August 2019

Akbar, Li, Shertzer, Walsh, 31 August 2019

The Great Migration is associated with increased residential segregation in northern cities, inflating rents and eroding housing values. This column uses new data at the block level to estimate the scale of price changes. Segregation and ghetto expansion meant that much of the gain in earnings for black families who moved north were cancelled out. The effects of this are still felt today.

Papaioannou, 30 August 2019

On average, if you are born in Africa today you have much better chances to succeed than your parents or grandparents. But which countries have the best, and worst, intergenerational mobility? Elias Papaioannou tells Tim Phillips about the four-year hunt for Africa's lands of opportunity.

Bassanin, Faia, Patella, 30 August 2019

Macroeconomic models with credit frictions do a good job of explaining debt falls during financial crises, but fail to account for pre-crisis debt increases and level pro-cyclicality. This column introduces a model in which investors’ beliefs about future collateral values are non-linear. Greater ambiguity optimism during booms and greater aversion during recessions closely model the empirical shifts seen before and during financial crises, highlighting the joint role of financial frictions and beliefs distortions for market developments.

Fatás, Weder di Mauro, 30 August 2019

Economists have reacted negatively to the prospect of Facebook's Libra cryptocurrency. This column, part of the VoxEU debate on the future of digital money, outlines how if we focus exclusively on the efficiencies a currency like Libra brings to payment, there are arguments in its favour. A global digital currency provided by central banks may be preferable, but a private version would offer many of the same benefits.

Cools, Fernández, Patacchini, 30 August 2019

The effect of class gender composition and the effect of peer ability on outcomes are usually examined separately. This column asks whether there are long-term consequences to attending a high school with a larger or smaller number of female or male high achievers. Using data on students in grades 7-12 from a nationally representative sample of roughly 130 private and public schools, it shows that high-achieving boys have a negative and persistent effect on girls’ longer-run education outcomes, but no significant effect on boys’ outcomes. 

Gordon, Sayed, 29 August 2019

Since 2005, productivity growth in the US and Europe has dipped below 1%. Using new industry-level from the US and ten EU countries, this column shows that that the industrial composition of the slowdown was similar in Europe and the US. Falling multifactor productivity growth explains both the magnitude and composition of falling productivity growth on both sides of the Atlantic. Decelerating technical change, rather than slowing investment, was the primary driving force in the transatlantic slowdown. 

Cecchetti, Fatás, 29 August 2019

The announcement of the launch of Libra, a private global cryptocurrency, has reignited the debate on the costs and benefits of digital forms of payments controlled by the private sector. This column introduces a new Vox debate on the future of digital money intended to foster a conversation among academics and policymakers about the costs and benefits of some of these innovations and future scenarios for digital money.

Cecchetti, Schoenholtz, 28 August 2019

On 18 June, Facebook announced plans to issue its own currency. By giving every individual with a smart phone the ability to purchase tokens in their own domestic currency, Libra would improve the efficiency of payments, reduce costs, and expand financial access—or so Facebook argues. This column, part of a VoxEU debate on the future of digital money, suggests the opposite: that Libra could facilitate criminal exploitation of the payments system while reducing the authorities’ ability to monitor and mitigate systemic risk. Financial regulators and central banks must act quickly and decisively to keep evolving financial technologies from threatening global financial stability. 

Flückiger, Hornung, Larch, Ludwig, Mees, 28 August 2019

Against the backdrop of megaprojects such as the TEN-T Core Network or the Belt and Road initiative, assessing the role of transport infrastructure in fostering economic integration has gained renewed interest. While there is clear evidence that reducing transport costs increases economic integration in the short run, this column emphasises that we should be aware of the profound and lasting effects that past infrastructure investments have on economic and cultural integration.

Labhard, McAdam, Petroulakis, Vivian, 27 August 2019

The fourth industrial revolution is bringing about numerous challenges and opportunities. This column summarises selected takeaways from a recent ECB conference which brought together leading minds from academia, institutions and the private sector on the expected effects of digitalisation on the economy, including labour markets, productivity, investment and inflation, and possible implications for monetary policy.

Hoekman, Mavroidis, 26 August 2019

In December 2019, the WTO Appellate Body will cease to operate unless the US stops blocking new appointments. This column argues that the Appellate Body should stick to the mandate that was agreed in 1995 and not overstep it, as requested by the US. At the same time, the WTO adjudication process should be reformed by increasing the use of economics in panel reports, by improving the quality of panellists and Appellate Body members, by reducing the politicisation of appointments, and by changing the modus operandi of dispute settlement. 

Corsetti, Crowley, Han, 26 August 2019

An immediate impact of the Brexit referendum in 2016 was the large, rapid depreciation of the sterling against all other currencies.The weak pound did not boost UK export volumes, but less clear is whether UK firms lowered their export prices in line with the weaker pound. This column shows that the UK export price response to depreciation depends on the currency in which UK firms invoice their cross-border transactions. Firms invoicing in sterling gained competitiveness by passing the sterling’s weakness through to prices, unlike firms invoicing in vehicle or destination currencies,which adjusted their mark-ups.

Bove, Elia, Ferraresi, 25 August 2019

Between 2014 and 2017, more than 600,000 migrants crossed the Mediterranean and took up residence in Italy. Though crime rates during the same period continued to drop, a majority of Italians report feeling increasingly unsafe. This column investigates how immigration affects the perception of crime and the allocation of resources. Using detailed Italian government-spending figures along with municipal-level data on the population of foreign-born residents, it finds that immigration led to increased spending for police protection due not to higher crime rates but to the deterioration of social capital and unfounded fears of criminality.

Bhambhwani, Delikouras, Korniotis, 24 August 2019

We do not know which characteristics affect cryptocurrency prices, if any. The column argues that there are two fundamental factors that drive prices in the long run: the trustworthiness of the cryptocurrency’s blockchain and the adoption of the blockchain. Cryptocurrencies such as Bitcoin, Ethereum, and Monero are affected by these fundamentals. In some periods prices deviate, but eventually retrace the trend.

Cavalleri, Eliet, McAdam, Petroulakis, Soares, Vansteenkiste, 24 August 2019

Recent evidence suggests that competitive intensity has been declining in the US. This column aims to contribute to our understanding of these trends in the euro area. It finds that, in contrast to the situation in the US, market power metrics have been relatively stable over recent years and mark-ups have marginally been trending down since the late 1990s. It suggests that more research on the sectoral level and with better data is necessary to analyse the complex welfare and policy implications of these developments.

Reich, 23 August 2019

The US has an epidemic of "deaths of despair". Michael Reich tells Tim Phillips that new research implies that a $15 minimum wage doesn't just cut poverty, it also saves lives. But is Congress listening?

Heckman, Karapakula, 23 August 2019

The Perry Preschool Project was a social experiment implemented in the US in the 1960s. The oldest early childhood intervention trial with long-term follow-up, it saw five cohorts of African American children from low-income families in Ypsilanti, Michigan, randomly assigned to attend free, high-quality pre-school. This column shows some of the lasting benefits, particularly for males, of an early childhood education programme targeted at disadvantaged children – from reduced crime to improved executive functioning, socioemotional skills, earnings, and health. It also documents the intergenerational benefits of the intervention on the children of the original participants. The conclusions are supported by statistically conservative small-sample tests.

De Fraja, 23 August 2019

How would units of assessment submitted to the UK’s 2014 evaluation of scholarly research have fared if they had had been assessed using the bibliometric algorithm of the agency for evaluation of research in Italian universities? This column finds very high correlation between the two methods. In particular, the allocation of government funding to institutions that would have been obtained is essentially identical to that determined by the rules used by the REF2014.

Tambe, Ye, Cappelli, 22 August 2019

When deciding whether to switch employers, technology workers care not only about wages, but also about other factors, such as technology, perks and the quality of co-workers. Using job board data from 2007, this column shows that high-tech workers also ‘pay’ for the opportunity to acquire training in a new technology. Tech workers require more money to leave their current employers when they are working with more interesting technologies. For older and more established technologies, this premium disappears. The effects are stronger for younger workers. 

Cohodes, Setren, Walters, 22 August 2019

Interventions that succeed in small-scale demonstrations often fail to sustain their effects when scaled up. This column examines the case of an expansion of the successful charter school sector in Boston, Massachusetts. The findings reveal that the city’s charter sector maintained effectiveness while doubling in size, and that organisational practices in the sector may be an important component of its success at scale.

Yilmazkuday, 21 August 2019

During the Global Crisis, international trade decreased more than overall economic activity, despite standard trade models predicting a one-to-one relationship. This ‘Great Trade Collapse’ has been investigated extensively in the literature, resulting in alternative competing explanations. This column evaluates the contribution of each story using data from the US. The results show that retail inventories have contributed the most to the collapse and the corresponding recovery, followed by protectionist policies, intermediate-input trade, and trade finance. Productivity and demand shocks have played negligible roles.

Bricongne, Turrini, 21 August 2019

The increased post-Global Crisis monitoring of house prices still lacks an effective measure for cross-country comparisons. This column outlines the creation of an integrated database covering advanced and emerging economies on the price per square metre of housing. The model shows that price-to-income ratios vary substantially at the extremes, but that the majority economies converge around the median level. Country rankings based on housing prices in euros versus PPP also vary significantly.

Chodorow-Reich, 20 August 2019

India's demonetisation in 2016 reduced the volume of currency in circulation by 75% overnight. This column uses new data sources to quantify impacts on economic activity and credit growth after the unprecedented natural experiment. These effects can teach us about the short-run economic disruption and long-run benefits of demonetisation. 

Eli, Logan, Miloucheva, 20 August 2019

The mortality gap between blacks and whites in the US has been well documented, but there is still considerable debate over why the gap has remained so large and why it has persisted over the last century. This column explores these questions using unique data on black and white Civil War veterans to measure one of the earliest known incidences of physician bias against African Americans. It shows that physician bias had large effects on income and longevity of blacks relative to whites and considers the ways in which doctor attitudes still contribute to the racial mortality gap today. 

Adhvaryu, D, Nyshadham, Tamayo, 19 August 2019

Managerial quality remains low in firms in developing countries. In the context of the Indian garment industry, this column shows that manager characteristics matter for productivity. It argues that firms might not know what constitutes good management or how valuable it is, and that they could benefit from screening and management training in these qualities.

Arezki, 19 August 2019

Algeria’s recent victory in the Africa Cup of Nations has united a country whose development model has frustrated its young and educated workforce. This column offers four lessons for economic development from the national football team’s success: on the role of competition and market forces, mobilising talent, the role of managers, and the importance of referees (i.e. regulation). 

List, Momeni, Zenou, 18 August 2019

The extent to which spillover and neighbourhood effects affect interventions aiming at increasing education among young children is an important question. This column examines a large-scale early childhood intervention targeting the educational attainment of over 2,000 disadvantaged children in the US. It documents large spillover effects on both treatment and control children who live near treated children.

Squicciarini, 18 August 2019

Religion has had a complex relationship with technological progress throughout history, but there is scant empirical evidence on how conservative religious values may have affected the spread of new ideas and, by extension, economic development. This column examines the influence of the Catholic Church on technical education in France during the Second Industrial Revolution. It finds that areas with higher ‘religiosity’ had lower levels of industrial and economic development, suggesting that conservative religion can hamper economic development when it prevents primary schools from adopting technical education.

Huo, Levchenko, Pandalai-Nayar, 17 August 2019

The international co-movements of business cycles is a key determinant of trade and monetary policy, but the ways in which it is affected by technology, TFP, and trade openness are not fully understood. This column shows how such co-movements are affected by trade linkages and technology. It finds that non-technology shocks contribute more to international co-movement than TFP shocks, and that transmission plays a notable but small part in co-movements.

Beshears, Choi, Laibson, Madrian, Skimmyhorn, 17 August 2019

Automatic enrolment in defined contribution pension plans might be the most common policy application of behavioural economics. But does automatic enrolment increase pension savings at the expense of increased household debt? This column examines a natural experiment in which the US Army began automatically enrolling its civilian employees in its retirement savings plan. It finds strong evidence against the hypothesis that automatic enrolment increases financial distress and debt excluding auto loans and first mortgages.

Breinlich, Novy, 16 August 2019

As Brexit nears (again), are British firms choosing to invest in the UK or in other European markets? Are European firms investing in the UK to preserve access to its markets? And has "global Britain" got off the drawing board yet? Holger Breinlich and Dennis Novy lead Tim Phillips through the numbers.

Mori, Wrona, 16 August 2019

The gravity equation has often been used to explain trade between regions or cities within countries. But it assumes that the distribution of industries is exogenous. This column explains how trade estimates are affected if we assume that large, centrally located cities attract more industries whose firms are more likely to export to other cities. Japanese data show exports from these cities are systematically underpredicted by aggregate gravity estimations, as the theory predicts.

Miller, Zhang, 16 August 2019

Externalities can have a powerful effect on financial stability. This column studies the amplification effect that can operate despite value at risk regulation, which suffers from the ‘fallacy of composition’. It shows that the magnitudes of booms and busts are amplified by two significant externalities triggered by aggregate shocks: the endogeneity of bank equity due to mark-to-market accounting and of bank liquidity due to 'fire-sales' of securitised assets. In addition to economic models, legal and political factors should also be considered. 

Brucal, Javorcik, Love, 16 August 2019

The link between foreign ownership and environmental performance remains a controversial issue. Data from the Indonesian manufacturing census show that plants undergoing foreign acquisitions reduce their energy intensity by about 30% two years after acquisition by multinationals. This column argues that foreign direct investment can serve as a channel for the international transfer of environmentally friendly technologies and practices, thus directly contributing not only to economic growth but also to environmental progress. 

Jaremski, Wheelock, 15 August 2019

In response to the Global Crisis a decade ago, banks have tried to make themselves more resilient to shocks transmitted through interbank connections. But the opacity of interbank networks makes it difficult to measure the effectiveness of such policies. This column uses evidence from 20th century America to show how the founding of the Federal Reserve and the Great Depression affected interbank networks and lending practices. The creation of the Fed reduced network concentration and therefore contagion risk, but the system remained vulnerable to local panics.

Boehm, Flaaen, Pandalai-Nayar, 15 August 2019

What has caused the rapid decline in US manufacturing employment in recent decades? This column uses novel data to investigate the role of US multinationals and finds that they were a key driver behind the job losses. Insights from a theoretical framework imply that a reduction in the costs of foreign sourcing led firms to increase offshoring, and to shed labour.

Guirkinger, Platteau, 14 August 2019

In 1965, the economist Ester Boserup argued that co-residential households would gradually converge under the combined forces of population pressure and market integration. Scholars inclined more towards culturalist anthropology disagreed, suggesting that because family structures depend on social norms and local culture, they will continue to differ across regions. Drawing on both traditions, this column argues that the evolution of family organisation depends on unexpected factors: land scarcity encourages complex households to split into nuclear households, but technical progress encourages farm consolidation. 

Lowes, Montero, 14 August 2019

Between 1885 and 1908, the Congo Free State was the site of some of the worst human rights abuses in Africa’s colonial history. This column, taken from a Vox eBook, examines the long-term effects of labour coercion on economic development in what is now the Democratic Republic of Congo. It demonstrates that the labour coercion during the rubber regime under King Leopold II of Belgium has undermined long-run development in the DRC, despite the regime lasting only 14 years. 

Jha, Wolak, 14 August 2019

Futures trading should make spot markets more efficient. The column uses the introduction of purely financial traders in the California energy market to show that their presence reduced average price differences between day-ahead and real-time markets. The introduction of financial trading in high-demand hours saved $23 million in fuel costs and reduced emissions and pollution.

Clay, Juul Egedesø, Hansen, Jensen, Calkins, 13 August 2019

In the early 20th century, the US and Europe experienced striking reductions in tuberculosis and other infectious diseases, even before effective medical treatments were developed. However, evidence is mixed on whether improved public health interventions had any effect. This column analyses the effects of the first public health demonstration on TB mortality, total mortality, and infant mortality. Although generally considered a success, the findings suggest that the Framingham Demonstration in fact had little effect on TB mortality.

Corsetti, Lafarguette, Mehl, 13 August 2019

Many policymakers are concerned that fast trading has adverse effects on markets, although the existing evidence is ambiguous. This column argues that high-frequency trading can increase market efficiency and the quality of trade. By creating noise, fast trades may prevent traders with a herd mentality from pushing prices in one direction. 

Heyman, Norbäck, Persson, 12 August 2019

Recent studies document a 30-year decline in various measures of dynamism in the US, manifested in a decline in the share of young firms as well as their share of job creation. This column shows that this has not been the case in Sweden. Young firms have been more prominent in the Swedish business sector than in the US in recent decades, and policies to encourage entrepreneurship are key to this.

Danielsson, Macrae, 12 August 2019

The type of risk we most care about is long-term, what happens over years or decades, but we tend to manage that risk over short periods. This column argues that the dissonance of risk is that we measure and manage what we don't care about and ignore what we do.

Mori, 11 August 2019

The growth of large cities is often attributed to their proximity to exogenous, first-nature advantages. This column uses data on 450 Japanese cities to show that in fact, the regularity of agglomeration holds as a natural consequence of endogenous agglomeration and dispersion forces at the global or local level, rather than exogenous factors.

Bircan, De Haas, 10 August 2019

Recent debates about the global productivity slowdown point to a large and increasing productivity gap between firms operating at the global technological frontier and those trailing behind. This column analyses whether better access to bank credit can accelerate technological diffusion and narrow the productivity gap between leading and lagging firms. Using data from a large emerging market – Russia – it shows that while bank loans can encourage firms to adopt new technologies and become more productive, long-run benefits vary substantially across industries and regions.

Kuchler, Stroebel, 09 August 2019

The mixing of people and ideas in cities is at the heart of the ‘agglomeration externalities’ that drive the high productivity of cities. While public transit infrastructure is thought to help different people living in different parts of the same city to interact with one another, the lack of large-scale data has made it difficult to study. This column explores the link between public transit and social connectedness in New York City. It finds the first suggestive evidence that New York City’s public transit system plays an important role in enabling social ties to be formed and maintained across geographic distances.

Kunst, 09 August 2019

Has technological progress in manufacturing been skill-biased or deskilling? This column argues that the conventional distinction between white-collar and production workers has concealed substantial deskilling among manufacturing production workers since the 1950s. Automation has reduced the demand for skilled craftsmen around the world, thereby reducing the number of jobs in which workers with little formal education could acquire significant marketable skills.

Zenou, 09 August 2019

When does social media polarize opinion, and when does it bring us closer together? Yves Zenou tells Tim Phillips about a new economic model that shows us how affinity can become division, and why the trolls often win.

Friedrich, Laun, Meghir, Pistaferri, 08 August 2019

We know little about how much fluctuations in a firm’s fortunes are passed on in wages. The column uses Swedish data from 1997 to 2008 that identifies individual workers to show that shocks to firm productivity are passed on as variation in worker wages. The variation is high for high-skilled workers. Unskilled workers, perhaps due to union or minimum wage protection, experience smaller fluctuations.

Battaglini, Guiso, Lacava, Patacchini, 08 August 2019

Tax evasion is a very costly phenomenon. This column uses tax records of 2.5 million taxpayers in Italy with corresponding audit files to show that levels of evasion by taxpayers served by the same accountant are strongly correlated. Accountants can drive this correlation in two ways: either by serving as tax evasion facilitators, or as information hubs. 

Tyson, 07 August 2019

The Brexit deliberations in the House of Commons have been chaotic, protracted, and inconclusive, but the impasse cannot last forever. This column outlines a model of parliamentary preferences, calibrated to the profiles of members on the meaningful and indicative votes, that can be used to analyse the Brexit ‘endgame’ in a reasoned manner.

Dippel, Poyker, 06 August 2019

The first private prison in the US opened in 1984. Over the next three decades, the imprisoned population increased by 194% while the country’s overall population increased by only 36%. This column examines the relationship between these two events, asking whether the growth of the private prison industry contributed to climbing incarceration rates. It concludes that private prisons moderately increased sentence lengths but not the likelihood of conviction, and finds no evidence that private prisons directly influenced judges or exacerbated existing racial biases in the judicial system.

Danielsson, 06 August 2019

As central banks accumulate ever more job functions, their reputation risk increases. This column offers a cautionary tale from Iceland where, after the central bank was put in charge of capital controls, it was subject to severe attacks because of perceived mistakes in how the capital controls were enforced. The accumulation of powers erodes a central bank’s independence and subjects it to regulatory paralysis.

Accominotti, Ugolini, 05 August 2019

The 2008 crisis has revealed how banking and liquidity problems can have far-reaching consequences on global trade. This column reconstructs the evolution of global trade finance from the Middle Ages until today. Just like in medieval times, today’s global trade is predominantly financed through banks so that banking problems automatically transmit to international trade. In contrast, from the 16th to the 20th century, trade finance was mostly market-based. The decline of market-based trade finance was triggered by major geopolitical shocks.

Beach, Hanlon, 04 August 2019

How economic factors shaped the historical fertility transition is well studied but the role played by cultural factors remains disputed, in part because establishing the direct effect of social norms is difficult. This column examines the relationship between England and Wales’s rapid fertility transition in the late 19th century and media exposure to the 1877 Bradlaugh-Besant trial, which challenged existing censorship laws related to family planning. It finds that fertility declined more rapidly after 1877 in locations with greater exposure to newspaper articles about the trial.

Heimer, Simsek, 03 August 2019

Policymakers for long have attempted to curb financial speculation while preserving markets for useful trading. This column analyses the impact of a recent US policy which restricts leverage in the foreign exchange market. It finds that the policy reduced speculative trading without impeding markets, and thus provides important lessons to address excessive growth in financial markets. 

Schwardmann, 02 August 2019

Despite all the evidence to the contrary we continue to overestimate how much work we will do tomorrow, or how often we will go to the gym. Why? Peter Schwardmann tells Tim Phillips that we do learn from experience about ourselves - in the right circumstances.

Giglio, Maggiori, Stroebel, Utkus, 02 August 2019

Though economists have made progress determining how investors form expectations, less is known about how those expectations inform portfolio choices. Until recently, few large-scale surveys contained the data to connect individual investors’ beliefs to their actual behaviour. This column uses data collected from a novel ongoing survey eliciting investors’ expectations about GDP growth and future stock and bond returns. By measuring the extent to which investors’ persistent and heterogeneous beliefs and confidence correspond to their portfolio allocations, the research presented here highlights the potential for survey data to inform macro-finance theories.

Diez, Fan, Villegas-Sanchez, 02 August 2019

Studies of the evolution of market power since 2000 have focused mostly on publicly traded US firms. This column introduces a new global study that incorporates private firms, and decomposes the aggregate effect into intensive and extensive margins. It shows the increase in markup is broad-based across countries and sectors, but is driven by a small number of firms. The markup increase is mainly explained by increases in the average markup of incumbents, and reallocation effects towards new firms that gain market share from incumbents. 

Melitz, Toubal, 01 August 2019

Artificial intelligence has made spectacular progress in recent years. One particular source of high expectations is automatic translation and whether it will finally bring about the long-predicted death of distance in trade. This column examines the impact of a common language on bilateral trade and finds that the net result of reducing linguistic frictions with a set of trading partners is not apparent.The potential impact of machine translation on foreign trade remains up in the air.

Ehrmann, Gaballo, Hoffmann, Strasser, 01 August 2019

Forward guidance – communication by a central bank about the likely future path of interest rates – usually reduces uncertainty. This column argues that how this is done in practice matters, however, because forward guidance with a short time horizon can raise uncertainty. This occurs if the forward guidance impairs the aggregation of private information in financial markets, thus making market prices less informative.

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