January 2020

Arcidiacono, Kinsler, Ransom, 22 January 2020

Many elite universities in the US send recruitment materials to secondary school students in an effort to enlarge their applicant pools. This column focuses on Harvard University and documents a sudden increase in African American applications, driven by those with lower entrance exam scores, which did not result in a larger share of African American admits. It discusses possible motivations for this practice of recruiting applicants, particularly African Americans, who essentially have no chance of being admitted. 

Greenwood, Guner, Kopecky, 22 January 2020

Increased access to birth control does not seem to have decreased the number of unplanned pregnancies. Instead, as contraceptive technology improved over the course of the 19th and 20th centuries, the percentage of non-marital births in the US rose. This column uses a marital search model to make sense of this seeming paradox, and concludes that advancements in contraception led to more premarital sex, an increase in out-of-wedlock births, and a decline in the fraction of the married population.

Lin, Thomas, Kalnins, 22 January 2020

Why do so many transactions take place within firms rather than between independent agents via markets? This column sheds new light on this question by analysing hotel chains’ decisions about whether to outsource management to independent franchisees. Properties with the lowest and the highest occupancy rates tend to be managed by franchisees, at arm's length from the hotel chain. This variation in organisational form is consistent with the authors’ model in which the incentives embodied in management contracts vary with property-level productivity. 

Svensson, Westermark, 21 January 2020

For almost 200 years, old coins were frequently declared invalid in large part of medieval Europe and had to be exchanged for new ones for an exchange fee. This column shows that frequent recoinage generates incomes for the minting authority when the tax level is low enough and the punishment for using invalid coins is high enough, and when there is a limited coin volume in circulation and also an exchange monopoly. The system is equivalent to the 20th-century idea known as the Gesell tax. 

Castle, Hendry, Martinez, 21 January 2020

Real wages and productivity in the UK have stagnated since 2007, whereas employment has risen considerably. Many commentators lament the consequent failure of `living standards’ to rise at historical rates. But real GDP per capita has grown by more than 20% since 2000 despite the Great Recession, so aggregate living standards have in fact risen. This column resolves the apparent paradox.

Barthélemy, Mengus, Plantin, 21 January 2020

Real interest rates are at historically low levels in advanced economies. This column looks at the implications for central bank independence. It argues that low rates, even though they relax the budget constraint of the public sector, will not necessarily strengthen central bank independence. Quite counterintuitively, in the current context of low inflation, preserving central bank independence may require that the public deficit be financed with helicopter money, rather than government debt, to prevent the government from entering into uncontrollable spending. 

Aiginger, 20 January 2020

The new president of the European Commission, Ursula von der Leyen, has announced a ‘European Green Deal’ and the Commission has asserted Europe’s need to develop a new growth model to achieve climate neutrality. However, the Commission’s limited view of ‘productivity’ ignores the fact that raising labour productivity can raise emissions and accelerate climate change. Instead, this column argues that a welfare-oriented Green Deal needs to focus on resource and energy productivity, not raising labour productivity.

Mayda, Parsons, Pham, Vézina, 20 January 2020

While resettled refugees in the US historically exhibit remarkable success, this column shows that refugees also foster development to their origin countries through the mechanism of foreign direct investment. A 10% increase in refugees in a given commuting zone causes outward FDI flows to increase to their countries of origin, 10 to 15 years after having taken refuge, by 0.54%. Decisions made primarily for humanitarian reasons in developed host nations thus yield economic benefits for some of the world's poorest nations in the medium run.

Fioretti, Wang, 19 January 2020

As health spending continues to rise globally, pay-for-performance can be an attractive policy tool for promoting high-quality services at lower costs. But there are concerns that it weakens the finances of poor-performing hospitals in low-income areas. This column examines the efficiency and equity consequences of the introduction of pay-for-performance in the Medicare insurance programme in the US. It finds that after the payment reform, high-quality insurers selected healthier enrollees, shifting the distribution of high-quality insurance to the healthiest counties and worsening regional disparities in healthcare access.

Diwan, Haidar, 18 January 2020

Firm-level political connections are widespread. This column examines whether they affect employment decisions in Lebanon, a country where the majority of university students think that connections are important for finding jobs and many admit to having used them. While politically connected firms create more jobs than unconnected firms, the presence of such firms in a sector is correlated with lower aggregate job creation. This finding is consistent with the hypothesis that unfair competition from politically connected firms hurts unconnected competitors so much that aggregate growth in the sector is affected negatively.

Goodhart, Venables, 17 January 2020

When the industries that have sustained our cities decline, how can we regenerate urban areas? At the SUERF conference in Amsterdam, Tony Venables and Charles Goodhart tell Tim Phillips that redevelopment policies may have made regional inequality and social conflict worse.

Savona, 17 January 2020

Personal data have value, and economists failed to predict that this value would become concentrated in the hands of digital platforms. The column presents a novel data-rights approach to redistributing data value while not undermining the ethical, legal and governance challenges of doing so. This can be done by giving individuals authorship rights to their personal data.

Azmat, Hassler, Ichino, Krusell, Monacelli, Schularick, 17 January 2020

Climate change is at the top of our policy agendas. What can economics contribute to help deal with this important global challenge? With the aim to answer this question, the Managing Editors of Economic Policy are opening a call for papers for a special issue on “The Economics of Climate Change” to bring together the best ideas to inform the debate and provide high-impact policy advice.

Janke, Propper, Sadun, 17 January 2020

Studies have shown that in the private sector, top managers and CEOs can make a difference in the performance of their organisations and have a ‘style’ that is portable across firms. This column uses the setting of hospitals in the English National Health Service to examine whether CEOs can make a difference in large and complex public sector organisations. The findings suggest that the CEOs of large public hospitals do not have a significant impact on performance, casting doubt on the ‘turnaround CEO’ approach to management in the public sector.

Kalemli-Ozcan, 16 January 2020

The question of how shifts in US monetary policy affect other nations is key to central bank policymaking around the world. This column combines a simple theoretical framework with macro data from 70+ countries and micro data from over a million non-financial firms in 43 of these countries to show that monetary policy spillovers from the US to the rest of the world operate through changes in risk premia, with emerging market economies most vulnerable. It also discusses the policy options available to countries to deal with the effects of these risk spillovers.

Feyen, Frost, Natarajan, 16 January 2020

Proposals for global stablecoins have put a welcome spotlight on deficiencies in financial inclusion and cross-border payments and remittances to emerging market and developing economies. This column, part of the Vox debate on digital currencies, argues however that stablecoin initiatives are no panacea. Moreover, they pose particular development, macroeconomic and cross-border challenges for emerging market and developing economies. It remains to be seen whether stablecoins can offer a decisive comparative advantage over fast-moving fintech innovations in these countries that are built on or improve the existing financial plumbing.

Drechsel, McLeay, Tenreyro, 16 January 2020

Macroeconomic volatility in commodity-exporting economies is closely tied to fluctuations in international commodity prices. This column studies optimal policy for commodity exporters in a small open economy framework that includes a key role for financial conditions. A positive commodity price shock leads to an inefficient boom, with inflation rising and output increasing relative to its efficient level. The optimal policy lets the exchange rate appreciate and raises interest rates, with a larger appreciation required the greater the loosening in borrowing conditions. The model suggests that exchange-rate pegs are highly suboptimal for commodity exporters, exacerbating inefficient swings in commodity production. Given the prevalence of managed exchange-rate regimes in emerging and developing commodity-exporting economies, the authors discuss the practical challenges that might justify such frameworks.

Brunnermeier, Landau, 15 January 2020

Central banks have been called on to contribute to fighting climate change. This column presents a framework for thinking about the issue and identifies some major trade-offs and choices. It argues that climate should be a major part of risk assessments and that capital ratios could be used in a proactive way by applying favourable regimes to ‘green’ loans and investments. It also suggests that central banks may want to take several climate change-related aspects into account when designing and implementing monetary policies. However, the central bank should retain absolute discretion to interrupt any action if its first-priority objective – price stability – were to be compromised.

Samarina, Apokoritis, 15 January 2020

Monetary policy frameworks have evolved since the global crisis. The column investigates the changes for 14 advanced economy central banks. Banks are defining lower, more narrow inflation targets. Transparency and commitment have been enhanced, and the monetary policy toolkit has been expanded.

Kaeseberg, 15 January 2020

EU competition policy appears not sufficiently equipped to deal with the challenges recently raised by Chinese state capitalism. This column discusses some of the gaps in the EU’s economic toolbox, and identifies several strategic issues that will need to be addressed as the Commission looks to close these gaps with the introduction of a ‘level playing field instrument’.

Kondo, 14 January 2020

Increasing productivity is a top priority challenge for the Japanese economy under the current population decline, and the idea of raising the minimum wage in order to spur productivity growth has piqued interest among policymakers. This column suggests two ways in which firms may respond to a minimum wage hike: some may carry out reforms to increase productivity in response to the hike, while other less-productive firms may exit the market. The overall effect on productivity will vary across countries and firms, since the relative strength of these two effects depends on a country’s firms’ characteristics and market structure.

Ongena, Auer, 14 January 2020

Targeted macroprudential policies may spill across sectors, but this does not mean that they are ineffective. This column shows how the effects of a countercyclical capital buffer designed to curb house price growth in Switzerland spilled over into commercial lending. But a model that matches the uncovered spillovers in volumes and interest rates shows that they by no means undermine the rationale for focusing policy measures on specific sectors. On the contrary, it suggests that regulators can avail themselves of this new tool to increase the overall resilience of banks

Galofré Vilà, 13 January 2020

Economic history is a thriving subset of the field. This column uses network analysis to review the development of the discipline over the last 40 years. It illustrates how economic historians are interconnected through their research, identifies which scholars are the most cited by their peers, and reveals the central debates enlivening the discipline. It also shows that the rapid increase in the number of economic history publications since 2000 has been driven more by research at universities in continental Europe than by those in the US or UK.

Sorsa, Arnold, Garda, 13 January 2020

Economic growth in Latin America has been persistently lower and more erratic than the emerging economies of Asia, largely due to low productivity borne out of both weak competition and a large informal economy. This column analyses the various factors that have caused these conditions to exist in several Latin American countries, and how policies to counteract them have fared. For significant progress, a detailed strategy of simplifying regulations, easing administrative burdens, encouraging market entry, and reducing trade barriers is required to formalise workers and encourage market competition.

Suesse, Wolf, 13 January 2020

There was a rapid spread of credit cooperatives in rural 19th-century Germany providing small-scale savings and loan services to previously unbanked people. This column shows how these cooperatives helped shift farm investment from grains to potentially profitable but more capital-intensive products, such as the production of meat and dairy. In cases like this, changes in the sector of economic activity are a better metric for the impact of microfinance than comparing income pre- and post-credit.

Buti, 12 January 2020

In December 2019, Marco Buti left the position of Director General for Economic and Financial Affairs at the European Commission at the end of a rough journey through the crisis and its aftermath. In this column, he draws the main lessons out of five key moments in the crisis for the completion of EMU and the appropriate policy mix in the euro area.

Goulas, Megalokonomou, 11 January 2020

Exam scheduling may contribute to performance gaps between subjects, between males and females, as well as between students with differing performance histories. Using lottery-generated variation in exam timing at a Greek public high school, this column identifies three distinct channels through which exam scheduling can influence test performance. The simulation experiments show that the higher the number of exams taken, the higher the potential benefit from optimising exams scheduling.

Augustin, Chernov, Schmid, Song, 10 January 2020

Benchmark interest rates, such as LIBOR or EFFR, not only serve as indicators of the monetary policy stance but also as reference rates for the multi-trillion interest rate derivatives and mortgage markets. Since the Global Crisis, these interest rates have followed a puzzling pattern relative to the US Treasury yields, known as negative swap rates. This column describes the pattern, explains why it is puzzling, and argues that the emergence of US default risk can naturally explain negative swap spreads. 

Begg, Miles, 10 January 2020

In 2020, the UK and the EU will try to strike a post-Brexit deal in financial services. At the SEURF conference in Amsterdam, David Miles and Iain Begg explain to Tim Phillips what's at stake in the negotiations, and who would suffer most if there's no deal.

Matějka, Tabellini, 10 January 2020

Digital technologies provide a vast and accessible supply of information for voters. And yet, research suggests that the American electorate is no better informed than it was in the late 1980s. This column argues that the digital revolution has changed the distribution of news and data, increasing informational asymmetries across issues, amplifying the influence of extremist voters, and diverting attention away from important but non-controversial policies. 

Egger, Zhu, 09 January 2020

The US and China have been exchanging threats and imposing tariffs in a ‘trade war’ since early 2018. Sound statistical and holistic economic analysis of the trade dispute’s consequences is difficult due to data limitations. This column scrutinises global stock market responses to assess the effects of the trade war and finds that, on average, the US and Chinese tariffs have directly hurt targeted firms/sectors abroad as intended, but they have also hurt firms at home. It also reveals unintended effects on third parties, mediated by global value chain interdependencies.

Card, DellaVigna, Funk, Iriberri, 08 January 2020

Women economists are under-represented across the discipline, from university departments to academic conferences and publishing houses. This column focuses on the editorial process and asks whether the referees and editors of four leading economics journals made gender-neutral publishing decisions between 2003 and 2013. The findings suggest that the gender of the referee does not affect the valuation of a paper and that editors are gender-neutral in valuing advice from referees. However, papers written by women appear to face a higher bar in the quest to be published.

Heiland, Moxnes, Ulltveit-Moe, Zi, 07 January 2020

Evidence on the structure of the global container shipping network, an essential determinant of the costs of trade, is scarce. This column uses satellite data to document salient features of the network, and the expansion of the Panama Canal as a natural experiment to examine the impact this improvement to one link of the network had on worldwide trade. The analysis suggests that the expansion of the canal increased world real income by $20 billion. 

Kimura, 07 January 2020

While national governments are already implementing various economic policies related to data flows in the real world, there is not yet a consensus on how economists should approach the topic. This column outlines a framework recently proposed by the T20 Task Force on Trade, Investment, and Globalization that classifies data flow policy into five categories and allows the appropriateness of policy from the viewpoint of economics to be discussed. As a result, it becomes possible to achieve policy harmonisation in some areas and to identify others where harmonisation cannot easily be achieved.

Saka, 06 January 2020

European banks have been criticised for holding too much domestic government debt during the recent euro area crisis, intensifying the doom loop between sovereign and bank credit risks. This column deviates from previous research that focused on 'bad' reasons for holding sovereign debt, and points to a 'good' reason: an informational advantage that particular banks have regarding sovereigns. This seems to have had a role in the fragmentation of European government bond markets. 

Artuc, Porto, Rijkers, 06 January 2020

Questions about who benefits from free trade – and at what cost – have resurfaced as part of the backlash against globalisation. This column uses data from 54 low- and middle-income countries to show that in a majority of cases, trade liberalisation increases both incomes and inequality. Most of these trade-offs resolve in favour of liberalisation; despite exacerbating income disparities, trade liberalisation creates overall social welfare gains. 

Hombert, Matray, 05 January 2020

High salaries and the opportunity to work with exciting new technologies attract many graduates to jobs in the tech sector. This column examines the long-term earnings of French high-skilled workers who started their career during the last tech boom in the late 1990s. The results point to an ‘ICT boom cohort discount’, with high-skilled workers who started in the sector ending up earning almost 7% less than workers who started careers outside of ICT. One potential explanation for this is that human capital accumulated by high-skilled workers in a booming tech sector depreciates faster than usual because of accelerating technological change.

Oesch, Piccitto, 04 January 2020

The consensus view in economics is that labour markets are polarising as jobs are created in high-skilled and low-skilled occupations but disappear in mid-skilled ones. This column shows empirical evidence against the polarisation theory in Western Europe. Between 1992 and 2015, job growth in Germany, Spain, Sweden, and the UK was strongest in top-end occupations and, except in the UK, weakest in low-end occupations. 

Cahuc, Carcillo, Minea, Valfort, 03 January 2020

Correspondence studies are often used to detect discrimination on the part of recruiters, but they do not inform us about decisions at the interview and job-offer stages. This column describes how a correspondence study suggests that individuals of North African origin are strongly discriminated against in the French private sector, while they are treated equally in the public sector. However, survey results indicate that both public and private sector employers express discriminatory preferences and beliefs against North African candidates, and wages of young unskilled North African males are lower than those of their French compatriots in both sectors. The findings suggest that correspondence studies should be complemented with other investigation methods.

Hoekman, Shepherd, 03 January 2020

Data weaknesses hamper analysis of how policies towards imports and exports of services, foreign direct investment and, more generally, regulation affects the operation of services sectors. Based on recently released regulatory policy data for 2016, this column uses machine learning methods to recreate to a high degree of accuracy the OECD’s Services Trade Restrictiveness Index to generate new estimates of services trade barriers for 23 developing countries. The analysis confirms that services policies are typically much more restrictive than tariffs on imports of goods, in particular in professional services and telecommunications. Developing countries tend to have higher services trade restrictions, but less so than has been found in research using data for the late 2000s.

Aghion, Bergeaud, Blundell, Griffith, 02 January 2020

A growing literature emphasises that firm heterogeneity plays a large role in explaining wage differences across workers. This column highlights one channel through which firm features feed through into the wages of workers in low-skilled occupations, namely, the interplay between a firm's innovativeness and the complementarity between the (soft) skills of workers in low-skilled occupations and the firm's other assets. It shows that more R&D-intensive firms pay higher wages on average, and in particular workers in certain low-skilled occupations benefit considerably from working in more R&D-intensive firms.

Davis, Taylor, 02 January 2020

Investor experience and academic research since the Global Crisis reflects a growing realisation that credit conditions can affect future macroeconomic outcomes. This column investigates whether credit booms throughout history have had any explanatory power to account for future asset class returns. It finds that credit booms tend to systematically predict poor returns in the near future for equities in absolute terms, and relative to bonds. An investor who had tilted their portfolio allocations based on a credit boom signal would have been able to improve portfolio performance. The contribution of the credit boom signal is meaningful when compared to other well-established signals such as momentum and value.

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