July 2020

Pollinger, 05 July 2020

Despite diverse and considerable efforts, the pandemic is keeping the world in a state of apprehension and discord. This column argues that eradicating Covid-19 is possible through a combination of case detection and social distancing, which would allow the pandemic to be eliminated at low additional economic and health costs. A simple function of observables, the optimal policy is easily implementable, but it raises important privacy concerns. The time to have a serious political discussion about these concerns has come.

Dubois, Sæthre, 04 July 2020

Differences in regulated pharmaceutical prices within the European Economic Area create arbitrage opportunities that pharmacy retailers can access through parallel imports. For prescription drugs under patent, parallel trade affects the sharing of profits among an innovating pharmaceutical company, retailers, and parallel traders. This column discusses recent findings showing that in a country which does not regulate pharmacy retailers’ margins, retailer incentives to bargain lower wholesale prices play a significant role in fostering parallel trade penetration, and that banning parallel imports would benefit manufacturers.

Popp, Vona, Noailly, 04 July 2020

Many governments worldwide are currently considering fiscal recovery packages to address the Covid-19 crisis. This column analyses the impact of past green fiscal stimulus on employment. Focusing on the American Recovery and Reinvestment Act after the Global Crisis, it finds that that the green stimulus was particularly effective in creating jobs in the long run, but not in the short run. Hence, while green stimulus packages are useful to reorient the economy and direct it onto a green trajectory in the longer run, they are less effective in restarting the economy quickly.

Buiter, 03 July 2020

The US Federal Reserve – the world’s most important central bank – is not in a good place. This column outlines three flaws in the operating practices of the Fed – (i) its refusal to adopt negative policy rates, (ii) the build-up of significant credit risks through non-transparent (quasi-)fiscal actions, and (iii) stress testing analysis which fails to account for the severity of the COVID-19 crisis. It proposes a number of ways forward, including a symmetric policy rate around zero, a temporary ban on dividend payments, new equity issuance, and conducting a comprehensive stress test of the financial system.

Djankov, Georgieva, Maemir, 03 July 2020

Countries reform when their neighbours have reformed too, especially in the aftermath of economic crises. This column examines business regulatory reforms during 2004–2019. Previous crisis episodes have generated improvements in the law and administration of registering property, trading across borders, protecting investors and resolving bankruptcy. The current period of post-COVID-19 recovery is propitious for regulatory reform.

Muñoz, 03 July 2020

According to the evidence, banks in the euro area are particularly reluctant to cut back on dividends during economic recessions. That is, the bulk of the adjustment in the face of negative shocks that hit bank profits is borne by undistributed net income. This column argue that this pattern can notably exacerbate the impact of a negative supply shock such as the COVID-19 pandemic on bank lending and economic activity. Using a macro-banking DSGE model calibrated to quarterly data of the euro area economy, it concludes that restricting dividend distributions has the potential to significantly improve the effectiveness of the countercyclical capital buffer release in ensuring that banks keep funding households and firms during the COVID-19 crisis.

Basu, 03 July 2020

Kaushik Basu's time as World Bank chief economist inspired him to think radically about how to change the way the global economy works. He tells Tim Phillips about why public ownership and profit-sharing may be essential, and what we can still learn from Karl Marx.

Borowiecki, Dahl, 02 July 2020

Black Americans have been underrepresented in the nation’s creative industries since the end of slavery. This column argues that the implications of that marginalization extend beyond career choices into homes and neighbourhoods, as cities with thriving arts sectors also lead in job creation, innovation, and trade. The authors recommend that financial support for black artists be pursued in a systematic way, with policies that provide emerging black artists with access not only to relevant artistic networks, but also to supply-related organisations such as gallerists and publishers.

Beck, Döttling, Lambert, van Dijk, 02 July 2020

Banks fulfil several key functions in the economy, from improving the allocation of capital by extending credit to facilitating consumption smoothing through saving and borrowing. The creation of liquidity lies at the centre of much of a bank’s operations. This column provides evidence that banks' liquidity creation is associated with higher economic growth across countries and industries, with important non-linear effects. Results suggest that in the new ‘knowledge economy’ banks will have a more limited role, compared to other types of financial intermediaries and markets.

Bholat, 02 July 2020

Machine learning and artificial intelligence (AI) are at the heart of current transformations that some commentators have dubbed the ‘Fourth Industrial Revolution.’ The Bank of England, CEPR and Imperial College recently organised a virtual event to discuss how machine learning and AI are changing the economy and the financial system, including how central banks operate. This column summarises key topics discussed during the event and introduces videos recorded by some of the presenters, including Stuart Russell, Alan Manning, and the Bank of England’s Chief Data Officer, Gareth Ramsay. 

Borelli, Goes, 01 July 2020

Brazil has faced great difficulties in controlling the COVID-19 epidemic, having become the world’s epicentre of the coronavirus pandemic and recently reaching 50,000 fatalities. This column argues that the great heterogeneities between states in Brazil, together with difficulties in political coordination, may have shaped these consequences. Looking at five states, it investigates whether certain differences in the states’ intrinsic characteristics may have influenced the dynamics of the local epidemic. Governments may need to consider local conditions and adopt heterogeneous containment policies.

Nekoei, Weber, 01 July 2020

Temporary layoffs have exploded during the COVID-19 pandemic. This column analyses temporary layoffs in Austrian data and argues that the share of temporary layoffs contains information about employers’ forecasts of the future of their businesses.

Kasperskaya, Xifré, 01 July 2020

In the aftermath of crises, the state of public finances typically regains prominence in policy agendas. This column advances the hypothesis that three properties of the budgetary setup – reliability of projections, openness to scrutiny, and transparency – facilitate the exercise of the ‘budgetary analytical capacities’ of the government, legislature, and the wider public. It constructs an index of such capacities from the OECD Survey on Budget Practices. For the period 2012-2016, a simple measure of fiscal discipline is correlated with the index and is not correlated with other standard political-economy variables that are generally used to explain fiscal discipline.

CEPR Policy Research