August 2018

Cohen, 31 August 2018

In the French presidential election the parties of right and left collapsed, beaten by political newcomer Emmanuel Macron and the far-right candidate Marine Le Pen. Daniel Cohen of the Paris School of Economics tells Tim Phillips about research that explains why millions of French voters are no longer responding to traditional political messages.

Neuhierl, Weber, 31 August 2018

Equity markets are known to move in a predictable manner immediately after policy decisions. This column provides evidence of large predictable movements in stock prices 25 days before policy actions in the US. The shocks continue for another 15 days, and average 4.5%. It suggests monetary policy shocks might not be shocks after all, and that we might be underestimating the effect of monetary policy on asset prices and real consumption.

Cloyne, Huber, Ilzetzki, Kleven, 31 August 2018

House prices are strongly correlated with borrowing, but little is known about which one is causing the other. The column uses UK house price data between 2005 and 2015, and also exploits unusual features of the UK mortgage market, to show that a 10% rise in house prices led to a 2% rise in the amount of equity extracted. This is mostly because higher house prices could be used as collateral.

Jackson, Kotlikoff, 30 August 2018

Financial crises have historically been triggered by news of financial malfeasance. Some economists advocate greater opacity for bankers to ensure investors keep the faith. This column models bankers as including a share of malfeasants who steal or lose investors’ money. Within this framework, deposit insurance makes matters worse and private monitoring fails due to free riding. The optimal policy is identified as full financial disclosure, which weeds out crooked bankers. 

Gros, 29 August 2018

Over the last few months, the risk premia on Italian government bonds have increased considerably. This column uses data on sovereign credit default swaps and governments bonds denominated in different currencies to disentangle fiscal risk from redenomination risk (i.e. the risk of Italy leaving the euro). Redenomination risk appears to be responsible for about half of the overall increase in the spread, suggesting that playing with the idea of exiting the euro can be costly even if public finances remain under control.

Krogstrup, Tille, 29 August 2018

Volatility in international capital flows can disrupt international trade and finance. This column explores the role of agents’ exposure to risk in this dynamic, focusing on domestic financial firms. It finds that the impact of an increase in risk aversion on foreign currency funding is conditional on the bank’s initial net currency exposure. This suggests that the empirical link from global factors to cross-border bank funding depends on country-specific characteristics of financial institutions.

Cecchetti, Schoenholtz, 28 August 2018

We are constantly bombarded by reports of how blockchain technology will change the world. This column describes the technology, the problem it is designed to solve, and the impact it might have on finance. Conceivably, a blockchain system could securely track the ownership of every financial instrument and exposure in the global economy. While this is a very tall order, it would be truly revolutionary. In practice, however, we are still a long way off.

Chen, Liu, Suárez Serrato, Xu, 28 August 2018

Tax incentives to encourage firms to invest in R&D may also encourage firms to fraudulently relabel other expenses as R&D. The column finds that 30% of the increase in reported R&D in response to a Chinese incentive programme was due to relabelling. The size and type of tax break has a large effect on both the level of participation and the incentive to relabel.

Kerr, Stanton, 27 August 2018

Online labour platforms such as Upwork facilitate interactions between employers and employees for a wide range of tasks. This column provides some first evidence on flows and substitution across countries on these new digital platforms. In contrast to classic trade patterns in products, contract placements via Upwork are frequently cross-border and North-South in nature. The findings also suggest that employers leave the platform in response to wage bid increases rather than substituting away from their target search location. Diaspora networks, in particular the Indian diaspora, still matter for how contracts are placed at the global level.

Ginsburgh, Moreno-Ternero, Weber, 26 August 2018

After Brexit, English can no longer retain its status as one of the EU's official or working languages. This column uses data on languages spoken in the EU to show that post-Brexit, German and French would become dominant. Efforts to preserve English as an official language of EU institutions, which would require a unanimous vote among members, are unlikely to succeed. This may be problematic for certain European countries in which English is a more widely spoken second language than German or French.

Tanaka, Bloom, David, Koga, 25 August 2018

What is the effect of firms’ beliefs on their decisions and performance? This column explores this link using a unique survey of Japanese firms’ quantitative forecasts of future GDP growth combined with detailed company accounting data for over 1,000 large Japanese firms over 25 years. Firms’ input decisions and subsequent profit and productivity are found to react strongly to expectations of macroeconomic conditions, while significant heterogeneity in forecast accuracy across firms appears to be related to observable characteristics such as productivity, size, age, and governance structure. The results highlight a key role of firms’ forecasting ability for micro and macro performance.

Cummins, 24 August 2018

The north of England and Wales lag the south in output per person, educational attainment, and even life expectancy. Neil Cummins of the London School of Economics tells Tim Phillips that this can be explained entirely by a 200-year 'Big Sort - the migration south of talented people, replaced by less-able southerners who move north.

Vandenbussche, Connell, Simons, 24 August 2018

While talks of a preferential agreement between the US and EU were put aside when President Trump came in office, the presidents of the two trading partners have recently expressed a new desire to aim for zero tariffs and non-tariff measures between them. This column estimates the gains from such a deal, taking into account global value chains and input-output linkages in production. It finds that free trade would substantially benefit both the EU and the US, and these gains would result from the reduction in non-tariff barriers rather than tariffs. 

Berg, Burg, Gombović, Puri, 24 August 2018

Digitisation is one of the major trends of our time, with all of us constantly leaving footprints in the digital sphere. This column evaluates the value of digital footprints for credit scoring and finds that easily accessible variables from such footprints have a predictive power that equals or exceeds that of traditional credit bureau scores. Analysing borrowers’ digital behaviour may present an opportunity to boost financial inclusion in developing countries, where the inability of the unbanked population to participate in financial services is often caused by a lack of information infrastructure.

Hull, Olovsson, Walentin, Westermark, 23 August 2018

Large movements in house prices can have broad and substantial effects on the macroeconomy. This column uses property-level data to identify the key drivers of house price volatility and decompose this into national, regional, local, and idiosyncratic components. There is substantial cross-sectional variation in house price risk, with higher firm concentration, employment volatility, and manufacturing share of output and employment associated with greater risk. 

Bakker, Maurer, Pischke, Rauch, 23 August 2018

Economists often point out the benefits of trade, yet empirical evidence for these benefits has been hard to come by and tends to be recent. This column goes back to the first millennium BC to analyse the growth effects of one of the first major trade expansions in human history: the systematic crossing of the open sea in the Mediterranean by the Phoenicians. A strong positive relationship between connectedness and archaeological sites suggests a large role for geography and trade in development even at such an early juncture in history.

Martínez, Siegenthaler, Saez, 22 August 2018

Macroeconomists tend to assume that people work more when their wages are temporarily higher, and that this is a key driver of employment fluctuations. This column examines how income tax holidays in Swiss cantons, which exempted earnings from income taxation for one or two years, affected the labour supply of Swiss workers.  People did not work more during the tax holiday, but the self-employed and high earners shifted earnings into the tax holiday years. The findings suggest that intertemporal labour supply responses are too small to be a key explanation why recessions lead to large falls in employment.

Snower, 22 August 2018

Digital identity management is currently undertaken by central identity providers, with users providing their data free to digital networks that own their digital identities. If users leave their digital networks, they must leave all their digital possessions, including their digital identities, behind. This system is analogous to slavery. It is neither efficient nor equitable. Users have no assurance that the value of the free data they provide bears any relation to the value of the free services they receive. The digital networks have overwhelming market power relative to their users. This column argues for reform in the form of a Digital Freedom Pass, – the digital equivalent of a wallet containing verified pieces of an individual’s digital identity. The person can then choose which identification to share, with whom, and when, allowing emancipation from our current digital slavery. 

Branstetter, Glennon, Jensen, 21 August 2018

US firms have begun shifting R&D investment towards non-traditional destinations such as China, India, and Israel. The column argues that this is a response to a shortage in software and IT-related human capital within the US. When US multinationals are able to import talent or export R&D work, this reinforces US technological leadership. Conversely, politically engineered constraints on this response will undermine the competitiveness of US-based firms.

Thakor, Merton, 21 August 2018

Trust in financial products and institutions is widely recognised as being essential for financial markets to function efficiently. This column argues that trust in financial institutions may have a first-order impact on whether non-bank (fintech) firms can survive when competing against traditional banks. When trust is lost and reputation becomes important, the cost of funding rises more for fintech firms than for banks, as financiers see that banks have a stronger reputational incentive to make good loans. So while banks may be able to survive a loss of trust, fintech lenders will be forced to shut down.

Bordo, Istrefi, 20 August 2018

US presidents can influence monetary policy through the appointment process of the Federal Open Market Committee members. This column examines the policy preferences of Committee members in relation to the ideology of their appointers. Democratic Board nominees have been mostly perceived to be doves, while the shares of both hawks and doves (as opposed to swingers) appears higher for Republican nominees. In contrast, a high share of hawks among Federal Reserve Bank presidents, who are appointed by their bank’s board of directors, is observed irrespective of the president’s party.

Niepelt, 20 August 2018

The potential benefits and risks of digital central bank money for use by the general public have been widely debated. This column looks at one aspect that has been somewhat overlooked – the consequences of substituting outside for inside money. ‘Reserves for all’ could increase the incentive to extend credit but might undermine political support for implicit financial assistance to banks. However, the effects need not be disruptive. 

Pisani-Ferry, Zettelmeyer, 20 August 2018

The proposed package of reforms from the team of French and German economists aimed at increasing the stability of the euro area has sparked a lively debate on Vox. In this column, two of the paper’s authors respond to some of the criticisms of their proposals, focusing on the broad issues of debt restructuring as ‘ultima ratio’ and regulating banks’ sovereign exposures.

Mian, Sufi, 19 August 2018

Charles P. Kindleberger wrote that “asset price bubbles depend on the growth in credit”. This column looks at the acceleration of the US private label mortgage securitisation market in the US in the late summer of 2003, which disproportionately reduced the cost of financing by lenders that did not traditionally rely on deposit financing for mortgage lending. The sharp rise in lending in zip codes with greater exposure to such lenders generated a boom and bust in house prices. Easier credit also appears to have been a crucial ingredient in explaining bubble cities that experienced both house price and construction booms.

Kelly, Ó Gráda, 18 August 2018

Little is known about migration to cities in the era before railways. The column uses data on the origins of women arrested for prostitution in Paris in the 1760s, women registered as prostitutes in the 1830s and 1850s, men holding identity cards during the French Revolution, as well as everyone buried in 1833 to examine patterns of migration. Migration was highest from areas with high living standards, and the impact of distance fell as transport improved. Distance was a stronger deterrent to females than to males, consistent with more limited employment opportunities for women.

Koijen, 17 August 2018

New drugs mean that many types of cancer are no longer a death sentence. But new medical treatments may have a catastrophic financial cost for patients. Tim Phillips talks to Ralph Koijen about how life insurance, not medical insurance, might finance the war on cancer.

Fratzscher, Grosse Steffen, Rieth, 17 August 2018

Does inflation targeting help absorb large shocks? This column shows that it implies higher output growth and lower inflation when countries are hit by natural disasters. Hard targeting works in these cases; soft targeting does not. This has impacts for how we evaluate the success of inflation targeting during the global crisis, but also for the debate on flexible inflation targeting.

Blanco, Cravino, 17 August 2018

Economists have often interpreted the observation that movements in real exchange rates are large, persistent, and closely track movements in nominal rates while cross-country differences in inflation rates are small and stable as direct evidence for nominal price rigidities. This column uses the microdata behind the construction of the consumer price index to isolate the real exchange rate for the subset of goods that change prices. This ‘reset exchange rate’ moves with the real exchange rate, suggesting that sticky prices are not a primary factor in dampening the response of inflation to exchange rate shocks.

Bénassy-Quéré, Bussière, Wibaux, 16 August 2018

Recent events on the international stage have reignited the debate on trade and currency wars. This column compares two forms of non-cooperative policies – import tariffs and currency devaluations – within a single framework. The results show that tariffs and devaluations do not have equivalent effects on trade flows. A 1% depreciation of the importer's currency reduces imports by around 0.5% in current dollars, whereas an increase in import tariffs by 1 percentage point reduces imports by around 1.4%.

Mocetti, Roma, Rubolino, 16 August 2018

A large proportion of workers are employed in licensed occupations whose entry conditions and economic returns are significantly shaped by regulation. This column examines the consequences of two waves of liberalisation in professional services in Italy since the 2000s for intergenerational mobility and allocative efficiency. The analysis reveals a substantial decrease in the propensity to follow the same career as one’s parents, particularly among less able children, suggesting that anticompetitive regulation might produce inefficiencies in the allocation of talents across occupations.

Anderson, Foros, Kind, 15 August 2018

Media platforms traditionally delivered the widest possible audience to advertisers. This column argues that the arrival of digital competition in media has created a battle for ‘exclusive eyeballs’ – a niche audience not shared with competitors. While this increases diversity in the media, it also incentivises media outlets to polarise to attract specific groups, and to create echo chambers to retain them.

Cornière, Taylor, 15 August 2018

A general challenge facing competition authorities in the digital era is learning how to apply the traditional tools of competition policy in multi-sided platform environments. This column argues that the Google Android case offers a great example of the need to consider the implications of the market's two-sidedness. It also argues that bundling can, in fact, be profitable by virtue of its effect on competition once one accounts for some of the key features of mobile app markets.

Parsons, Vézina, 15 August 2018

One of the largest refugee waves in recent history was that of the Vietnamese boat people. This column examines the long-run effect of the resettlement of Vietnamese refugees across the US on exports from the US to Vietnam. The first wave of refugees in 1975 was followed by a 20-year trade embargo on Vietnam. Following the lifting of sanctions, the share of US exports going to Vietnam was higher and more diversified in the states with larger Vietnamese populations. This evidence of the pro-trade effect of immigrants is a reminder that hosting refugees can represent an investment in the future.

Varian, 14 August 2018

The European Commission’s case against Android has been hailed as a “milestone” in antitrust enforcement. This column, written by Google’s Chief Economist, argues that the case is more of a millstone than a milestone for not just Google, but the entire Android ecosystem of equipment manufacturers, carriers, app developers, and end users.

Ampudia, Georgarakos, Lenza, Slacalek, Tristani, Vermeulen, Violante, 14 August 2018

Quantitative easing has recently been shown to affect households differently depending on the composition of their income and wealth. Using euro area data, this column reviews the relevance of the direct and indirect effects of monetary policy on households’ incomes, which varies depending on employment status. The indirect income channel is found to be quantitatively more powerful, and especially beneficial for households holding few or no liquid assets. This implies that expansionary monetary policy in the euro area has led to a reduction in inequality. 

Managi, 14 August 2018

In Japan, as in many other countries, manufacturers are testing automated driving technology, and policymakers are considering how to implement it. This column discusses the demand for the technology in Japan, using a survey of consumers. Almost half intended to purchase automated vehicles or driving systems, but willingness to pay was below the likely additional cost. 

Alvaredo, Assouad, Piketty, 13 August 2018

Survey estimates suggest that inequality in the Middle East is not particularly high despite considerable political conflict. This column uses new ‘distributional national accounts’ data to show that the Middle East is in fact the most unequal region in the world, with both enormous inequality between countries and large inequality within countries. The results emphasise the need to develop mechanisms of regional redistribution and to increase transparency on income and wealth data.

Porzio, 12 August 2018

The share of the population employed in agriculture across the globe declined steeply over the second half of the 20thcentury. This coincided with an unprecedented increase in average years of schooling. This column explores whether these two trends are related. The results lend support to the idea that increased schooling led more workers to sort out of agricultural work. Whether reallocation out of agriculture has been beneficial for growth, however, remains to be seen.  

Giupponi, Machin, 11 August 2018

In 2016 the National Living Wage in the UK raised the minimum hourly wage for workers aged 25 and over. The column uses data from English care homes to analyse the impact of this policy, finding that the main non-wage effect has been a deterioration in quality of care. Younger colleagues also received wage rises, which seems to reflect a preference for fairness among employers.

Huang, Lin, Liu, Tang, 10 August 2018

Tariffs intended to reduce competition from foreign firms can backfire by also raising the costs of imported inputs for domestic firms. This column examines the market responses to the Trump administration’s initial and subsequent announcements of tariffs on imports from China. US firms that are more dependent on exports to and imports from China experienced lower stock and bond returns but higher default risks around the date of the announcement. Firms’ indirect exposure to US-China trade through domestic input-output linkages affects their responses to the announcements. 

Currie, Schwandt, Thuilliez, 10 August 2018

Understanding how inequalities in health are related to inequalities in income is a key issue for policymakers. This column describes how despite increasing income inequality in both countries, the development of mortality has been very different in France compared with the US. The findings show that inequalities in income and health do not necessarily move in tandem, and highlight how public policy helps to break this link. 

Barattieri, Cacciatore, Ghironi, 10 August 2018

Populist politicians argue that protectionism stimulates the domestic economy. This column uses data on temporary trade barriers from antidumping investigations to show that when small open economies have imposed protectionist measures, it has caused inflation to rise and real economic activity to fall. Empirical analysis and model-based exercises show that protectionism is costly even when used temporarily, even for economies stuck in liquidity traps, and regardless of the flexibility of the exchange rate.

Marin, 10 August 2018

In 1997 Germany was called "the sick man of Europe". So what is behind its exceptional recovery? Tim Phillips talks to Dalia Marin, the editor of a recent VoxEU ebook that explains what Germany did, and what other countries can learn from it.

Kuhn, Schularick, Steins, 09 August 2018

Recent work examining the evolution of the wealth distribution has tended to not paid much attention to the role of asset prices. This column uses a new US dataset to explore the role that asset price movements have in the US wealth distribution. Asset prices matter because portfolio composition differs systematically along the wealth distribution. The data further show that no progress has been made in reducing wealth inequalities between white and black households over the past 70 years. 

Agrawal, Gans, Goldfarb, 08 August 2018

Regardless of whether one adopts a pessimistic or optimistic view of artificial intelligence, policy will shape how it affects society. This column looks at both the policies that will influence the diffusion of AI and policies that will address its consequences. One of the most significant long-run policy issues relates to the potential for artificial intelligence to increase inequality. 

Dabla-Norris, de Mooij, 07 August 2018

A key problem in tax research is that quantitative information is often only available for tax rates, not tax bases. This column introduces a new IMF database on tax reforms published, which uses text-mining techniques to infer multiple dimensions of tax reforms enacted in 23 advanced and emerging economies over the last four decades. The database, which covers both direct and indirect taxes, can help address well-known methodological pitfalls in existing tax research and offers opportunities for novel analysis of tax policy.

Olafsson, Pagel, 07 August 2018

Theories of rational inattention argue that individuals incur costs when they look for information, and that they compare these costs with the expected benefits from that information. This column uses empirical evidence on online logins to bank accounts to show that in this context, attention tends to be selective – subject to an 'ostrich effect' that avoids the discovery of bad news, for example – rather than rational. This selective attention may intensify individual financial problems such as debt traps.

Eriksson, Ward, 06 August 2018

Those opposed to immigration often contend that immigrants are slow to assimilate. This column takes a longer-term view of assimilation by looking at the degree of ethnic spatial segregation in the US during and after the Age of Mass Migration. New methods and newly digitised data suggest that segregation in the US between 1850 and 1940 was both higher and more widespread than previously thought. However, despite slow rates of spatial assimilation, immigrants tend to assimilate culturally at a fast rate. 

Yueh, 05 August 2018

Between 1960 and 2008, only a dozen or so middle-income countries became prosperous. This column explores the factors affecting how and why some countries become prosperous, while others fail. Consistent with the theories of New Institutional Economics, economies that adopted the economic policies and institutional reforms of successful countries enjoyed the largest increases in prosperity. These successes point to the advantages of looking beyond the economic staples of capital, labour, and technology in fashioning growth policies.

Gruber, Hoe, Stoye, 04 August 2018

Emergency departments in hospitals around the world are under pressure to reduce waiting times. This column analyses the effect of a government target for hospitals in England which mandates a maximum waiting time of four hours. The target successfully reduced waiting times and mortality, but increased costs per patient.

Alstadsæter, 03 August 2018

It's routine for the rich to dodge tax by hiding it offshore. But how much of their wealth are they hiding illegally? Tim Phillips talks to Annette Alstadsæter of the Norwegian University of Life Sciences about how she and her colleagues used whistleblower data to discover the extent of tax evasion by the ultra-rich.

Nolan, 03 August 2018

The narrative that globalisation and technological change have been the central forces hollowing out the jobs market, squeezing ‘the middle’, driving up inequality, and undermining growth is frequently taken to apply across the rich countries. This column presents a set of country case studies of the US alongside nine other rich countries that highlights just how varied their experiences since the 1980s have actually been.  Country contexts really matter, and policy responses must be framed in light of the institutional point of departure and distinctive challenges each country faces.

Mayer, Vicard, Zignago, 02 August 2018

Sixty years after the Treaty of Rome came into force, doubts about the benefits of trade openness are increasing among the general public and policymakers, with Brexit and calls from many governments for a reversal of key integration agreements painting a bleak picture of what may come next. This column revisits the gains EU members have reaped from trade integration since 1957 and what would be the costs of going backwards. The results suggest that the Single Market has increased trade between EU members by 109% on average for goods, with associated welfare gains reaching 4.4% for the average European country.

Bolton, Oehmke, 01 August 2018

When banks are too big to fail, resolution frameworks for are hobbled by the mismatch between their global nature and the national scope of regulators. This column argues that while a ‘single point of entry’ resolution is efficient, it is often incompatible with the interests of regulatory authorities, both ex ante and ex post. Taking the political constraints and incentives of national regulators into account implies that a credible resolution regime cannot be‘one size fits all’.


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