November 2019

Edwards, 30 November 2019

In a few decades, Chile experienced dramatic economic growth and the fastest reduction of inequality in the region. Yet, many Chilean citizens feel that inequality has greatly increased. Such feelings of 'malestar' triggered the violent social unrest of October 2019. This paper explains this seeming paradox by differentiating ‘vertical’ (income) inequality from ‘horizontal’ (social) inequality. It argues that the neoliberalism that created Chile’s economic growth is no longer effective and that Chile may be headed towards adopting a welfare state model.

Guriev, 29 November 2019

The mobile internet, promises to give us access to information anywhere, 24 hours a day. So how has it influenced trust in governments, politics, and politicians? Sergei Guriev tells Tim Phillips about how, all over the world, 3G has reduced trust in government and aided the rise of populism. 

Basso, Jimeno, 29 November 2019

Advanced economies will face large demographic and radical technological change in the next decades. This column shows how demographics and endogenous technological changes, which encompass both innovation and automation, can interact to limit the future prospects for growth and alter the factor income distribution. Due to a trade-off between innovation and automation, lower fertility and population ageing are likely to generate more automation, but also lead to a reduction in GDP per capita growth and the labour income share.

Rossi-Hansberg, Sarte, Schwartzman, 29 November 2019

The increasing concentration of high-wage, cognitive non-routine occupations in larger cities in the US has not always benefited workers in other occupations. This column asks whether it is possible to re-allocate occupations across locations and benefit all workers. Drawing conclusions from a spatial equilibrium framework, it finds that a policy of city- and occupation-specific transfers can improve welfare for all workers and also allow the revitalisation of smaller cities. The policy would lead to every occupation having its own affordable and enjoyable hub.

Gersbach, Schetter, Schmassmann, 28 November 2019

We do not know how much basic research is desirable from a national and global perspective, and in which industries. This column describes the insights from a new multi-country, multi-industry framework with international trade. It shows that global investments in basic research are too low, too heavily concentrated in industrialised countries, and not sufficiently targeted towards high-tech industries.

Abrams, Galbiati, Henry, Philippe, 28 November 2019

In the field of criminal justice, there is wide agreement that judges should be both independent and accountable, but little consensus on how to ensure they are both. This column looks at the US state of North Carolina, where judges are elected and forced to rotate between districts. It finds that in the face of electoral incentives, judges behave like politicians in pandering to what they perceive as electors’ preferences, which can result in the unequal treatment of otherwise similar cases.  

Akcigit, Akgündüz, Cilasun, Ozcan-Tok, Yılmaz, 27 November 2019

Numerous empirical studies have shown a decrease in business dynamism in the US and other high-income countries in the last decades. This column investigates the case of the Turkish manufacturing sector. Results indicate that business dynamism in the sector has declined since 2012. Market concentration and exit rates have risen, and new business creation, the labour share in output and economic activities of young firms have fallen. Using an endogenous growth framework, it argues that the inability of follower firms to credibly challenge market leaders is a likely reason, brought on by a lack of access to finance.

Arduini, Bisin, Ozgur, Patacchini, 27 November 2019

Smoking and alcohol use are widespread among adolescents in the US and are linked to negative socioeconomic effects.While existing research has separately looked at the dynamic choice and the social interactions that shape adolescent risky behaviours, this column considers both components in a dynamic social interactions model. Looking at alcohol and smoking use in a school environment, it finds that addiction and peer effects are more than twice as important as the effect of individual preferences in shaping risky behaviour and that students take into account the amount of time they have left in the school system.

Bisin, Tura, 26 November 2019

As migration to Western countries has steadily increased, conversations addressing the issue have stalled somewhere between vaguely well-meaning integration objectives and restrictive closed-borders policies. This column moves the conversation forward by examining specific migrant communities in Italy. Using the language spoken at home as a proxy for cultural-ethnic transmission, it finds that higher rates of marriage between immigrants and the native population encourage a higher acceptance of minority cultures, which in turn allows immigrants to better maintain their distinctive cultural traits.

Crescenzi, Giua, 26 November 2019

Despite the European Commission’s claims that its Cohesion Policy has had a positive impact on beneficiary regions, some member states argue that it is not fit for purpose and have called for a renationalisation of the policy. This column suggests that while there have been some positive effects on regional growth and jobs across the EU as a whole, these have been concentrated in the beneficiary regions of Germany and the UK, and structural problems in the South of Europe remain largely untouched. This uneven distribution of regional impacts along national lines suggests that individual member states have significant responsibilities for the local success (or failure) of the policy.

Blanchard, Bown, Chor, 26 November 2019

Just over a year ago, congressional Democrats took majority control of the US House of Representatives. This column examines the relationship between local exposure to President Trump’s trade war and US voting patterns, and suggests that the producer-side consequences of the trade war may have been responsible for five of the 40 seats lost by Republicans in the 2018 midterm elections. The combination of the trade war and attempts to repeal and replace the Affordable Care Act may have cost the Republicans as many as 15 House seats.

Nickel, Bobeica, Koester, Lis, Porqueddu, Sarchi, 25 November 2019

Wage growth in the euro area over 2013 to 2017 was subdued despite notable improvements in the labour market, leading some to claim a breakdown of the output–inflation relationship. This column presents comparative analyses of wage developments in the euro area, showing that the Phillips curve is alive and well and can be used to explain much of the weakness in wage growth during 2013-2017. Other factors also found to have played a role include compositional effects, the possible non-linear reaction of wage growth to cyclical improvements, and structural and institutional factors. 

Agha, Zeltzer, 25 November 2019

Pharmaceutical companies often market their drugs to highly connected physicians through monetary or in-kind transfers. The column examines how peer influence broadened the influence of the payments for three drugs between 2014 and 2016. Following a large payment, prescriptions for the target drug by the paid physician and the physician's peers increased, with peer spillovers contributing a quarter of the increase.

Roach, Sauermann, Skrentny, 24 November 2019

The propensity of foreign STEM talent to found or join startups in the US is widely recognised but little understood. Using unique longitudinal data from over 5,600 STEM PhDs, this column reveals that during graduate school, foreign students exhibit more entrepreneurial personality traits and career preferences than their native peers. After graduation, however, they are less likely to found companies or work in startups. These results suggest that US immigration policies may deter newly minted PhDs from participating in entrepreneurship.

Bommer, Dreher, Pérez-Alvarez, 23 November 2019

International humanitarian aid plays an important role in the response to natural disasters. This column argues that political motives play a role in the allocation of aid. Focusing on the allocation of US humanitarian assistance, it shows that disasters that affect the birth regions of leaders of recipient countries receive substantially more funding than other comparable disasters. This suggests that there is a ‘home bias’ in humanitarian aid.

Borella, De Nardi, Yang, 23 November 2019

In the US, both taxes and social security benefits depend on one’s marital status and tend to discourage the labour supply of the secondary earner. Using information on US cohorts born in 1945 and 1955, this column shows that eliminating marriage-related provisions drastically increases the participation of married women over their entire life cycle and reduces the participation of married men after age 60. If the resulting government surplus were used to lower income taxation, there would be large welfare gains for the vast majority of the population.

De Haas, 22 November 2019

We think about climate policies as moderating or interceding in markets. 
But a new paper implies that when stock markets play a bigger part in the economy, polluting industries become cleaner. Tim Phillips asks Ralph De Haas of the European Bank for Reconstruction and Development whether we already have a green finance initiative under our noses.

Ariu, Nilsson Hakkala , Jensen, Tamminen, 22 November 2019

Global trade in services increased six-fold between 1990-2017, representing a threat for workers but a growth opportunity for firms that source these services at lowest cost. This column examines the changes in employment composition and performance of Finnish service importers. Firms that increased imports of service inputs reduced employment of low-skill service workers but increased employment of managers. They also improved their sales, assets, and service exports, and were more likely to survive.

Bahar, Hauptmann, Özgüzel, Rapoport, 22 November 2019

The economic debate on immigration has focused on migration’s short-term labour market and fiscal effects. Less attention has been given to the long-run economic opportunities linked to migration. This column uses the case of refugees returning to the former Yugoslavia from Germany after the end of the Yugoslav wars to explore the role that returning migrants play in shaping the industrial development of their home country. The findings support the idea that migrants are drivers of knowhow and technology transfers between countries.

Costello, Eriksgård Melander, Hallet, 22 November 2019

Over the past ten years there has been a substantial rise in income per capita differences between Germany and France.However, it is not a given that the German economy will continue to outperform the French one, and indeed the picture has changed during 2019. This column argues that structural divergences between member states in the euro area contributed to nominal and real divergences, and suggests what can be done to foster convergence between the two countries. 

Vonyo, 21 November 2019

The year 1945 marked the end of the worst military conflict in history, which brought unprecedented destruction and loss of life. However, the quarter-century that followed is known as the most remarkable period of economic growth and social progress in Europe. This column, part of a Vox debate on WWII, lays out three factors that made this paradox possible: the strong foundations of economic recovery in Western Europe, vital support for the reconstruction of European trade and cooperation, and Allied support for the revival of the German economy. In contrast, Eastern Europe could barely recover due to the demographic disaster from the war.

Chinn, Ito, 21 November 2019

Global imbalances have reappeared, somewhat transformed, and relocated. Using data from developing and industrialised countries covering 1972-2016, this column shows that fiscal factors, rather than savings glut variables, have accounted for a noticeable share of the recent variation in imbalances, including in the US and Germany. The contribution of demographic factors is large for industrialised countries but not for emerging markets. Net official flows shape global imbalances in both developing and industrialised countries. 

Fiorini, Hoekman, Mavroidis, Saluste, Wolfe, 20 November 2019

The WTO dispute settlement system is in crisis, endangering the future of the organisation. The proximate reason for alarm is the dwindling number of Appellate Body members, the result of the US blocking new appointments as the terms of sitting members expire. The crisis usually is presented as the US against the world. This column reports on the results of a recent survey of WTO Members’ perceptions of the Appellate Body and the role it plays (or should play). Responses reveal strong support for the basic design of the dispute settlement system, but also that the US is not alone in perceiving that the Body has gone beyond its mandate.

Larch, Monteiro, Piermartini, Yotov, 20 November 2019

Though economic theory clearly makes the case for WTO trade rules, the empirical evidence of their effect is mixed. This column argues that previous studies may have underestimated the positive role of GATT/WTO membership by not taking into account the non-discriminatory nature of their agreements. Besides market access, the agreements provide greater transparency and predictability that benefit WTO members and non-members alike. Taking these effects into account suggests that, on average, GATT/WTO membership has increased trade between Members by 171% and trade between member and non-member countries by about 88%. 

Auriol, Friebel, Wilhelm, 19 November 2019

Despite around a third of PhDs in economics in the US having been earned by women over the last few decades, under 15% of full professors in the US were women in 2017. This column uses data scraped from research institute websites to investigate whether a similar ‘leaky pipeline’ exists in Europe. It finds that in comparison to the US, European countries have a higher share of women full professors in their research institutions, but the attrition rate between junior and senior ranks is comparable on both sides of the Atlantic. There are important differences throughout Europe, however, with the Nordic countries and France scoring much higher on gender equality than, for instance, Germany and the Netherlands.

Waugh, 19 November 2019

Consumers expect to bear the costs of trade wars through higher prices and reductions in variety. This column examines a different hardship of the US-China trade war: the retaliatory tariffs that affect income and production opportunities for directly impacted farmers and workers. Unlike price effects, which are spread across the population, this ‘labour income channel’ is concentrated and differs across US counties. Those who lost their position of comparative advantage for the Chinese market due to tariffs bear this burden of the trade war alone. 

Acemoğlu, Makhdoumi, Malekian, Ozdaglar, 18 November 2019

The Cambridge Analytica scandal highlighted the sophisticated ways social media platforms can allow companies to infer information about users and non-users from shared data. This column shows how correlations between platform users’ and non-users’ characteristics mean companies can obtain data at below equilibrium prices, implying welfare inefficiencies for individuals. The authors make some suggestions of regulations that could improve on these data-sharing inefficiencies for users and non-users of the platforms.

Rodríguez-Pose, Ketterer, 18 November 2019

Institutions are an important ingredient for economic growth. Using data from European regions for the period 1999-2013, this column shows that government quality matters for regional growth, and that relative improvements in the quality of government are a powerful driver of development. One-size-fits-all policies for lagging regions are not the solution. Government quality improvements are essential for low-growth regions, and in low-income regions, basic endowment shortages are still the main barrier to development. 

Djourelova, Durante, 17 November 2019

It is often suspected that politicians time announcements of controversial policies strategically to avoid public scrutiny. This column reports evidence from a systematic analysis of executive orders issued by US presidents, showing that their timing is consistent with strategic behaviour. Presidents tend to issue executive orders, and specifically ones that are likely to generate negative publicity, in coincidence with other important events that distract the media and the public.

Geruso, Layton, McCormack, Shepard, 16 November 2019

Sicker consumers tend to exhibit higher demand for health insurance, which drives up costs. This column argues that this adverse selection takes place along two margins: whether to buy insurance at all and how much coverage to buy, It develops a new framework that incorporates both selection margins, and shows that policies aimed at addressing one margin can often exacerbate selection along the other. It is therefore vital for optimal policy to consider both margins simultaneously. 

Chwieroth, Walter, 15 November 2019

When there's a financial crisis, policymakers and politicians increasingly kowtow to the demands of an influential group: the global middle class. Jeffrey Chwieroth and Andrew Walter tell Tim Phillips how their Great Expectations are destabilising the world economy.

D'Acunto, Malmendier, Weber, 15 November 2019

Policymakers seek to manage inflation expectations, but we understand little about how households form and update their expectations of inflation. The column tests Lucas's conjecture that the price changes households observe, rather than all price changes, drive expectations. A measure of individual household consumption weighted by the frequency of purchase is a statistically and economically significant driver of households' expectations. This challenges the modelling assumptions that central bank policymakers currently make.

Harrison, 14 November 2019

Economic warfare was widely used in WWII. When one country blockaded another’s supply of essential goods or bombed the industries producing them, why did the adversary’s economy fail to collapse? This column, part of the Vox debate on the economics of WWII, reviews Mançur Olson’s insights, which arose from the elementary economic concept of substitution. He concluded that there are no essential goods; there are only essential uses, which can generally be supplied in many ways.

Brzezinski, Chen, Palma, Ward, 14 November 2019

During the early 16th to 19th centuries, Spain received large amounts of monetary silver from its colonies in America. Vagaries of the sea thus affected Spain’s money supply. This column investigates the effects of money supply shocks on the economy using the case of maritime disasters in the Spanish Empire. It finds that a one-percentage-point reduction in the money growth rate caused a 1.3% drop in real output that persisted for several years. Analysing monetary transmission channels, it shows that price rigidities and credit frictions account for most of this non-neutrality result.

Carrère, Grujovic, Robert-Nicoud, 13 November 2019

Unemployment is absent from most quantitative trade models in the academic literature. Using a trade model that also includes unemployment and data between 2001 and 2008, this column shows that repealing NAFTA and the imposition of 20% bilateral tariffs between the US and Mexico in all sectors would reduce welfare by 0.31% in the US and by 6.6% in Mexico. An US increase of trade barriers on motor vehicles against imports from all countries bar Mexico and Canada would lead to a decrease in long-run welfare and employment in both Mexico and the US as well as in major car-producing countries. 

Okazaki, 13 November 2019

During World War II aircraft production in Japan increased sharply. This column, part of the Vox debate on the economics of WWII, examines the reasons for this ‘production miracle’, focusing on an aircraft manufacturing plant of Mitsubishi Heavy Industries Co., one of the two largest aircraft producers in Japan. The key to the production increase was the expansion of the supplier network. Mitsubishi Heavy Industries organized many suppliers to provide aircraft parts to its plants. However, in the final stage of the war, destruction of the supplier network by strategic bombing and an earthquake caused the collapse of the company’s aircraft production.

Miyagawa, Ishikawa, 13 November 2019

Following the Global Crisis, some countries increased expenditures on research and development (R&D) to address secular stagnation. This column investigates how successful this rise in R&D scale was in supporting productivity growth in Japan and other advanced economies. It argues that R&D efficiency has declined in many of these countries in the past decade, compared to the preceding ten years. This suggests that increasing R&D spending is not enough to foster growth, and that countries need to do more to support innovation and collaboration in carefully chosen sectors.

Fishback, 12 November 2019

The US became the ‘arsenal of democracy’ by producing a massive amount of military goods that raised real GDP by 72% between 1940 and 1945. Yet, multiplier estimates for this expansion in government spending are less than one. Long-range studies at subnational levels show that military spending was associated with small effects on per capita activity. Military spending in the context of a quasi-command economy crowded out private consumption and investment and forced people into the military. In essence, Americans sacrificed heavily to win the war, while their Allies sacrificed even more.  

Lindé, Trabandt, 12 November 2019

The alleged breakdown of the Phillips curve has left monetary policy researchers and central bankers wondering if we need to develop completely new models for price and wage determination. This column argues that a relatively small alteration of the standard New Keynesian model, combined with using the nonlinear instead of the linearised solution, is sufficient to resolve the two puzzles – the ‘missing deflation’ during the recession and the ‘missing inflation’ during the recovery – underlying the supposed breakdown.

Zilibotti, Müller, Storesletten, 12 November 2019

The growth of the US national debt during the Trump presidency is particularly remarkable given its overlap with a period of economic expansion. But in this regard if few others, the Trump administration is no outlier. This column challenges the claim that Republicans adhere to fiscal conservatism in debt policy. Instead, it shows that Republican administrations since WWII have been more prone to expand government debt than their Democratic counterparts. And broadly speaking, the same pattern emerges in a panel of OECD countries.  

Golson, 11 November 2019

Neutrality has long been viewed as impartiality in war. This column, part of the Vox debate on World War II, asserts that neutral states in the war were realist in approaching their defence to ensure their survival. Neutrals such as Portugal, Spain, Sweden, and Switzerland maintained independence by offering economic concessions to the belligerents to make up for their relative military weakness. Economic concessions took the form of merchandise trade, services, labour, and capital flows. Depending on their position and the changing fortunes of war, neutral countries could also extract concessions from the belligerents, if their situation permitted.

Xing, 11 November 2019

In order to pursue ‘fair trade’, the Trump administration has imposed a punitive 25% tariff on $250 billion’s worth of Chinese goods. However, conventional trade statistics greatly exaggerate the US trade deficit with China. This column uses the iPhone as an example to demonstrate how the trade deficit is inflated and why value-added should be used to assess the bilateral trade balance. If multinational enterprises, including Apple, shift part of their value chains out of China, China may no longer play a central role in global value chains targeting the US market. Depreciation of the yuan will be insufficient to counter the effect. 

Edo, Melitz, 10 November 2019

Economists mostly argue that the Great Inflation in renaissance Europe was caused by an inflow of silver. Historians counter that it was caused by population growth. The column uses long-run economic data to argue that the historians' position is credible for England's economy. On this evidence, both contributed equally to inflation during this period.

Alexeev, 09 November 2019

Despite the extensive literature on intergenerational mobility, few studies have investigated the effects of non-monetary income from housing, or ‘imputed rent’, on intergenerational income mobility. This column demonstrates the significance of such an omission. Using national panel data sets for Australia, the US, and Germany, it finds that only Australia sees a noticeable reduction in mobility when imputed rent is accounted for in the measure of income. The findings challenge Australia’s basic claim of providing equality of opportunity. 

Hayakawa, Jinji, Matsuura, Yoshimi, 09 November 2019

Why don’t all firms utilise regional trade agreement schemes that offer lower tariff rates? This column argues that firms need to incur both variable and fixed costs to comply with rules of origin, which isn’t always worth the benefits. It develops a simple new method to quantify these costs, and finds that reducing fixed costs can be more effective and feasible in enhancing the utilisation of regional trade agreements than a decrease in variable costs.

Albanesi, 08 November 2019

Doing a good job of deciding who can borrow is fundamental for the global economy. Stefania Albanesi tells Tim Phillips that current consumer credit ratings do a poor job at predicting which of us will default, and explains how she has used machine learning to improve them.

Cheng, Crucini, Oh, Yilmazkuday, 08 November 2019

As the current narrative goes, the loss of US manufacturing jobs is due to competition from China and one way to get the jobs back is by running tariffs up the proverbial flagpole.  This column argues that in the case of the automobile industry, history shows exactly the opposite occurred. In the early 20th century, the US achieved exceptionalism in innovation, production and trade in automobiles without domestic tariff protection, while foreign nations languished behind high tariff walls designed to protect their fledgling domestic automobile industries. 

Altavilla, Burlon, Giannetti, Holton, 08 November 2019

Economists and policymakers continue to question the effectiveness of monetary policy when an economy faces near-zero or sub-zero interest rates. Sceptics argue that central banks cannot stimulate lending, and may indeed decrease the loan supply, by setting negative interest rates. This column shows that negative rates do not impede the transmission of monetary policy from banks to deposit holders because firms do not withdraw cash in response to negative rates the way households might. In fact, sub-zero rates may even stimulate the economy by encouraging firms to invest.

Borg, Buti, Dieckmann, Döhring, Zeana, 07 November 2019

The current weakness of GDP growth and low inflation in the euro area are unlikely to be reversed, by themselves, in the next two years. The near-term outlook will much depend on whether the rest of the economy, in particular the services sector, will remain resilient to the persistent slowdown in manufacturing, and on the continued robustness of employment. This column introduces the European Commission’s Autumn 2019 Forecast, which suggests that while a recession is not in the cards unless major risks were to materialise in the near future, a prolonged period of very low growth and inflation might loom for the medium term. A more supportive economic policy mix is needed to stabilise the economy in the near term, to prevent the risk of protracted sluggishness in the medium term, and to provide impetus to the transition towards an environmentally and socially sustainable economy. 

Frydlinger, Hart, 07 November 2019

Contracts for complex outsourcing and supply-chain deals are challenging to write and vulnerable to bad behaviour. Rather than recommend that each party hire an army of sophisticated lawyers to anticipate and litigate the eventualities of an incomplete contract, this column explores a different approach. In a ‘Vested’ contract, each party agrees to shared goals, guiding principles, and structured communication to fall back on when conflicts arise. Used by a growing number of organisations worldwide, Vested contracts build trust and encourage parties to respect one another’s interests, facilitating communication and problem-solving. 

Aghion, Guriev, Jo, 07 November 2019

Moving from low- to high-income status implies that countries escape the middle-income trap. This implies institutional reform to create innovation-based growth. The column uses firm-level data to show how the Korean government's chaebol reforms in the late 1990s transformed the economy from an investment-based to an innovation-based model. There are lessons here for China.

Fajgelbaum, Goldberg, Kennedy, Khandelwal, 07 November 2019

The 2018 tariff hikes reversed a decades-long push by the US for lower global trade barriers around the world. This column examines the impact of the resulting trade war on the US economy. It estimates a $51 billion annual loss to US consumers and firms from higher import prices, with an aggregate annual loss of $7.2 billion when producer gains and tariff revenues are factored in. It also argues that US tariffs protected politically competitive counties, whereas retaliations by other nations targeted strongly Republican counties.

Hartmann, Schepens, 06 November 2019

On the occasion of the 20th anniversary of the euro, the experiences with EMU so far and crucial factors for its success going forward were at the core of ECB’s 2019 Sintra Forum on Central Banking. In this column two of the organisers highlight some of the main points from the discussions, including the diverse progress with economic convergence and how it may relate to the geographic agglomeration of industries, the role of fiscal policies relative to monetary policy for macroeconomic stabilisation in the still incomplete monetary union, and selected key determinants of future growth in the euro area. 

Thorbecke, 06 November 2019

As the trade surpluses of East Asian countries have continued to exist in regional value chains despite the US-China trade war, one possible tool such economies could employ are currency appreciations. This column shows how exchange rates in upstream countries affect China’s exports. No single economy wants to appreciate its currency against the US dollar for fear of losing competitiveness, but a concerted effort to prioritise regional currencies could benefit the set of countries as a whole.

Mayer, 06 November 2019

The desire to avoid credit and investment boom-bust cycles has led some to advocate replacing money creation through bank credit extension with direct money issuance by the central bank or a private entity, or linking money to an existing asset. This column, part of the Vox debate on euro area reform, argues that relaunching the euro as digital central bank currency could help reduce the debt of the euro states and end the sovereign-bank doom loop. It would also create a formidable competitor for other global digital currencies likely to emerge in the intermediate future.

Corsello, Neri, Tagliabracci, 05 November 2019

Concerns about the anchoring of long-term inflation expectations to the ECB Governing Council’s aim have re-emerged since early 2019. Using data from the ECB’s Survey of Professional Forecasters, this column argues that long-term inflation expectations have de-anchored from the ECB’s inflation objective. They have not returned to the levels that prevailed before the 2013-14 period of disinflation, and their distribution is still skewed towards lower inflation levels. Moreover, long-term expectations have become sensitive to short-term ones and to negative inflation surprises. 

Houben, Cizel, Frost, Wierts, 05 November 2019

Macroprudential policies are being implemented around the globe. A key question is whether these policies prompt substitution toward the non-bank financial sector. This column presents compelling evidence of such ‘waterbed effects’ after macroprudential policy action. Substitution towards non-bank credit is stronger when policy measures applied to banks are binding and are implemented in countries with well-developed financial markets. While systemic risks may nonetheless decline, waterbed effects highlight the importance of developing macroprudential policies beyond banking. 

Clancy, Dunne, Filiani, 04 November 2019

Stable sovereign bond markets are crucial to a well-functioning economy and financial system. But despite the importance of amplifications of sovereign bond market tensions related to flights-to-safety and sudden liquidity contractions, there is little direct empirical evidence of the transmission channels through which such catalysts for amplification operate. This column documents significant own- and cross-market interdependencies between liquidity and tail risks that amplify shocks likely attributable to economic fundamentals. The findings demonstrate the potential for the provision of liquidity across sovereign markets to be vulnerable to sudden fractures, with possible implications for euro area economic and financial stability.

Frey, Rahbari, 04 November 2019

Mechanisation during the Industrial Revolution accelerated economic growth and prosperity in the long term, but it was fiercely opposed by workers who did not share in its short-term gains. This column argues that similar forces are at play today. A new revolution in automation is eliciting resistance since it threatens to render jobs redundant. The column proposes policy interventions to raise productivity and prosperity in the short term, to reap the benefits of the new technologies in the long term.

Lotti, Presbitero, 04 November 2019

Filling the investment gap to achieve the sustainable development goals is one of the most important development challenges. Multilateral development banks can play an important role through a stronger engagement to attract additional resources from the private sector. This column uses data on syndicated lending to a large set of developing countries and shows that MDBs are able to crowd in bank credit to sectors to which they lend. The role of MDBs could be relevant, as they can mobilise up to seven dollars in bank credit for each dollar invested.

Sun, Tao, Yuan, Zhang, 03 November 2019

The trade war between the US and China has had impacts on other countries – including Japan, one of the most important trading partners of both countries. The column uses quarterly sales data and stock market returns to show that the operations in China of Japanese MNCs have been negatively affected by the trade war, especially when Chinese affiliates rely heavily on trade with North America. This has led to a reduction in their stock prices. 

Bazot, Monnet, Morys, 02 November 2019

The gold standard (1880s-1913) is usually portrayed as the exemplary case of the total submission of central banks’ monetary policy to the constraints of international finance.  This column challenges this view by showing that central banks’ balance sheets stood as a buffer between their respective domestic economies and global financial markets. By contrast, autonomy was much more limited in the US, a country with fixed exchange rates but no central bank before 1913.

Chen, 01 November 2019

When the law changed to allow same-sex partners to get married, did the symbolism of marriage have any effect on the stability of relationships? Shuai Chen tells Tim Phillips about a surprising result from The Netherlands.


Oksanen, 01 November 2019

Preparations for reforming the euro area have stalled, with experts disappointed that politicians have not heard their proposals. This column, however, is optimistic  that the euro area can be reformed via a pragmatic reorientation without high-profile changes to the EU Treaty. The reforms must cover a reorientation of fiscal policy towards a long-term vision and entail revamping the Eurosystem to allow it to perform its proper role as a central bank.

Thompson, 01 November 2019

Fertility rates among African American women have exceeded those of white women for as long as fertility statistics have been collected, while disparities in the economic outcomes of black and white Americans have persisted. This column investigates the relationship between racial inequality and fertility differentials. It finds that not only were fertility choices responsive to changes in discriminatory policies made during the Civil Rights era, but that African Americans born in the years immediately following, when the relative fertility of black southern women declined markedly, exhibited rapid improvements in test scores and adult outcomes.


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