March 2018, 19732 reads

Reliable indicators of future financial crises are important for policymakers and practitioners. While most indicators consider an observation of high volatility as a warning signal, this column argues that such an alarm comes too late, arriving only once a crisis is already under way. A better warning is provided by low volatility, which is a reliable indication of an increased likelihood of a future crisis.

Ayyagari, Maksimovic, 25 March 2018, 6570 reads

Recent press reports have highlighted the decline of US entrepreneurship. Using data on workers in 800+ occupations in over 1.2 million establishments, this column shows that there has been a decline not only in the number of new businesses in US manufacturing, but also in their size and quality. The proportion of cognitively demanding tasks at new firms has been declining substantially over time, pointing to a process of technological polarisation as incumbents upgrade human capital while entrants focus on low-skilled niches.

Kondo, 24 March 2018, 6480 reads

Technological innovations, while providing many efficiencies, have started to substitute some jobs. This column discusses how individuals, firms, and policymakers can interact in order to best utilise human capital for valuable work, while AI and robots are used to automate those jobs that are less desirable or where labour shortages currently exist.

Atkinson, Backus, Micklewright, 24 March 2018, 4121 reads

Many governments seek to encourage charitable giving, both in life and upon death, via favourable treatment in the tax code. This column uses new data from the UK to examine how estate size and the inheritance tax threshold influence the decision to make a bequest to charity. The likelihood of including a bequest in a will rises modestly over the bottom half of the estate size distribution, and more rapidly over the upper tail. The results also suggest that the inheritance tax leads to an increase in charitable intent.

Miles, 23 March 2018, 4187 reads

The housing market faces major challenges in both the short and long run in terms of affordability, price variability, ownership structures, financing, and their impacts upon wider macroeconomic stability. This column summarises a conference on lessons for the future of housing, jointly organised by the Brevan Howard Centre for Financial Analysis at Imperial College Business School and CEPR.

Aksoy, Manasse, 23 March 2018, 8779 reads

After 2008, labour markets in the euro area responded differently to the recessions and subsequent labour market reforms. This column uses data from 19 countries to show that labour and product market reforms speeded up the recovery from recession, but also reduced the resilience of employment to shocks. Because the resilience effect occurs first, deep reforms risk losing public support.

Causa, Hermansen, 23 March 2018, 11038 reads

Growing wealth inequality has become a key concern for economists, and tackling it requires a deep understanding of how tax and transfer systems affect the income distribution. Using OECD data, this column argues that taxes and transfers are less effective at reducing inequality today than they were in the mid-1990s. This drop in effectiveness has largely been driven by declining cash transfers, with a smaller, more heterogeneous role for personal income taxes.

Dagher, 22 March 2018, 5230 reads

Three hundred years of financial regulation offer a cautionary tale to today’s push against yesterday’s regulations. This column revisits the political economy of financial crises and documents a consistent pattern of politically driven procyclical regulations. These regulatory cycles have a poor track record.  

Hvide, Oyer, 22 March 2018, 3823 reads

The majority of male entrepreneurs in Norway start a firm in an industry closely related to the one in which their father is employed. These entrepreneurs outperform others in the same industry. This column uses longitudinal data to argue that 'dinner table human capital' – that is, industry knowledge learned through their parents – is an important factor. This form of capital also has effect on employee performance in the wider labour market.

Bughin, Kotz, Mischke, 22 March 2018, 7729 reads

One stark feature of the global economy in the 21st century is the ongoing slowdown of productivity growth. This column explores the key factors behind this trend for several countries around the world. Weak demand is found to be a critical driver of the slowdown by holding back investment and changing the structure of consumption baskets, and through economies of scale effects. Although digitisation offers a potential way back, its benefits will require a strengthening of aggregate demand.

Nakata, 22 March 2018, 4277 reads

Many advanced economies are facing the twin challenges of an ageing population and public hostility towards immigration. This column studies the impact of demographics on attitudes towards immigration in Japan, and the effectiveness of information campaigns explaining the benefits of immigration. It finds that information campaigns are effective in improving attitudes towards immigration, especially amongst women. Deep generational gaps in attitudes towards immigration may be caused by younger men in particular viewing immigrants as potential competitors.

Conflitti, Cristadoro, 21 March 2018, 6610 reads

A recent strand of literature suggests that the decline of long-term inflation expectations observed between 2014 and 2016 was partly due to the fall in oil prices. Using euro area data, this column argues that this presumed relationship is false. Lower global demand prompted a positive correlation between oil prices and the real economy, while perceived constraints on monetary policy action resulted in a positive correlation between short- and long-term inflation expectations. These two phenomena explain the emergence of the apparent direct relationship.

Mody, 21 March 2018, 21702 reads

Two European elections – in Germany on 24 September 2017 and Italy on 4 March 2018 – warn that the peoples of Europe are drifting apart. Much of the recent deepening of these divisions can be traced to Europe’s single currency, the euro. This column argues that the political divide in Europe may now be hard to roll back absent a shift in focus to national priorities that pay urgent attention to the needs of those being left behind.

Eichengreen, Avgouleas, Poiares Maduro, Panizza, Portes, Weder di Mauro, Wyplosz, Zettelmeyer, 20 March 2018, 31131 reads

Greece’s third economic programme has been relatively successful, but before it can return to private market financing, the country will require more official debt relief. This column introduces a new CEPR Policy Insight which asks how much debt relief is required and how it should be delivered. Any debt relief package for Greece that wishes to avoid shifting the burden of repayment several generations into the future will need to include some degree of face-value debt relief.

Converse, Levy Yeyati, Williams, 20 March 2018, 4793 reads

The share of fund assets held in exchange-traded funds has risen from 3.5% in 2005 to 14% in 2017, and to 20% for funds in emerging market assets. This column uses reported investor flows to argue that this is related to increased exposure of aggregate portfolio equity capital inflows to global risk. On this evidence, exchange-traded fund flows amplify the global financial cycle.

Avdjiev, Gambacorta, Goldberg, Schiaffi, 20 March 2018, 5135 reads

The post-crisis period has seen a considerable shift in drivers of international bank lending and international bond issuance, the two main components of global liquidity. This column describes how the sensitivity of cross-border lending to global risk conditions declined substantially post-crisis, becoming similar to that of international bond issuance. This fall largely reflects a change in the composition of international lenders.

De Grauwe, Ji, 19 March 2018, 12302 reads

A number of economists and officials have recently proposed different schemes aimed at using financial markets to impose the right amount of discipline in the euro area. This column argues that this would not eliminate the inherent instability of the sovereign bond markets in a monetary union. During crises this instability becomes systemic, and no amount of financial engineering can stabilise an otherwise unstable system.

Dedola, Laeven, Margiocco, 19 March 2018, 3983 reads

In September 2017, the ECB held its second Annual Research Conference. This column surveys the contributions to the conference, which brought together academics and central bankers working at the cutting edge of economics, covering a wide range of research relevant for the ECB. ECB Vice-President Vítor Constâncio highlighted the value that the ECB attaches to research, which “contributes to shaping the intellectual framework that we use to understand economic developments and to take policy decisions”. Other speakers included Olivier Blanchard, Peter Diamond, Hyun Song Shin, and Jeremy Stein.

Hermosilla, Lemus, 18 March 2018, 3603 reads

There has been criticism that the ‘genetic revolution’ heralded by the completion of the Human Genome Project has failed to meet the more optimistic expectations of 15 years ago and that patient outcomes have not materially improved. This column analyses the extent to which basic genetic science has fuelled early-stage drug innovation. The results suggest that alleged ‘slower-than-expected’ progress has been partly caused by the amount of complexity in human biology, which was unexpected prior to the Project’s completion but has been progressively revealed since then.

Cagé, Rueda, 17 March 2018, 4628 reads

HIV prevention in sub-Saharan Africa is often shaped by the influence of Christian churches, tending to focus on abstinence rather than safer sexual behaviour. This column investigates the relationship between historical Christian missionary activities and HIV prevalence today. Regions close to missions in general tend to exhibit higher HIV prevalence, an effect that is driven by Protestant missions. Regions close to missions that specifically invested in health, however, exhibit lower HIV prevalence today.

Carballo, Handley, Limão, 16 March 2018, 9264 reads

Economic downturns can be both a cause and an effect of uncertainty. This column argues that uncertainty has international spillovers that can be mitigated via credible international trade agreements such as NAFTA, which provided US firms with valuable insurance against the widespread threat of a global trade war during the 2008 crisis. However, the credibility and insurance value of these agreements is being trumped by events such as Brexit, the renegotiation of NAFTA, and US threats of a trade war, which mark the start of a ‘trade cold war’.

Shiller, Ostry, Benford, Joy, 16 March 2018, 14406 reads

While the idea of governments issuing debt instruments whose repayments are indexed to GDP is not new, the current global backdrop of high government debt suggests the case for doing so might be especially strong now. This column introduces a new eBook in which leading economists, lawyers, and investors examine the case for issuing GDP-linked bonds, the obstacles to market development, ways of overcoming them, and what such a security might look like in practice.

Cobham, 16 March 2018, 6752 reads

Monetary policy characterisations across countries rely on the availability of data, but while exchange rate classifications are well developed, the same is not true for domestic targets. This column introduces a new classification of the monetary policy frameworks of different advanced and emerging countries, including domestic and external targets. One trend revealed by the classification is the movement over time away from exchange rate targets and loosely structured discretion towards inflation targeting.

Mandeng, Nagy-Mohacsi, 15 March 2018, 7527 reads

Cryptocurrencies have been the subject of recent attacks by official sector representatives, and the G20 finance ministers will consider regulatory proposals at their next meeting in Buenos Aires. This column argues that while cryptocurrencies present certain risks, they also represent an important innovation that promises to enhance choice and efficiency in monetary transactions. A proportionate, risk-based regulatory approach is required to accommodate differential attitudes and experiences and to avoid stifling innovation and competition. This implies having an open debate before sweeping regulatory action.

Stanga, Vlahu, de Haan, 15 March 2018, 6794 reads

Mortgage delinquency triggered the liquidity crisis that turned into the Global Crisis. Ten years on, mortgage lending still accounts for a large share of both household debt and banks’ assets. This column examines the incidence of mortgage arrears using a dataset for 26 countries from 2000 to 2014. The results show that higher unemployment is associated with an increase in defaults, while higher house prices have a strong negative association with defaults. The analysis suggests that dealing effectively with mortgage default requires a mix of prudential regulation and institutional design improvements.

Benigno, Fornaro, 15 March 2018, 15069 reads

Existing research offers little guidance to policymakers who want to understand the interactions between economic fluctuations, growth, and stabilisation policies. This column introduces a Keynesian growth framework that provides a theory of long-run growth, built on a Keynesian approach to economic fluctuations. In the model, pessimistic expectations about future growth can give rise to stagnation traps. It suggests that monetary policy during a stagnation trap is hindered by credibility issues.

Rosés, Wolf, 14 March 2018, 20356 reads

A recent literature has explored growing personal wealth inequality in countries around the world. This column explores the widening wealth gap between regions and across states in Europe. Using data going back to 1900, it shows that regional convergence ended around 1980 and the gap has been growing since then, with capital regions and declining industrial regions at the two extremes. This rise in regional inequality, combined with rising personal inequality, has played a significant role in the recent populist backlash.

de Lecea, 14 March 2018, 6851 reads

Some in the West argue that the emerging countries have prospered from globalisation at the expense of low- and middle-income classes in advanced countries by abusing open trade. Others in the East counter that the problem is the unfair distribution in Western countries of the benefits derived from global integration. This column argues that Europe's stance on globalisation – a combination of enforcement of a level playing field at home and abroad and a welfare state that mitigates polarisation and empowers middle classes – is capable of overcoming these zero-sum stories by reconciling higher growth with a fairer distribution of income and opportunities and a multidimensional concept of sustainability and well-being.

Berardi, Sevestre, 13 March 2018, 3909 reads

Identical products are often sold at different prices at different times and in different shops. This column uses data from 1,000 products across more than 1,500 stores to argue that, in France at least, consumers are in a relatively good position to decide where to go shopping. Expensive and cheap stores tend to be persistently expensive or cheap over time and across the products they most commonly sell, and the retail chain to which a store belongs is a good indicator of its expensiveness.

Beck, Silva-Buston, Wagner, 13 March 2018, 4547 reads

International cooperation on bank supervision is still rare. This column analyses data on supervisory cooperation among a global sample of countries between 1995 and 2013 to show that cooperation among bank supervisors is not always optimal. Country pairs with higher cross-border externalities and lower heterogeneity are more likely to cooperate, and in more intense ways, but for some country pairs the costs of cooperation outweigh the benefits.

Zettelmeyer, 12 March 2018, 4090 reads

Any reform of the Euro Area's fiscal and financial infrastructure must address the balance between member countries' risk-sharing and their market discipline. In this Vox Talk, Jeromin Zettelmeyer discusses the proposals put forward in a new CEPR Policy Insight, "Reconciling risk sharing with market discipline: A constructive approach to euro area reform", that sets out six reforms to improve financial stability within the Euro Area in a way that addresses the deadlock between members' currently polarised interests.

Berlingieri, Breinlich, Dhingra, 12 March 2018, 12342 reads

There has been a surge in the number of trade agreements over the past two decades. This column investigates the impact of trade agreements implemented by the EU between 1993 and 2013 and asks how consumers benefit from such agreements. The evidence shows that trade agreements increased quality by 7% on average but did not affect prices or variety. This translates into a cumulative reduction in consumer prices of 0.24%, equivalent to savings of €24 billion per year for EU consumers. Higher-income EU countries enjoyed much stronger quality increases and larger overall consumer benefits.

Campos, Macchiarelli, 12 March 2018, 6397 reads

The concepts of core and periphery remain ubiquitous and elusive in the European integration debate. This column documents the formation and evolution of a core and periphery in EMU, unearthing an increasingly integrated core, an entrenched periphery, and a third set of countries marked by in-and-out movements.  Using a novel measure to capture the probability of a country being classified as peripheral, it reveals that this probability positively correlates with euro membership and flexible product market regulations.

Goodhart, Lastra, 11 March 2018, 7363 reads

Some 30 years ago, New Zealand introduced an arrangement combining operational independence and inflation targetry for the central bank, a regime change that rapidly caught on in the next few years as best practice for central banks around the world. This column, taken from a recent VoxEU eBook, argues that central bank independence owed a great deal to the supporting conditions that enabled it to achieve such great success in its early years.  Blurring of independence in the field of financial stability may raise questions for central banks’ independence in the future.

Rocha, Praag, 10 March 2018, 4154 reads

Women are substantially underrepresented in the areas of new venture creation and entrepreneurship. Using Danish data, this column examines an important social interaction that has been relatively overlooked as a possible influence on entrepreneurship choices – the relationship between bosses and employees in start-up firms. Working for a female founder has a strong positive effect on female employees’ likelihood of going on to found their own venture, pointing to the benefits of improving representation at the top.

Kanbur, 09 March 2018, 6655 reads

Gunnar Myrdal’s “Asian Drama” was published 50 years ago. On the face of it, the book, framed in terms of the realities of an economically stagnant Asia, appears to have little to offer the modern development economist. This column argues, however, that the issues Myrdal raised are fundamental ones not only for development but for our discipline of economics and for the broader terrain of political economy.

Orphanides, 09 March 2018, 7182 reads

Since the beginning of the euro area crisis, euro area governments have experienced greater fiscal stress than governments of advanced economies outside the euro area with comparable or weaker fiscal fundamentals. This column, taken from a recent VoxEU eBook, asks what the source of this fragility has been, how it relates to the role of the ECB in exerting fiscal discipline in the euro area, and how can it be corrected.

Bown, 08 March 2018, 7684 reads

President Trump’s announced intention to impose import tariffs of 25% on steel and 10% on aluminium touched off a wave of retaliation threats and trade policy responses from trading partners, including the EU. This column examines the scope for retaliation against the Trump administration’s proposed tariffs under WTO dispute settlement. It estimates that if the sources of all US steel and aluminium imports were part of this dispute, trading partners would be permitted to retaliate by a collective amount of $14.2 billion per year.

Comin, Licht, Pellens, Schubert, 08 March 2018, 6831 reads

Governments invest in public applied research institutions in the hope of transferring scientific knowledge to industry and thus boost private innovation. But do these investments actually pay off? This column presents results from the Horizon 2020 FRAME project, in which the activities of Germany’s leading applied research organisation, the Fraunhofer-Gesellschaft, were analysed. When firms collaborate on research projects with Fraunhofer, they do significantly better in terms of growth, productivity, as well as innovation. Furthermore, the macroeconomic benefits of Fraunhofer appear to outweigh its costs.

Ma, Zijlstra, 07 March 2018, 6131 reads

Interest rates have reached historic lows over the past decade, raising questions about how such an environment affects investor risk-taking behaviour. This column uses randomised investment experiments in the US and the Netherlands to answer these questions. Results show that low interest rates lead to significantly higher allocations towards risky assets in both samples. The likely mechanisms relate to investor psychology, including reference dependence and salience.

Gupta, Keen, Shah, Verdier, 07 March 2018, 7422 reads

Digitalisation has vastly increased our ability to collect and exploit the information that governments use to implement macroeconomic policy. The column argues that the ability of governments to use the vast amounts of information held in the private sector on financial transactions are already making fiscal policy more efficient and effective. Problems of access to digital technology, cybersecurity risks, and the difficulty of organisational change in the public sector may slow the pace at which these opportunities are exploited.

Samans, 06 March 2018, 10372 reads

Recent political developments in many countries suggest that most of their citizens lack confidence in the assumption of the standard growth model that everyone in a society benefits from GDP growth. This column proposes a multidimensional 'Inclusive Development Index', based on a dashboard of indicators in growth and development, inclusion, and intergenerational equity and sustainability. GDP per capita growth is weakly correlated with performance in many of the new index’s indicators, including those pertaining to employment, income and wealth inequality, and carbon intensity.

Goldberg, Krogstrup, 05 March 2018, 5425 reads

The role of the global financial factor in the international monetary system has been well discussed, with some economists suggesting its role may in fact be overstated. This column argues that some of the empirical evidence on the role of global factors in driving capital flows and exchange rates across countries may be inaccurate because it has ignored key features of the operation of central banks. The authors propose a new metric – a recast exchange market pressure index which captures country-specific capital flow pressures in a way that is comparable across countries with different exchange rate regimes.

Daly, O'Doherty, 05 March 2018, 9174 reads

Recent years have seen emerging market economy inflation rates converge towards developed economy rates, as well as convergence between emerging markets. The sustained improved inflation performance in emerging markets has occurred even as unemployment in many of these economies has fallen to record lows. This column attributes the improved performance to two factors: increases in monetary policy credibility following the widespread introduction of inflation targeting, and a reduction in the frequency of emerging market currency crises, reflecting a secular improvement in their balance sheets.

Lustenberger, Rossi, 04 March 2018, 7591 reads

Most central banks communicate more openly with the markets than they did 20 years ago. The column argues that more speeches, more forward guidance, and more transparency has often worsened the accuracy of private-sector forecasts. Too much communication may be the problem, creating a cacophony of policy voices.

Wu, 03 March 2018, 4613 reads

Performance-related pay is commonly linked to the surging incomes of top managers over recent decades. This column presents a theory to assess the role of incentive structures in sorting labour to achieve efficiency on the one hand, and in generating wage inequality on the other. The theory offers a new perspective for studying the effects of technological progress on both the wages and employment of various groups of individuals.

Fafchamps, Vaz, Vicente, 03 March 2018, 4189 reads

Voter turnout is crucial in electing a politically representative government, but turnout depends on many social norms as well as the likelihood of casting a pivotal vote. This column uses evidence from a campaign to increase turnout in the 2009 elections in Mozambique to examine how peer effects impact both these channels. The results reveal positive peer effects on information and interest in politics, but negative effects on voter participation, perhaps due to voters becoming aware that their vote is less likely to matter as overall turnout increases.

Bachmann, Zorn, 02 March 2018, 5576 reads

A long-standing question in macroeconomic research pertains to the causes of business cycle fluctuations in macroeconomic variables like output and investment. This column uses survey data from the German manufacturing sector to show that aggregate variations in investment and output are mainly due to aggregate demand shocks. These shocks resemble swings in business and consumer sentiment but, for the most part, have no obvious relation to macroeconomic policy.

Acemoğlu, De Feo, De Luca, 02 March 2018, 55176 reads

The Mafia is often cited as one of the main reasons why Sicily has lagged behind the rest of Italy in economic and social development. This column describes how in an environment with weak state presence, the socialist threat of Peasant Fasci organisations at the end of the 19th century induced landholders, estate managers, and local politicians in Sicily to turn to the Mafia to resist and combat peasant demands. Within a few decades, the presence of the Mafia appears to have significantly reduced literacy, increased infant mortality, limited the provision of a variety of local public goods, and may also have significantly reduced local political competition.

Barba Navaretti, Calzolari, Pozzolo, 01 March 2018, 13037 reads

Financial technology companies have spurred innovation in financial services while fostering competition amongst incumbent players. This column argues that although incumbents face rising competitive pressure, they are unlikely to be fully replaced by FinTechs in many of their key functions. Traditional banks will adapt to technological innovations, and the scope for regulatory arbitrage will decline.

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