June 2019

Munyo, Rossi, 30 June 2019

An increasing number of cities worldwide use surveillance cameras to prevent crime, but little is known about whether these cameras reduce crime or simply move it to other locations. This column studies the impact of a large-scale introduction of police-monitored cameras in Montevideo, Uruguay. The findings indicate a 20% reduction in crime in areas of the city where the cameras are located, with no evidence of a displacement effect. The programme also appears to offer value for money compared with other security and crime prevention measures.

Akbar, Couture, Duranton, Storeygard, 29 June 2019

Urban transportation in developing countries is prioritised for massive investments, yet little is known about the determinants of urban mobility in these countries. This column applies a methodology for measuring the performance of overall motor vehicle transportation in a city to the 154 largest cities in India. It finds that there are substantial differences in mobility speeds across large Indian cities but that the variation is driven primarily by uncongested mobility, not by congestion delays. This implies that typical policy measures attempting to improve urban mobility are missing the mark altogether.

Arezki, Fan, Nguyen, 29 June 2019

The debate on the middle-income trap has largely focused on East Asia and Pacific countries, but the countries of Middle East and North Africa have significantly lower growth, which drops at an earlier level of income. The column argues that one factor is MENA's slow adoption of general purpose technologies. Barriers to the adoption of such technologies in key sectors could be an important transmission channel for the middle-income trap.

Evenett, 28 June 2019

As the G20 gather in Japan to discuss options to revive the moribund WTO, Tim Phillips talks to Simon Evenett, one of the authors of the Global Trade Alert, on how the ministers can halt the "free for all" on protectionism. 

Buti, Székely, 28 June 2019

The EU11 economies are among the most open economies globally. The process of trade integration and the creation of GVCs have also drove a significant inflow of FDI into these countries. This column shows that while integration in the EU and FDI have enhanced their growth potential, these developments have also made them more vulnerable to external shocks. Domestic and EU-level reforms in the EU11 should focus on increasing economic and social resilience. 

Ahmed, Aizenman, Jinjarak, 28 June 2019

Countries have significantly increased their public-sector borrowing since the Global Crisis. This column documents several potential fiscal dominance effects during 2000-17 under inflation targeting and non-inflation-targeting regimes. A higher ratio of public debt to GDP is associated with lower policy interest rates in advanced economies. In emerging economies under non-inflation-targeting regimes, composed mostly of exchange-rate targeters, the interest rate effect of higher public debt is non-linear and depends both on the ratio of foreign currency to local currency debt, and on the ratio of hard currency debt to GDP.

Costain, Nakov, 28 June 2019

Recent low inflation is motivating new research to better characterise how individual firms and workers set prices and wages. This column describes a new approach which emphasises that the costs of decision making may limit the precision of price and wage changes. As well as making better sense of price and wage changes in microeconomic data, this new approach also strikes a middle ground between two leading models of monetary policy transmission, improving our quantitative understanding of the short-run effects of monetary policy on output and the short-run trade-off between inflation and unemployment.

Bevington, Portes, 27 June 2019

Three years on from the referendum, it seems like a good time to take stock of whether the Brexit process so far has been good or bad for the UK, and its likely future impacts. This column does so based on four tests covering the economy, fairness, openness, and control. While the apocalyptic predictions of the Remain campaign have failed to materialise, the economic damage has nevertheless been significant. And although the UK may end up with considerably more control over a range of policies – trade, regulation, and migration – than at present, the difficult issue remains of what future governments will do to address the underlying discontent that, at least in part, drove the Brexit vote.

Becker, 27 June 2019

A new EU directive proposes important reforms to member countries’ corporate insolvency processes. This column argues that the directive is a step in the right direction but that it has crucial flaws in the way it envisions restructuring and priority of creditors. It also proposes a system – comparable to the US approach – in which restructuring and liquidation are alternative options triggered by insolvency, and that respects the absolute priority of creditors. 

Dippel, Poyker, 26 June 2019

The US is unusual in that it elects most of its judges. This column uses new data from ten US states to investigate whether those judges change their sentencing pattern when they are due to stand for re-election. The findings reveal evidence of election cycles in sentencing in only four of the ten states. In others, there is anecdotal evidence that professional norms may protect sitting judges from electoral challenge.

Bua, Dunne, 26 June 2019

Money market funds are important from a monetary policy perspective because they provide bank-like services and they are active in short-term funding markets. This column examines how recent extreme monetary policies have affected their performance and behaviour. Extreme monetary policy puts money market funds, which do not have access to the ECB’s deposit facility, under pressure by depressing the yields available on the assets they typically hold, leaving them at a competitive disadvantage relative to banks.  This could cause outflows of investment and unintended intermediation between banks and funds. 

Huang, Lin, Liu, Tang, 25 June 2019

Recent studies have found that US tariffs on China have led to a significant welfare loss and significant increases in consumer prices in the US. This column, taken from a recent Vox eBook, studies firms’ equity market responses to the various tariff announcements by the US and Chinese governments in 2018 and 2019. The responses demonstrate that the structure of US–China trade is much more complex than the simplistic view of global trade that prompted the trade war, and that the winners and losers in the war depend on firms’ positioning in, and exposure to, the global value chains shared by the two countries.  

Saka, Campos, De Grauwe, Ji, Martelli, 25 June 2019

Financial crises play a key role in changing existing policies concerning financial markets and institutions. This column provides new evidence for the negative impact of financial crises on the process of financial liberalisation. It also shows, however, that such interventions are only temporary and that the liberalisation process resumes quickly after a crisis. These results support the view that governments use short-term policy reversals as a tool to ease crisis pressures.

Growiec, McAdam, Mućk, 24 June 2019

The worldwide decline of the labour share is worrying, because the labour share is thought to be too low. This column attempts to derive an estimate of the socially optimal labour share. The calibration implies that the socially optimal share is 17% higher than the historical average. 

Edin, Evans, Graetz, Hernnäs, Michaels, 24 June 2019

As new technologies replace human labour in a growing number of tasks, employment in some occupations invariably falls. This column compares outcomes for similar workers in similar occupations over 28 years to explore the consequences of large declines in occupational employment for workers’ careers. While mean losses in earnings and employment for those initially working in occupations that later declined are relatively moderate, low-earners lose significantly more.

Cacault, Hildebrand, Laurent-Lucchetti, Pellizzari, 23 June 2019

Distance learning technologies are attracting attention as demand for higher education grows around the world, but credible evidence on their effects on students’ outcomes is scarce. This column studies the impact of online live streaming of lectures on student achievement and attendance in a experiment with first-year undergraduate students at the University of Geneva. It finds that students use the live streaming technology only when events make attending class too costly, and that attending lectures via live streaming lowers achievement for low-ability students but increases it for high-ability ones.

Gathergood, Hirshleifer, Leake, Sakaguchi, Stewart, 22 June 2019

Investors who choose to build their own portfolios by stock-picking face the choice of how to diversify among stocks. The 1/N heuristic, equalising portfolio shares across stocks held, works well in practice. This column shows that investors who buy stocks often employ a different form of 1/N, dividing purchase value equally rather than maintaining a 1/N allocation. By narrowly framing their buy-day decision, these investors move their portfolios farther away from balance.

Watzinger, Schnitzer, 21 June 2019

The role of science is the subject of controversial debate in the academic literature and public discourse. This column studies US patents to establish three new facts about the relationship between science and the value of private-sector inventions. First, patents building on science are on average $2.9 million more valuable than patents unrelated to science. Second, the novelty of patents predicts their value in a similar way as their science content does. Third, science-based patents are more novel. Taken together, these observations show that science introduces new concepts that are valuable for marketplace inventions.

Fernández, Parsa, 20 June 2019

Over the last few decades, there has been a large change in public opinion towards same-sex relationships.It has been argued that to drive such a change in public attitudes, a ‘shock’ of some kind is needed. This column examines the change in attitudes in the US towards same-sex relationships in relation to the AIDS epidemic. It shows that the change is indeed greater in those states most exposed to the AIDS epidemic, although only women reacted significantly to the AIDS rate in the 1990s.

Blanchard, 20 June 2019

The nature of global commerce has changed dramatically over the past 40 years, with the meteoric rise of global value chain trade. This column, taken from a recent Vox eBook, builds on insights from recent research to identify three critical dimensions of global value chain trade that promise to make today’s trade wars more economically costly and more politically complex than previous trade wars. 

Crowley, Ossa, Tang, 20 June 2019

A new book from the CEPR argues that the current trade war is a long-term danger to all economies, not just those of the US and China. Editor Meredith Crowley of the University of Cambridge and two of the authors tell Tim Phillips why prospects for the world economy are 'grim'.

Bailin Rivares, Gal, Millot, Sorbe, 19 June 2019

While the innovative features of online platforms offer the potential to improve the performance of service sectors, they raise many new challenges for policymakers. Using Google search data on service industries in ten OECD countries, this column shows that platforms generally stimulate the productivity of incumbent service firms, but the impact crucially depends on the type of platform considered. Productivity gains tend to be lower when a platform is persistently dominant on its market, suggesting that the contestability of platform markets should be promoted in order to maximise their economic benefits.

Cenedese, Della Corte, Wang, 19 June 2019

Deviations from covered interest parity represent, in theory, an arbitrage opportunity. This column shows that post-crisis, financial regulation may explain why this mispricing persists and cannot be arbitraged away. It also finds that more constrained dealers demand an extra premium from their clients for synthetic dollar funding relative to direct dollar funding, resulting in deviations in covered interest parity.

Pisani-Ferry, Zettelmeyer, 18 June 2019

The 2017 proposals for euro area reform by a group of seven French and seven German economists triggered a considerable response, much of which featured in a dedicated debate here on Vox. This column introduces an eBook that brings together a selection of these contributions, and in doing so offers a comprehensive, state-of-the art, and accessible overview of the current discussion on euro area reforms.

Jean, Perrot, Philippon, 18 June 2019

Some policymakers believe that EU competition policy prevents the emergence of industrial champions. The column argues that Europe’s competition policy has successfully contained the rise in concentration and excess profits, and the EU should not follow the US in weakening its approach. Instead, the EU needs to strengthen its trade policy to be more assertive on reciprocity in market access and control of industrial subsidies. 

Barnes, Casey, 17 June 2019

Expenditure rules are an attractive way of keeping government spending on a steady path consistent with sustainable growth, but they rely on an estimate of potential output growth. Using data on the European Commission's past forecasts of both potential growth rates and actual output growth rates for 15 member states for the period 2004–2018, this column shows that there is a real danger of faulty potential output estimates leading to procyclical policy.

Olijslagers, Petersen, de Vette, Van Wijnbergen, 17 June 2019

The decade since the Global Crisis has seen central banks employ a range of monetary policy tools. This column draws two lessons from the unconventional monetary policy measures employed during the European sovereign debt crisis. First, central banks should communicate clearly – and with sufficient detail – in times of heightened market stress to lower tail risk perceptions in financial markets. Second, policies aimed at changing the relative supply within different asset classes have an impact on perceived crash risk, while measures aimed at easing financing costs of commercial banks do not.

Cherif, Hasanov, 16 June 2019

The 'Asian miracles' and their industrial policies are often considered as statistical accidents that cannot be replicated. The column argues that we can learn more about sustained growth from these miracles than from the large pool of failures, and that industrial policy is instrumental in achieving sustained growth. Successful policy uses state intervention for early entry into sophisticated sectors, strong export orientation, and fierce competition with strict accountability.

de la Escosura, 15 June 2019

The concept of human development views wellbeing as being affected by a wide range of factors including health and education. This column examines worldwide long-term wellbeing from 1870-2015 with an augmented historical human development index (AHHDI) that combines new measures of achievements in health, education, material living standards, and political freedom. It shows that world human development has steadily improved over time, although advances have been unevenly distributed across world regions.

Neary, 14 June 2019

David Ricardo was the first economist to think rigorously about international trade, and his theory of comparative advantage has stood the test of time. So why do so many politicians ignore it? And what would he do about Brexit? Peter Neary of the University of Oxford talks to Tim Phillips.

Vickers, 14 June 2019

The stability of the financial system depends on the capital of banks and other financial institutions. But the measurement of bank capital depends on regulatory accounting methods, which, as events a decade ago showed dramatically, do not always reflect economic realities in a timely fashion. This column argues that market-based measures should play a greater role in regulatory assessment than is current practice, in particular in stress tests.

Okimoto, 13 June 2019

Japan’s monetary policy has had to be unconventional in order to address the economic conditions the country has faced. This column assesses the Bank of Japan’s exchange-traded fund purchasing programme, which has been repeatedly expanded in recent years. The purchases have achieved some positive results, propping up stock prices but also increasing real output and inflation. But, given the increased risks the Bank faces as its purchases have grown, the time to unwind has come.

Bown, 13 June 2019

For more than 20 years, the WTO’s dispute settlement system provided an orderly process for countries to resolve trade grievances and keep cooperation going. But in 2018, something broke down. This column, taken from a recent Vox eBook, explores why the inability to resolve underlying problems with the WTO itself deserves some of the blame and derives some potential lessons for a future system of dispute settlement.

Evenett, Fritz, 13 June 2019

The next G20 Leaders’ Summit risks being overshadowed by the Sino-US Trade War. That needn’t happen as last year G20 Leaders called for reports on options to revive the WTO and are expected to discuss them in Osaka. This column introduces the latest Global Trade Alert report, which shows that current global trade rules don’t deliver and proposes a way forward. 

Eugster, Ho, Jaumotte, Piazza, 12 June 2019

Technology diffusion to emerging markets helps share growth potential across countries and lift global living standards. Using a global patent citation dataset, this column estimates the magnitude and impact of international knowledge and technology diffusion, as well as the role that globalisation has played. In emerging markets, knowledge flows have increased innovation and productivity. Competition from emerging markets benefits global innovation.

Cahuc, Malherbet, Prat, 11 June 2019

Standard economic models predict that employment protection legislation reduces both job destruction and job creation, with the negative impact on job creation caused by the anticipation of separation costs. This column shows that in France, this anticipation effect not only plays a key role in reducing job creation but also increases job destruction among low-skilled workers, an effect that is amplified by the presence of the minimum wage. This mechanism implies that job protection is strongly detrimental to employment in the French context.

Ito, Koibuchi, Sato, Shimizu, 10 June 2019

Japan exports to neither advanced nor Asian countries in yen, as would be expected. Using questionnaire data, this column shows why Japanese exporters tend to choose destination currencies in their exports to advanced countries and why the US dollar, rather than the yen, is more often used in their exports to Asia. It also presents new evidence that the share of local currency has recently increased markedly, while that of the US dollar has declined, in Japanese exports to Asia. 

Le Yaouanq, Schwardmann, 10 June 2019

Naiveté about one’s lack of self-control can result in costly mistakes. In order to shed his or her naiveté, an individual needs to learn from his or her past lapses in self-control. This column examines whether people are able to draw the correct inferences from their past behaviour. It reports on experimental evidence that people learn well from their past effort on a task and are able to transport what they learn to new environments. However, they appear to underappreciate how much self-knowledge experience with a task will provide.

Eslava, Haltiwanger, Pinzón, 09 June 2019

A key difference between more and less developed countries lies in the speed at which the average business grows over its life cycle. This column compares manufacturing firms in Colombia and the US, and concludes that average life cycle growth differences across countries with diverging income levels are largely driven by the superstars and the worst performers. Relative to the US, Colombia presents an overwhelming prevalence of microestablishments, a deficit of superstar plants, and less strict market selection pressure for underperforming plants.

Cornelissen, Dustmann, 08 June 2019

Primary education starts at age 6 or 7 in most OECD countries, but in the UK children start primary school at the age of 4 or 5. This column exploits local variation in school entry rules in the UK to investigate the effects of schooling at an early age on cognitive and non-cognitive development. It finds that early schooling boosts both cognitive and non-cognitive skills up until the age of 11. These effects tend to be strongest for boys from disadvantaged family backgrounds.

İmrohoroğlu, Kitao, Yamada, 07 June 2019

Japan leads the advanced economies in the speed and magnitude of demographic ageing and has the highest debt-to-output ratio. Rising social insurance expenditures are projected to far outpace revenues and to create a fiscal burden. This column presents sobering projections for Japanese government debt in the absence of reform, but argues that a combination of policies, including policies to encourage greater labour participation by women and to enhance productivity, could achieve sustainability.

Bordo, 07 June 2019

Growing international imbalances are widely understood to have led Nixon to end gold convertibility in 1971. This column argues that a key fundamental underlying these imbalances was the rising inflation in the US, in turn created by US macroeconomic policies. President Nixon blamed the rest of the world instead of correcting US monetary and fiscal policies. It also identifies similarities between the imbalances of the 1960s and 1970s and those of today, especially regarding fiscal policies and the use of tariff protection as a strategic tool.

Shafik, 07 June 2019

This week UN special rapporteur claimed the UK's social safety net has been "replaced with a harsh and uncaring ethos". Dame Minouche Shafik, director of the LSE, talks to Tim Phillips about whether our welfare states can survive in their current form, and what might replace them.

Lian, Novta, Pugacheva, Timmer, Topalova, 07 June 2019

The dramatic decline in the relative price of capital goods has been an important – but overlooked – driver of real investment. This column analyses cross-country price data to establish that deepening trade integration and productivity growth have both contributed to this decline. The erosion of support for international trade and sluggish productivity growth may limit further declines in relative prices of capital goods, which could negatively affect real investment rates. 

Islam, Ushchev, Zenou, Zhang, 06 June 2019

In many developing countries, agricultural productivity has remained very low due to sluggish diffusion and adoption of new efficient cultivation methods. This column describes the results of a field experiment in Bangladesh in which randomly picked farmers received training in a new technology. An increase in the number of farmers in a village who received training increased the adoption rate of the technology among ‘untreated’ farmers. The findings suggest that frequent information and training are the easiest ways to help disseminate a new technology and encourage its adoption.

Gennaioli, Tabellini, 06 June 2019

In recent decades, the political systems of advanced democracies have witnessed large changes, often in reaction to economic shocks due to globalisation and technology.  This column uses insights from the social psychology of groups to explain how when large shocks hit, new cleavages in society emerge. This causes individuals to shift their beliefs about themselves and others in the direction of new social stereotypes. If globalisation clusters society in a nationalist versus cosmopolitan cleavage instead of the traditional left versus right, this may dampen demand for redistribution despite potential increases in income inequality. 

Becker, Fernandes, Weichselbaumer, 05 June 2019

The arrival of a child affects women and men differently in terms of labour market outcomes, but it is difficult to separate out the causal impact of discrimination from other factors. This column uses empirical evidence from Germany, Switzerland, and Austria to show that women are most affected in part-time job applications if they signal a ‘risk’ of having young children soon.

Abrams, Galbiati, Henry, Philippe, 05 June 2019

The rule of law in advanced democracies is based on the assumption that the law and its application are the same for all citizens. But research has shown that judges respond to ideology or political biases in their sentencing decisions. This column examines how location can also influence criminal court sentences using data from the US state of North Carolina’s superior court system. It shows that, even after controlling for characteristics of judges, sentencing varies by location and responds to local norms.

Ma, 04 June 2019

Over the last four decades, China’s economy grew at an astonishing pace while remaining firmly in the grip of an authoritarian political regime, thereby upending long-settled economic models. But an earlier era in Chinese history tells a different story. This column examines the period from 1900 to 1937, when rules governing the treaty port of Shanghai attracted major Western banks (and sheltered the Bank of China’s Shanghai branch) by curbing or side-stepping state power. This is a rare glimpse into a period of Chinese history in which financial practices were largely freed from the constraints of authoritarian rule. 

Bolton, Cecchetti, Danthine, Vives, 03 June 2019

While the decade since the Global Crisis has seen clear improvements in financial regulation and supervision, there is still work to be done in several crucial areas, and political constraints may bite.This column introduces the first report in a new series on ‘The Future of Banking’, which tackles three important areas of post-crisis regulatory reform: the Basel III agreement on capital, liquidity and leverage requirements; resolution procedures to end ‘too big to fail’; and the expanded role of central banks with a financial stability remit.

Franzoni, 03 June 2019

The asset management industry has become increasingly concentrated in recent decades. Regulators are concerned about the systemic risks this may pose. Using data from the US, this column suggests that the increased concentration has led to more volatile prices of stocks held by large institutional investors. This poses challenges for regulators trying to weigh price efficiency and economies of scale.

Chwieroth, Walter, 03 June 2019

The accumulation of mass financialised wealth has transformed the politics of banking crises. This column shows that the rising wealth of the middle classes has generated great expectations that their wealth will be protected by the government. As a result, democracies perform more financial sector bailouts and are also more financially fragile and politically unstable. 

Cuberes, Roberts, Sechel, 02 June 2019

Richer households have typically chosen to live in the suburbs of big cities because of the lower prices and larger properties. This column reports evidence from England that multiple factors now influence household location, including such urban amenities as parks, monuments, restaurants, and public transport. Analysis of the eight largest cities outside London finds no systematic relationship between income and household distance to the city centre. Indeed, household heterogeneity is an important determinant of location: for example, on average households with heads who are migrants live 25% closer to the centre than non-migrants; and only households who are employed are influenced by the availability of public transport.

Ager, Boustan, Eriksson, 01 June 2019

One striking feature of many underdeveloped societies is that economic power is concentrated in the hands of very small powerful elites. This column explores why some elites show remarkable persistence, even after major economic disruptions, using the American Civil War’s effect on the Southern states. Analysis of census data shows that when the abolition of slavery threatened their economic status, Southern elites invested in their social networks, which helped them to recoup their losses fairly quickly.

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