November 2018

Heijdra, Aarden, Hanson, van Dijk, 30 November 2018

A central fiscal capacity is a recurring topic in discussions on reform of the Economic and Monetary Union, but no consensus on the usefulness and necessity of a such a capacity has been reached. This column, part of the Vox debate on euro area reform, argues that the potential stability benefits of a central fiscal capacity can be achieved through stronger financial market risk sharing and more effective use of fiscal stabilisers, without any additional fiscal risk sharing.

Dahl, 30 November 2018

We are sending more people to prison than ever. But we know surprisingly little about whether, and how, prison sentences cut crime. Gordon Dahl of USC San Diego tells Tim Phillips about new research that shows how prison sentences can work for both inmates and society.

Fillat, Garetto, Smith, 30 November 2018

How relevant are global banks in the transmission of shocks across countries? This column discusses the effects that the presence of foreign banking institutions has on the transmission of shocks during crises. Using a model that microfounds a bank’s decision on whether and how to expand into foreign markets, it quantifies the extent of shock transmission and examines the effects of counterfactual regulatory and monetary policies across borders. 

Akcigit, Baslandze, Lotti, 30 November 2018

Corruption, especially rent-seeking behaviour by politicians and firms, has adverse consequences for competition and ultimately growth. This column explores how political connections influence firms’ outcomes in Italy. The results point to a ‘leadership paradox’, whereby market-leading firms are more likely to be politically connected than their competitors, but less likely to innovate. At the aggregate level, political connections tend to be associated with worse industry dynamics, including lower entry, reallocation, growth, and productivity.

Ahir, Bloom, Furceri, 29 November 2018

The global economy is growing, but so is uncertainty. This column presents a new quarterly index of uncertainty for 143 countries. The World Uncertainty Index reveals how uncertainty in the world has evolved over time, whether it is synchronised across countries, and how it compares across income groups and political regimes.

Baubeau, Monnet, Riva, Ungaro, 29 November 2018

Previous research has downplayed the role of banking panics and financial factors in the French Great Depression. This column uses a newly assembled dataset of balance sheets for more than 400 French banks from the interwar period to challenge this long-held idea. The empirical results show two dramatic waves of panic in 1930 and 1931, and point to a flight-to-safety mechanism. The findings illustrate how minor macroeconomic assumptions and extrapolations on monetary statistics can introduce large, persistent biases in historiography.

Bütikofer, Jensen, Salvanes, 29 November 2018

A recent literature argues that a ‘motherhood penalty’ is a main contributor to the persistent gender wage gap in the upper part of the earnings distribution. Using Norwegian registry data, this column studies the effect of parenthood on the careers of high-achieving women relative to high-achieving men in a set of high-earning professions. It finds that the child earnings penalty is substantially larger for mothers with an MBA or law degree than for mothers with a STEM or medical degree.

Kotlikoff, 28 November 2018

The general consensus on what caused the Great Recession can be summed up as “bad banks full of bad bankers did bad things”. This column argues, however, that this narrative doesn’t fit the facts. And worse, it diverts attention from the real problem, which was regular use of a bad banking system – a banking system built to fail.

Baldwin, 27 November 2018

The 23 June 2016 Brexit vote saw British voters reject membership in the European Union. This column, which was first published in August 2016, introduces a VoxEU eBook containing 19 essays written by leading economists on a wide array of topics and from a broad range of perspectives. 

de Soyres, Mulabdic, Murray, Rocha, Ruta, 27 November 2018

The Belt and Road Initiative, proposed by China in 2013, consists primarily of a series of infrastructure projects aimed at improving connectivity on a trans-continental scale. This column presents new evidence on the potential impact of the initiative on trade costs. It shows that through a reduction in shipment times, the initiative could substantially reduce trade costs for participating countries, with positive spillover effects on the rest of the world. 

Güell, Pellizzari, Pica, Rodriguez Mora, 26 November 2018

Measuring intergenerational mobility and understanding its drivers is key to removing the obstacles to equal opportunities and assuring a level playing field in access to jobs and education. This column uses the informational content of Italian surnames to show that social mobility varies greatly across regions in the country, and that it correlates positively with economic activity, education and social capital, and negatively with inequality. The findings suggest that policies and political institutions are unlikely to be the main drivers of geographical differences in social mobility.

Hsieh, König, Liu, Zimmermann, 26 November 2018

Through collaboration networks, researchers create spillovers for one another, and also other researchers indirectly linked to them. This column leverages co-authorship network data for economics to study the impact of these spillovers on total research output. Taking account of spillovers, the results show that the most productive researchers are not those with the most citations. Current funding schemes appear to be ill-designed to take advantage of the spillover effects generated in scientific knowledge production networks. 

Kelly, Le Blanc, Lydon, 25 November 2018

Loan-to-value limits and other borrower-based macroprudential measures are now used in two-thirds of advanced economies. This column uses survey data to document changes in credit standards in a cross-section of countries in the run-up to, and aftermath of, the financial crisis. There is clear evidence of laxer credit standards in countries that experienced a real estate boom-bust, and a significant tightening after the bust. The results imply that compared to earlier years, younger and lower-income borrowers have to save for longer before buying.

Dreher, Lang, Rosendorff, Vreeland, 24 November 2018

Countries that vote with the US when serving on the UN Security Council also receive more financial assistance. This column uses voting records in the Council to show that when these countries were US allies, they received more in US aid, but when the countries were not natural allies, they received more financial assistance from US-dominated international institutions instead.

Akcigit, 23 November 2018

Firms like to be politically connected, because it makes it easier for them to do business. But is it good for the rest of us? Ufuk Akcigit of the University of Chicago tells Tim Phillips about the consequences of connecting to power.

Djankov, Saliola, 23 November 2018

Over the last century, technology has created more jobs than it has displaced. This column presents an overview of ways in which technology and innovation are changing the nature of work, leading to demand for advanced cognitive skills and greater adaptability among workers. The rise of platform marketplaces is also changing the way people work and the terms on which they work, which requires a rethinking of social protection systems.

Calvo, Crisanto, Hohl, 23 November 2018

A well designed financial supervisory architecture is essential for the effective functioning of any financial system. Using a survey of 82 jurisdictions, this column describes the state of financial supervisory models around the world and highlights the key institutional changes after the Global Crisis. It finds that the prevailing financial supervisory model continues to be sectoral, but that there have been incremental but important changes within existing models. Central banks have acquired more financial oversight responsibilities after the Global Crisis, and many jurisdictions have enhanced or are in the process of enhancing their consumer/investor protection supervision.

Dyevre, Glavina, Lampach, Ovádek, Wijtvliet, 22 November 2018

Twenty-eight months after the Brexit referendum, EU laws, regulations, and doctrines continue to apply to UK residents and state officials. This column shows that UK judges and litigants have already started to move away from EU law in anticipation of Brexit, with judges submitting 22–23% fewer questions to the European Court of Justice since the referendum. The broader lesson for the future of supranational legal systems is that effective disintegration may precede formal withdrawal, or may occur even if formal withdrawal is delayed or does not come about.

Fernandes, Winters, 21 November 2018

Understanding the effect of exchange rate movements on international trade is a major issue for economists and policymakers. This column shows that Portuguese exporters absorbed little of the effect of the large and unanticipated depreciation of sterling following the Brexit referendum into their markups – the vast bulk of the effect of the depreciation was visited on UK users and consumers of Portuguese goods. The lesson for the UK as it contemplates life after Brexit is that it is, in the technical sense, a ‘small open economy’ and will have little ability to negotiate or otherwise achieve better trading terms.

Andini, Ciani, de Blasio, D'Ignazio, 21 November 2018

The impact of a public policy partly depends on how effective it is in selecting its targets. Machine learning can help by exploiting increasingly available amounts of information. Using data from Italy, this column presents two examples of how to employ machine learning to target those groups that could plausibly gain more from the policy. It illustrates the benefits of machine-learning targeting when compared to the standard practice of employing coarse policy assignment rules based on a few arbitrarily chosen characteristics.

Nickel, O'Brien, 20 November 2018

Just like other central banks, the ECB generally monitors a range of measures of underlying inflation to help distinguish noise from signal in headline inflation. This column describes measures of underlying inflation that are routinely used at the ECB for measuring euro area headline inflation and provides some insights on their interpretation. Each of the measures has merits and shortcomings and they should be taken together in arriving at a first-pass assessment of developments in headline inflation. At the same time, the measures need to be complemented by a more structural examination of their driving forces in order to better understand the inflation process.

Oreopoulos, Patterson, Petronijevic, Pope, 20 November 2018

Time studying is strongly correlated with grades earned, but the amount of time that students spend studying has declined dramatically. This column describes an intervention at three higher education campuses that offered coaching and help for students to plan their time. Students were highly engaged, but there was no effect at all on their grades. This is consistent with previous results that suggest this type of intervention does not change student behaviour in a sustained and meaningful way.

Todo, Kashiwagi, Matous, 19 November 2018

Global producers, service providers, and international financial institutions are becoming increasingly intertwined through expanding supply chains. This column uses new firm-level data on the impact of Hurricane Sandy in 2012 to examine how economic shocks are propagated by global supply chains. While the hurricane’s negative shock appeared to propagate among firms within the US, the shock does not seem to have spread internationally. The findings suggest that access to global opportunities and to alternative partners can be a source of resilience against disaster shocks for internationalised firms.

Bisztray, Koren, Szeidl, 18 November 2018

Several recent studies have used network methods to explore the spatial spillovers within cities. This column adds to this literature by exploring how the spatial and managerial networks in Budapest influence firms’ import decisions. A peer in the same building with import experience from a specific country has a strong positive effect on the probability that a firm will start importing from that country. These findings point to the importance of social multipliers in facilitating the diffusion of good business practices. 

Vuillemey, 17 November 2018

A key function of financial markets is to share risks, and thus to mitigate the transmission of shocks to the real economy. This column analyses one historical setup in which risk-sharing possibilities in financial markets suddenly increased – the creation of the first central clearing counterparty in 1882 in France in the market for coffee futures. The ability to better hedge coffee prices had real effects and increased trade flows Europe-wide. 

Bloom, Chen, Mizen, 16 November 2018

The majority of businesses in the UK report that Brexit is a source of uncertainty. This column uses survey responses from around 3,000 businesses to evaluate the level and impact of this uncertainty. It finds that Brexit uncertainty has already reduced growth in investment by 6 percentage points and employment by 1.5 percentage points, and is likely to reduce future UK productivity by half of a percentage point.

Pritchett, 16 November 2018

In the developed world borders are being closed and popular resistance to immigration is rising. Yet Lant Pritchett of Harvard University tells Tim Phillips that the rate of migration from poor to rich countries is actually five times too low. Planned mass migration of unskilled labour, he argues, would make everyone better off.

Bick, Brüggemann, Fuchs-Schündeln, Paule-Paludkiewicz, 15 November 2018

The extent to which tax policies influence the amount of labour that private households supply has been at the centre of many public policy debates. Within married couples, joint versus separate taxation may be one factor that contributes to differences in household labour supply. This column uses a model that closely reproduces the changes in married women’s labour supply in the US and Europe between the early 1980s and 2016 to show that taxes are indeed a major factor shaping the labour supply of married women.

Hays, Zapke, 15 November 2018

Traditional absolute valuation methods can’t be applied to cryptocurrencies like Bitcoin and Ethereum. This column instead applies relative valuation models to crypto-assets, leveraging Metcalfe’s theory of communication system valuation. Preliminary results show that the network value to Metcalfe ratio is relatively successful at identifying periods when Bitcoin was over-and undervalued.

Gaubert, 14 November 2018

In order to encourage economic growth and development, governments often put in place a range of policies aimed at attracting firms to specific areas of a country. Yet relatively little is known about their implications for efficiency.This column argues that such subsidies have costly long-run effects, both on the productive efficiency of the economy and in terms of welfare. Moreover, place-based policies do not necessarily decrease spatial disparities. 

Vegh, Vuletin, Riera-Crichton, Medina, Friedheim, Morano, Venturi Grosso, 14 November 2018

Emerging markets are especially vulnerable to a myriad of domestic and external risks. This column develops a framework to classify these risks based on their predictability and, hence, their insurability. As the probability of relatively large events increases, it becomes more difficult to insure against such risks. In the extreme case in which countries face truly unpredictable and impactful events (or ‘black swans’), they must rely on building broad-based resilience or resorting to ex-post aid. 

Das, 13 November 2018

Evidence that routinisation lies behind labour market polarisation has been documented for many developed economies, but less is known about its impact in emerging markets. This column draws on national censuses and labour surveys for 160 countries between 1960 and 2015 to argue that although large-scale labour market dislocation is not imminent, emerging markets are becoming increasingly exposed to routinisation – and thus labour market polarisation – from the long-term effects of structural transformation and the onshoring of routine-intensive jobs.

Clarke, Mühlrad, 12 November 2018

Women’s health is frequently cited when debating the merits of abortion legislation. However, the arguments are often based on evidence which is correlational or drawn from small or non-representative samples of women. This column explores the impacts of abortion legislation on women’s health using the universe of health records from Mexico, where abortion was legalised in the Federal District of Mexico while sanctions on abortion were increased in other regions of the country. It documents immediate reductions in rates of hospitalisation of women with the legalisation of abortion.

Del Negro, Giannone, Giannoni, Tambalotti, 12 November 2018

Interest rates are at their lowest levels of the last 150 years in virtually all advanced economies. This column argues that this unprecedented environment reflects secular global forces that have lowered the trend in the world real interest rate by about two percentage points over the past 30 to 40 years. Whatever forces might lift real interest rates in the future must also be global, such as a sustained pickup in world economic growth, or a better alignment between the global demand and supply for safe and liquid assets.

Carta, De Philippis, 11 November 2018

Commuting time has been regarded mainly as affecting labour supply decisions at the individual level. Previous analyses do not consider the interactions between partners’ commuting times and their labour supply. This column shows that, in response to the husband’s longer commute, the wife’s employment decreases and the husband works slightly more. These results suggest that intra-family interactions need to be considered when evaluating policies that apparently affect one partner only.

Xu, Yang, 11 November 2018

The Taiping Rebellion, from 1851 to 1864, was the deadliest civil war in history. This column provides evidence that this cataclysmic event significantly shaped China’s Malthusian transition and long-term development that followed, especially in areas where the experiences that stemmed from the rebellion led to better property rights, stronger local fiscal capacity, and rule by leaders with longer-term governance horizons.  

Agan, Makowsky, 10 November 2018

Individuals with a criminal record face difficulties in the labour market that can compel them to reoffend. This column reveals how increases in the minimum wage in the US reduce the likelihood of recently released felons being reincarcerated, while an income-related tax subsidy has a similar effect for women, but not men. The results suggest significant welfare benefits from policiesthat help raise wages above the potential income from criminal activity.

Attanasio, Levell, Low, Sánchez Marcos, 10 November 2018

Economists disagree on the size of labour supply elasticities. The column uses a model of female labour supply to show that there is substantial heterogeneity in both cross section and over the business cycle. It is not possible to think about labour supply elasticity as a unique structural parameter. To understand the consequences of income tax changes, for example, we need to be explicit about whose tax is changing.

Harrison, 09 November 2018

This weekend marks 100 years since the end of World War 1. But is the history of the war that we learn at school the whole story? The 20 essays in a new VoxEU ebook on the economic history of the war challenge the conventional wisdom about how the war started, why it was won and lost, and its consequences. Tim Phillips talks to Mark Harrison of the University of Warwick, one of the book’s editors.

 

Balduzzi, Brancati, Schiantarelli, 09 November 2018

The Italian government has decided to pursue an expansionary fiscal policy, with increased welfare spending as its focus. This column uses evidence from the 2010-2012 sovereign debt crisis to explore the potential negative effects of this policy on private investment. It finds that an increase in a bank’s credit default swap spreads leads to lower investment and employment for younger and smaller firms and in the aggregate. These findings suggest the planned fiscal expansion could substantially crowd out private investment.

Cao, Jin, Weng, Zhou, 09 November 2018

Positive network effects may lead to winner-takes-all in some markets. The column analyses dockless bike-sharing in China to show instead how an incumbent can benefit from positive spillovers from a competitor’s entry. In the case of bike-sharing, consumers multi-home, the market exhibits positive network effects, and investment by two firms is more cost-efficient than investment by one. 

Danielsson, 09 November 2018

Cryptocurrencies are primarily held today for speculative reasons and see little economic use outside of that. This column argues that if private cryptocurrencies were to find widespread economic use, either coexisting with or fully displacing fiat money, the result would be increased financial instability, inequality, and social instability. 

Buti, Döhring, 08 November 2018

GDP growth has become more uneven globally, and has shifted into a lower gear in Europe. So it is unsurprising that commentators have started warning about a more severe downturn. The Commission's autumn 2018 European Economic Forecast is no exception in highlighting an unusual amount of uncertainty clouding the economic outlook. The predominance of downside risks implies that macroeconomic outcomes could ex post be worse than our central scenario. This column discusses, on the basis of concrete examples, different types of uncertainty surrounding the still benign forecast baseline. Prudence requires economic policy to prepare for the eventuality of worse outturns. 

Ademuyiwa, Siklos, St. Amand, 08 November 2018

Changes in central banks’ balance sheets are often used as an indicator of monetary policy stance. This column describes the challenges associated with using balance sheet data to analyse policy. Data for 31 advanced and emerging economies reveal a potentially negative, albeit tenuous, relationship between balance sheet policies and monetary policy objectives. The finding calls for more detailed and consistent balance sheet accounting from central banks around the world.

Ornelas, Ritel, 08 November 2018

Generalised System of Preferences programmes, a form of nonreciprocal tariff cuts, have proliferated since the 1970s. Using a well-documented dataset of international trade agreements, this column studies the effectiveness of the system on beneficiaries’ aggregate exports. It finds that nonreciprocal tariff preferences can have a strong positive effect on the exports of least-developed countries, provided that they are WTO members. Conversely, other developing economies enjoying nonreciprocal preferences are able to increase exports only if they are not WTO members. 

Liberini, Redoano, Russo, Cuevas Rumin, Cuevas Rumin, 07 November 2018

The ways we access news and, with it, the nature of political communication have radically changed since the advent of social media. This column uses a unique dataset that matches individuals to Facebook audiences to examine the extent and intensity of online political campaigns conducted on the site before the 2016 US presidential elections. The social platform had a significant effect in persuading undecided voters to support Trump and in persuading Republican supporters to turn out on election day, but had no effect on Clinton’s side.

Chamon, Schumacher, Trebesch, 06 November 2018

Do investors care about the legal characteristics of sovereign debt? Focusing on the euro area, this column compares sovereign bonds issued under domestic law  to those issued under a foreign jurisdiction, which are harder to restructure in a debt crisis since they are out of reach of the borrowing country’s legislature. This legal protection means that foreign law bonds trade at a premium (with lower yields), but only in situations of severe distress such as Greece or Portugal in 2011/2012. In the midst of a crisis, governments can borrow more cheaply by issuing in foreign law. 

Chetty, Friedman, Hendren, Jones, Porter, 06 November 2018

Economic mobility varies dramatically across the US. This column introduces a new interactive mapping tool that traces the roots of outcomes such as poverty and incarceration back to the neighbourhoods in which children grew up. Among the insights the data reveal are that children who grow up a few miles apart in families with comparable incomes have very different life outcomes, and that moving in early childhood to a neighbourhood with better outcomes can increase a child’s income by several thousands of dollars later in life.

Broadberry, Harrison, 06 November 2018

November 2018 marks the 100th anniversary of the end of World War I. This column introduces a new VoxEU eBook which takes the opportunity to reflect on recent work that provides a reassessment of the role of economics in the war.

Eichengreen, Mari, Thwaites, 05 November 2018

In the UK’s 2016 referendum on EU membership, young voters were more likely than their elders to vote Remain. Applying new methods to a half century of data, this column shows that this pattern reflects both ageing and cohort effects.  Although voters become more Eurosceptical as they age, recent cohorts are also more pro-European than their predecessors, which will offset at least in part the ageing of the electorate going forward. However, the existence of large nationwide swings in sentiment that have little to do with either seasoning or cohort effects suggests that demographic trends are unlikely to be the decisive determinants of future changes in European sentiment. 

Gibson Brandon , Sohn, Tanner, Wagner, 05 November 2018

Corporate fraud and managerial deception have been pervasive and value-destroying in recent decades. This column analyses whether investors form views about a CEO’s honesty based on his or her previous actions, and how this affects investment decisions. A CEO who has resisted, at personal cost, engaging in earnings management is perceived as being more committed to honesty, which appeals to pro­-social investors. Pro-self investors, on the other hand, value honesty when it comes to information regarding investment returns.

Bauer, Lakdawalla, Reif, 05 November 2018

People with shorter life expectancies place more value on increases in survival than people who anticipate longer life spans. That may seem obvious, but economists have been making the opposite prediction for decades. This column demonstrates the mistake in the earlier theory and points out important policy implications, including that payers and governments are undervaluing investments in treating highly severe illnesses.

Cukierman, Lustenberger, 04 November 2018

Almost 60 years ago, John Muth introduced the idea that adaptive expectations are rational if they efficiently use all available information. However, individuals are never fully certain, even ex post, about the permanence of economic developments. Using Israeli data, this explores the implications of this residual uncertainty for market efficiency. The findings point to issues with conventional market efficiency tests where ‘permanent-transitory confusion’ is in effect. 

Goodman, Gurantz, Smith, 04 November 2018

Retaking college entrance exams can only improve students’ chances of being admitted to a college, yet little is known about students’ decisions to retake them and the impact of retaking. This column uses data on over 10 million SAT takers from the high school classes of 2006-2014 to show that the increases resulting from retaking are large enough to drive substantial improvements in college enrolment outcomes, and that retaking appears to close college enrolment gaps by income and race.

Norbäck, Persson, Svensson, 03 November 2018

Most OECD countries provide subsidies to stimulate the entry and growth of small entrepreneurial firms. This column argues that a better policy would be to combine these subsidy schemes with policies that improve the merger and acquisition market for small entrepreneurial firms, because the best strategy for such firms is to make an early entry to market to signal innovation quality and overcome asymmetry problems. Entrepreneurs would be able to create bidding competition among incumbents and receive a higher acquisition price, incentivising them to develop breakthrough innovations that will raise welfare.   

Agarwal, Ashlagi, Azevedo, Featherstone, Karaduman, 03 November 2018

National kidney exchange platforms significantly boost the number of life-saving kidney transplants by finding complicated exchange arrangements that are not possible within any single hospital. This column examines US data and finds that the majority of kidney exchanges continue to be performed within hospitals, suggesting a fragmented market that comes at a large efficiency cost. National platforms may need to be redesigned to encourage full participation, with reimbursement reform.

Van Reenen, 02 November 2018

Firms are becoming more unequal in every country and sector. Is the rise of a few superstar firms good or bad for the economy, and should we do anything about it? Tim Phillips asks John Van Reenen of MIT to be policymaker for a day.

Gabrieli, Labonne, 02 November 2018

By affecting the funding capacity of banks, interbank market fragmentation can hinder the smooth transmission of monetary policy and thus impair the provision of credit to the real economy. This column examines the fragmentation of the euro area interbank market in 2011-15, and finds that the size and quality of banks’ exposures to peripheral countries impaired banks’ access to, and increased the price paid for, interbank funding. This important channel of fragmentation risk was stopped by the ECB’s announcement of possible Outright Monetary Transactions in secondary government bonds markets.

Cukierman, 02 November 2018

The size and nature of an economy have a crucial influence on the measures that can be taken in response to major shocks. This column investigates the forex interventions taken by Switzerland and Israel – two small, open economies – in the wake of the Global Crisis. While discretionary interventions are shown to be preferable when policy rates are strictly positive, this is no longer valid when the effective lower bound is reached and unconventional monetary policy is called for. The transfer of reserve management to a sovereign wealth fund is also discussed. 

Cloyne, Dimsdale, Postel-Vinay, 02 November 2018

The austerity, low interest rates, and sluggish growth in Britain between the two World Wars mirror today's economic circumstances. The column investigates the causal impact of tax changes on growth at the time. A 1% cut in taxes raised GDP by between 0.5% and 1% on impact, and by more than 2% over two years. This suggests that tax changes had an important macroeconomic impact and have the potential to generate similar effects today.

Heckman, Moktan, 01 November 2018

Anecdotal evidence suggests that the ‘Top Five’ economics journals have a strong influence on tenure and promotion decisions, but actual evidence on their influence is sparse. This column uses data on employment and publication histories for tenure-track faculty hired by the top US economics departments between 1996 and 2010 to show that the impact of the Top Five on tenure decisions dwarfs that of non-Top Five journals. A survey of US economics department faculties confirms the Top Five’s outsized influence.

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