September 2020

Barrios, van der Wielen, 30 September 2020

The COVID-19 pandemic and ensuing Great Lockdown came with an unseen level of economic uncertainty. This column uses Google search data to document the substantial increase in people’s economic anxiety and the coinciding slowdown in European labour markets in the months following the outbreak. The analysis shows that the ensuing fear was significantly more outspoken in those EU countries hit hardest in economic terms, with levels of economic anxiety similar or higher than during the Great Recession of 2007-2009. Unlike during the Great Recession, however, unprecedented policy actions, such as the short-term working schemes implemented or reformed at the onset of the COVID crisis, do not seem to have mitigated overall economic anxiety.

Coibion, Gorodnichenko, Knotek II, Schoenle, 30 September 2020

On 27 August 2020, the Federal Reserve announced the adoption of a new strategy of ‘average inflation targeting’, which is to replace traditional inflation targeting. This column uses a daily survey of US households to study how this announcement affected inflation expectations. It finds a small uptick in the share of households reporting to have heard news about monetary policy on the day of the announcement, but hearing about the news did not appear to affect their expectations. Even providing households with information on average inflation targeting directly did not change expectations relative to households who received information on traditional inflation targeting.

Peukert, Bechtold, Batikas, Kretschmer, 30 September 2020

The EU’s General Data Protection Regulation came into effect in 2018 to tackle issues of privacy and personal data. Looking at over 110,700 websites before and after the introduction of the regulation, this column examines its effect on non-EU-based websites and on other policy domains, such as competition or trade policy. Both EU-based and non-EU-based websites switched to more privacy-sensitive technologies following GDPR, but only in the short term. The market for web tracking technologies became more concentrated, with Google gaining the most market share among large providers. Privacy regulations can function as nonpecuniary barriers to trade, especially if enacted by a large economic area.

Bourreau, Caffarra, Chen, Choe, Crawford, Duso, Genakos, Heidhues, Peitz, Rønde, Schnitzer, Schutz, Sovinsky, Spagnolo, Toivanen, Valletti, Vergé, 30 September 2020

The European Commission is conducting an in-depth investigation of the Google/Fitbit deal. A static, conventional view would suggest limited issues from a merger of complements. Yet, as this column outlines, unprecedented concerns arise when one sees that allowing for Fitbit’s data gathering capabilities to be put in Google’s hands creates major risks of “platform envelopment,” extension of monopoly power and consumer exploitation. The combination of Fitbit’s health data with Google’s other data creates unique opportunities for discrimination and exploitation of consumers in healthcare, health insurance and other sensitive areas, with major implications for privacy too. We also need to worry about incentives to pre-empt competition that could threaten Google’s data collection dominance. As the consensus is now firmly that preventing bad mergers is a key tool for competition policy vis-a-vis acquisitive digital platforms, the European Commission and other authorities should be very sceptical of this deal, and realistic about their limited ability to design, impose and monitor appropriate remedies.

Foroni, Marcellino, Stevanovic, 29 September 2020

Forecasting the recession and recovery from the COVID-19 crisis is of substantial policy interest. The pandemic shock shares both similarities and differences with previous crises, such as the financial crisis of 2007-2009. This column evaluates the ability of different forecasting and nowcasting approaches to predict the COVID-19 economic shock and forecast the potential recovery path. It shows that adjusting for forecasting errors made during the financial crisis of 2007-2009 better aligns the COVID forecasts with observed data. The results suggest a slow recovery to pre-COVID-19 levels, lasting several years.

Mehl, Schmitz, Tille, 29 September 2020

The geographical distance between two countries has a substantial impact on their economic relationship, affecting trade, foreign direct investment, and international banking linkages. Using data from the Great Recession and the COVID-19 pandemic, this column demonstrates that the financial linkages between countries located far from one another experience more volatility during crises than those between countries that are closer together. Policymakers concerned about their country’s exposure to global cycles should focus not only on their primary trading partners, but also on trade flows with more distant partners.

Aron, Muellbauer, 29 September 2020

The US has 4% of the world’s population but 21% of the global COVID-19-attributed infections and deaths. This column shows that when comparing excess mortality rates, a more robust way of reporting on pandemic deaths, Europe’s cumulative excess mortality rate from March to July is 28% lower than the US rate, contradicting the Trump administration’s claim that Europe’s rate is 33% higher. The US Northeast – the region most comparable with individual European countries – has experienced substantially worse excess mortality than Europe’s worst-affected countries. Had the US kept its excess mortality rate down to the level in Europe, around 57,800 American lives would have been saved. 

Oswald, Nowakowski, 28 September 2020

Do our citizens care much about climate change? This column provides evidence that the answer is no. Using data on 70,000 randomly sampled people from the European Social Survey and the Eurobarometer, it shows that people exhibit low levels of worry about climate change, especially in cooler countries, and do not even believe that collective action would work. Climate change is viewed as less important than parochial issues such as inflation, health and social security, unemployment, and the economic situation. It appears our unborn great grandchildren may simply be left to their fate unless we can urgently find innovative ways to change people’s feelings about climate change.

Calmfors, 28 September 2020

High employment is an important objective for all governments. This column makes the case for numerical employment targets, arguing that such targets can help balance fiscal objectives while also strengthening the incentives for reforms that raise structural employment. For the case of Sweden, the author recommends two targets: the actual employment rate for 20–68-year olds, and the actual annual hours worked per person in the population.

Clemens, Veuger, 28 September 2020

The COVID-19 shock has significant negative consequences for the finances of US state and local governments, especially since they are bound by balanced-budget requirements. Estimates of (expected) revenue shortfalls are therefore an important input in the allocation of federal funds to offset the pandemic’s effects on state and local government revenues. This column uses Congressional Budget Office projections of consumption and personal income to forecast sales and income tax bases and revenue for all of the states. Based on May and July projections, it estimates a total shortfall of $106 billion and $105 billion, respectively.

Galiani, Panizza, 28 September 2020

Academic economists need to be published, but is the journal system fair and efficient? Sebastian Galiani and Ugo Panizza tell Tim Phillips about a new free VoxEU ebook that tackles racism in publishing, whether you should be judged by your citations, and the tyranny of the top five. 

Download the eBook free from VoxEU here

Galiani, Panizza, 28 September 2020

The publication process in economics is characterised by long publication lags and excessive weight given to a very small number of journals, while the profession itself is seen by many as hierarchical, clubby and characterised by gender and racial biases. This column introduces an eBook which takes stock of these issues with a series of short essays focusing on how economists publish their research and measure academic success. While there is much to be proud of about the state of the economics profession, the chapters in the eBook suggest there is still work to be done to make economics more open and inclusive and the publication process fairer and more efficient.

Bonfatti, Brzezinski, Karaman, Palma, 27 September 2020

Monetary capacity refers to a state's capacity to circulate money that is accepted by the public, while fiscal capacity refers to its capacity to tax. This column argues that monetary and fiscal capacity and, by extension, markets and states have a symbiotic relationship. The long-run European evidence from antiquity to the modern period corroborates this mutual dependence, with money stocks and tax revenues moving in close synch. History also offers a natural experiment to estimate the causal effect of monetary capacity on fiscal capacity, with New World silver increasing money stocks and in turn tax revenues in a significant and substantial way.

Vuillemey, 27 September 2020

The maritime shipping industry has been the backbone of globalisation, carrying 80% to 90% of global trade flows. This column shows that over the past four decades, shipping firms are being systematically structured to evade corporate responsibilities. Potential tort liabilities, for example in case of an oil spill, are evaded by registering each ship in a different subsidiary; regulatory standards are evaded by using flags of convenience; and long-term responsibilities related to ship recycling are evaded using so-called last-voyage flags.

Haidar, 26 September 2020

The relationship between first-movers and late-movers in export markets has important policy implications. First-movers need to be productive enough to pay market entry costs; in turn, they generate information externalities for late-movers. This column uses a unique disaggregated export-level customs dataset to test whether first-movers outperform late-movers in export markets. Using a variety of specifications and controlling for demand and supply shocks, it shows that, surprisingly, late-movers outperform first-movers. Furthermore, this effect is mainly driven by a differential in export quantities, not prices. 

Djankov, Glaeser, Shleifer, 25 September 2020

In a world of limited public capacity, which rules and institutions that protect property rights have the largest impact on economic activity? This column addresses this question using a cross-section of 190 countries and focusing specifically on the distinction between the right of possession and the right of transfer in the context of urban land. It also documents worldwide improvements in the quality of institutions facilitating property transfer over time.

Bosio, Grujicic, Iavorskyi, 25 September 2020

A trade-off between quality and speed/cost in public procurement regulation is often seen as a challenge for legislators. This column analyses data from 187 economies and finds that this trade-off is not supported by the data. In fact, there is a positive correlation between quality and efficiency of public goods and services. The strong correlation suggests that certain features of governments produce good results across different services.

Buch, 25 September 2020

Structured policy evaluations are important for the accountability and transparency of policy responses to global crises. Such evaluations require good infrastructure, including access to data and information on policies. In 2017, the Financial Stability Board began a comprehensive evaluation of post-crisis financial-sector reforms. This column draws on this evaluation to examine the state of the global banking system at the onset of COVID-19 crisis and highlights important lessons to be learned from the policy response to the Global Crisis.  

Adams Greenup, Koijen, Lichtenfeld, Van Nieuwerburgh, 25 September 2020

The COVID-19 pandemic has overwhelmed US hospitals and health systems, but at the same time many households are forgoing medical care due to financial insecurity and the withdrawal of employer-sponsored health insurance in the wake of massive job losses. This column proposes a private sector solution whereby life insurers provide interest-free loans to their policyholders be used for health insurance payments. This would be profitable for the life insurance companies, which have a financial interest in the wellbeing and survival of their policyholders, and would allow the policyholders to enjoy continuation of medical care. 

Larch, Santacroce, 24 September 2020

The urgent need to respond to the unprecedented economic shock resulting from the Covid-19 pandemic has relegated the review of EU fiscal rules to the background. However, the question of whether and how to review the Stability and Growth Pact will soon re-emerge as a key topic in the policy debate, not least in light of the very sharp increase in government debt levels. This column presents a new database from the Secretariat of the European Fiscal Board that tracks numerical compliance with the SGP. It offers valuable insights into which rules worked or not for which group of countries and under what circumstances. The database is available to the research community and can inform any future attempt to improve the current fiscal framework of the EU.

Paczos, Shakhnov, 24 September 2020

The sharp reductions in economic output and large-scale government expenditures prompted by the Covid-19 pandemic have led to an enhanced risk of sovereign defaults, especially in emerging economies. This column argues that an output drop alone increases the risk of foreign default, while a sudden expenditure hike alone increases the risk of domestic default. Thus, given the double nature of the Covid shock, recent proposals that would ease the burden of foreign debt after COVID-19 in emerging economies are necessary but may not be sufficient to prevent a wave of defaults on domestic debt.

De Grauwe, Ji, 24 September 2020

The coronavirus pandemic caused a catastrophic collapse in the world economy. This column analyses the path of this decline and compares it to two other major global crises: the Great Depression in the 1930s and the Great Recession following the banking crisis of 2007-2008. It argues that COVID-19 led to both negative demand and supply shocks, resulting in a contraction of industrial production at an unprecedented pace. However, a combination of strong government policies and a functioning banking sector have led to a swifter rebound in economic activity following the coronavirus shock in comparison with the previous two crises.

Akcigit, Ates, Lerner, Townsend, Zhestkova, 24 September 2020

The US military community has highlighted the potential security threat posed by foreign venture investments in Silicon Valley, particularly from Chinese stakeholders. This column presents a theoretical and empirical analysis of the relationship between venture capital and national security, focusing on the ability of overseas firms to gain a domestic technological advantage through investing in the US tech sector. The growing importance of this the technology sector, as well as the national security issues at stake, mean that understanding the correlations is a vital avenue of future research.

Clayton, Higgins, 23 September 2020

After Brexit, the UK government will enjoy greater freedom to encourage domestic consumers to “Buy British”. But as this column explains, attempts by successive UK governments in the 1970s and early 1980s to initiate such import substitution policies were fraught with economic and legal difficulties. Indeed, accelerating globalisation and the rapid growth of imports in intermediate products for assembly into ‘British’ goods raise significant problems in defining a ‘national’ product – and the growth of tradable services (such as insurance, education and healthcare) presents an even more intractable problem.

Barrero, Bloom, Davis, 23 September 2020

The COVID-19 pandemic triggered a sudden, massive shift around the world to working from home. While there is great concern how this will affect inequality and how the economy will adjust, the shift has also saved billions of hours of commuting time in the US alone. Drawing on original surveys, this column estimates that the shift to working from home lowers commuting time among Americans by more than 60 million hours per workday. Americans devote about a third of the time savings to their primary jobs and about 60% to other work activities, including household chores and childcare. The allocation of time savings differs substantially by education group and between persons with and without children at home.

Bajzík, Havranek, Irsova, Schwarz, 23 September 2020

A key parameter informing policy models in international economics is the elasticity of substitution between domestic and foreign goods, also known as the Armington elasticity. Yet elasticity estimates have varied widely since Armington’s seminal 1969 contribution. This column considers 3,524 previous estimates and discusses how these historical analyses can be corrected for various biases. The previous research implies that the elasticity lies in the range 2.5-5.1 with a median of 3.8. In a simple model this translates to a trade cost elasticity of 2.8. 

Yu-Cheong Yeung, 23 September 2020

In a crisis, do we get nostalgic about music? Timothy Yeung tells Tim Phillips about Spotify data that suggests we look for comfort by seeking out songs we know.

Aspachs, Durante, García-Montalvo, Graziano, Mestres, Reynal-Querol, 22 September 2020

The economic crisis from the COVID-19 pandemic may disproportionately affect the most vulnerable segments of the population, creating serious challenges for social cohesion and political stability. This column constructs a high-frequency measure of income inequality using anonymised data from bank records on the wages and public transfers of over three million account holders in Spain. Wage inequality increased by almost 30% during the COVID-19 crisis, mainly due to job losses and wage cuts for low-income workers. However, public transfers were very effective at offsetting most, though not all, of this increase.

Alon, Doepke, Olmstead-Rumsey, Tertilt, 22 September 2020

Unlike any other modern recession, the downturn triggered by the Covid-19 pandemic has created larger employment losses for women than for men. Based on data from all US recessions since 1949, this column shows that the 2020 recession deviates most sharply from the historical norm in its disparate gender impact. The fact that job losses are much higher for women not only matters for gender equality, but will also reduce families’ ability to offset income losses, producing a deeper and more persistent recession.

Getachew, 22 September 2020

During the COVID-19 pandemic, policymakers have often relied on epidemiology models to track the spread of the outbreak. However, such models lack the necessary tools to account for individual behaviour potentially influencing the dynamics of the pandemic. This column integrates individual economic decision-making and voluntary social distancing into these models. It argues that voluntary social distancing is important for both flattening the infection curve and minimising economic damage. Although government-enforced social distancing is much more effective in flattening the curve, it comes at a higher cost to the economy.

Rothert, Brady, Insler, 22 September 2020

While individual states in the US decide their own lockdown policies, they are not able to restrict travel across their borders. A lax policy in some states can thus exacerbate the outbreak in other states. Drawing on recent research and county- and state-level US data, this column examines just how big the problem is. It finds that epidemiological spillovers across the US states are substantial and lax policies in the most lenient states translate into millions of additional infections in other parts of the country in the long run.

Le Pennec, Pons, McIntyre, 22 September 2020

The first televised debate between US President Donald Trump and Democratic challenger Joe Biden will take place next week. But while it is being portrayed as a make-or-break moment in the campaign, this column argues that TV debates between candidates do not substantially impact vote choice. Instead, a campaign wishing to sway last-minute voters might do better by focusing on individual outreach – a challenging prospect, given the Covid-19 pandemic.

Ndiaye, Ravn, 21 September 2020

The open-access Virtual Macro Seminar Series (VMACS) started in March 2020 as a response to the Covid-induced lack of standard academic seminars, but the organisers quickly spotted a bias towards senior academics in this new virtual format. To address this and the lack of minority representation typical of macroeconomics conferences, the organisers of the VMACS Junior Macro Conference experimented with a two-step double-blind review process. In this column, two programme committee members describe how the result was a high-quality programme presented by economists from a diverse set of institutions. There is still room for improvement, however, and a double-blind review process by itself does not solve the broader issue of unequal representation in the economics profession.

Kanbur, 21 September 2020

From the public discourse, it seems clear that we are living in an age of rising inequality. However, common measures of income and consumption inequality disguise a more nuanced pattern of inequality change across the world. This column argues that inequality within countries has not been rising everywhere and that inequality between countries has decreased. At the same time, technological progress is increasingly displacing basic labour in favour of skilled labour and capital, across borders, and widening the wage gap. The overall effect is unclear. National policies to mitigate inequality are needed but, in the absence of international cooperation, are constrained by cross-border spillovers.

Drivas, 21 September 2020

European trademark applications are an indicator of business confidence. While they have not dropped during the first wave of Covid-19 in aggregate, some countries and types of business are more affected than others. The column uses data on applications to explore the detail, showing applications by Chinese firms, new firms, and firms in certain product sectors have risen. Services firms have made fewer applications. 

Bahaj, Reis, 21 September 2020

Only a handful of currencies are regularly used for cross-border payments, with the US dollar dominating almost any measure of international use. This column analyses the preconditions for a currency to achieve international status and asks whether government policies can assist in this process. Theoretically, it argues that international status depends on several thresholds, including a currency’s volatility, the size of the issuing country, and the borrowing costs involved. Empirically, it shows that swap line agreements signed by the People’s Bank of China significantly increase the likelihood of renminbi usage in the following months, signalling the effectiveness of this policy.

Koster, Dröes, 20 September 2020

Countries that invest in renewable energy production face frequent opposition from local homeowners. Using a detailed housing transactions dataset covering the whole of the Netherlands since 1985, this column compares the overall impact that wind turbines and solar farms have on housing prices. It finds that tall wind turbines (over 150 metres) have a negative effect, and solar farms generate losses as well (2-3% for homeowners within a 1km orbit). This evidence should be factored into finding the optimal allocation of renewable energy production facilities. 

Costa-Font, Levaggi, Turati, 20 September 2020

While competition between publicly funded hospitals seems to improve efficiency and the quality of care in ‘normal’ times, during a pandemic certain types of disintegrated hospital competition models can compromise the necessary stewardship of the system, and give rise to a larger number of fatalities. This column presents a regional comparison of the healthcare systems in three Italian regions that were severely hit at the beginning of the Covid-19 pandemic. The analysis suggests that an integrated model can provide a swifter reaction to an outbreak by minimising coordination efforts as well as  information costs.

Escudero, Liepmann, 19 September 2020

Active labour market policies have the potential to improve workers’ employability, but a key challenge in developing and emerging countries is that without income support to cover their basic needs, many workers simply cannot afford to participate in such policies. This column examines the examples of Uruguay and Mauritius and finds that approaches combining both active labour market policies and income support are more effective in improving the labour market perspectives of vulnerable workers than the same policies implemented in isolation. However, the success of integrated policies clearly depends on design and implementation characteristics.

Auriol, Lassébie, Panin, Raiber, Seabright, 19 September 2020

The Pentecostal church is one of the fastest-growing segments of Christianity, including in sub-Saharan Africa. The church makes a strong and explicit link between ‘giving to God’ and future wellbeing; donations can be seen as a form of insurance for the future. This column tests how formal market-based insurance affects the demand for informal church-based insurance in Accra, Ghana. People enrolled in a formal insurance policy give less money to their church and to other charitable organisations.

Nolan, Palomino, Van Kerm, Morelli, 19 September 2020

Whether and how much intergenerational transfers contribute to wealth inequality is still subject to debate. This column analyses household survey data on inheritance and gifts inter vivos in France, Germany, Great Britain, Ireland, Italy, Spain, and the US to relate current household wealth levels and inequality to the receipt of intergenerational wealth transfers. In these countries, large transfers increase overall wealth inequality. Strengthening taxation capacity and instating lifetime capital acquisitions tax for gifts and inheritances may help counter the dis-equalising effect of intergenerational transfers.

Dieppe, 18 September 2020

Since the 2008 global financial crisis, improvements in many key correlates of productivity growth have slowed or gone into reverse, and labour reallocation to more productive sectors from less productive ones has also weakened. Furthermore, the pace of convergence of emerging market and developing economies to advanced-economy productivity levels has slowed. This column argues that the COVID-19 pandemic is likely to compound the slowdown, with profound implications for development outcomes. A comprehensive broad-based approach is necessary to rekindle productivity.

Codogno, Corsetti, 18 September 2020

The EU Recovery Plan agreed upon in July 2020 supports investment activity through grants and loans to member states at close-to-zero interest rates. This column suggests that its implementation could give a substantial boost to the economy and fiscal revenues under very conservative assumptions on multipliers. In addition, as the ECB is keeping interest rates and government bond yields low, also through its asset purchase programmes, if it refrains from reacting forcefully to potential upward pressures on prices caused by the massive fiscal stimulus, even a gradual and delayed ‘normalisation’ of interest rates would not undermine debt sustainability. 

Del Negro, Lenza, Primiceri, Tambalotti, 18 September 2020

The analysis of inflation dynamics and their possible changes over time is a key input in the design of monetary policy, particularly in the context of the strategy reviews recently undertaken by the Federal Reserve and currently under way at the ECB and other central banks. This column studies the causes of the stability of US inflation over the business cycle since the 1990s. It concludes that the stability is mainly due to a reduced sensitivity of firms’ pricing decisions to their cost pressures. Ignoring this observation could impair the ability of monetary policy to steer inflation toward its objective.

Ioannou, Pagliari, Stracca, 18 September 2020

The debate over the incomplete and fragile nature of Europe’s Economic and Monetary Union has been revived by the Covid-19 pandemic. This column shows that adverse shocks within EMU can be identified and are transmitted to the rest of the world, with implications for economic activity and trade in advanced and emerging economies. Despite the important steps taken during the pandemic by euro area authorities, the drive to complete EMU with a genuine fiscal and financial union needs to continue for the sake of both the euro area and the rest of the world.

Heinz, 18 September 2020

Do scandals happen in banks because they recruit people who can't be trusted? Matthias Heinz tells Tim Phillips about new research with a sobering message for bank HR departments. 

Pereira, Tavares, 17 September 2020

Crises such as the sovereign debt crisis and the current Covid-19 crisis place significant pressure on European institutions, raising scepticism over policy decisions and speculation as to how member states’ differing needs are taken into account. This column uses estimated counter-factual country-specific interest rates to extract the country weights implicit in the ECB’s conventional monetary policy. Germany, Belgium and the Netherlands are associated with the largest weights, and Greece and Ireland with the smallest. Nonetheless, the weights of the larger economies are smaller than their output and population shares. The results change minimally when the crisis period is compared with the period before. In sum, while weights differ across countries, they do not seem to unduly weigh larger economies. Further, estimated country weights are positively correlated with the degree of co-movement between each country’s and Germany’s business cycles.

Gradzewicz, Mućk, 17 September 2020

There has been a lively debate concerning the dynamics of markups. This column contributes to this debate by studying the relationship between globalisation and monopolistic markups in Poland. It highlights important non-linearities leading to an uneven  distribution of the effects of global value chains for participating firms, with lowest benefits found for firms in the middle of the production chain where goods are highly standardised and substitutable. It also documents a fall in markups for Poland which can be explained by rising dependence on imported intermediates in export-oriented production and fiercer competition of domestic firms on export markets.

Advani, Koenig, Pessina, Summers, 17 September 2020

Top incomes have grown rapidly in recent decades and this growth has sparked a debate about rising inequality in Western societies. This column combines data from UK tax records with new information on migrant status to show that that migrants are highly represented at the top of the UK’s income distribution. Indeed, migration can account for the majority of top-income growth in the past two decades and can help explain why the UK has experienced an outsized increase in top incomes.

Kleinman, Liu, Redding, 17 September 2020

The increasingly prominent role of China in the world economy has led to widespread discussions concerning the balance of power, trade relations, and economic development. This column presents a new ‘friends and enemies’ model which is used to show that significant growth and welfare effects have stemmed from China’s shifting role, and that changes in trading clusters have varied across different sectors. The findings also suggest that as countries become less economically friendly in terms of the welfare effects of their productivity growth, they also become less politically friendly in terms of foreign policy. 

Adda, Decker, Ottaviani, 16 September 2020

There is much riding on the clinical trials currently in search of a COVID-19 vaccine. But for a vaccine to do more good than harm, researchers must remain free from conflicts of interest that could undermine their integrity. This column analyses trial results reported to the ClinicalTrials.gov registry. It finds reassuring evidence for the reliability of ongoing clinical research, but also identifies subtle patterns that regulators should monitor with care, paying particular attention to enforcing the transparency of trials sponsored by smaller companies.

Fabra, Motta, Peitz, 16 September 2020

The COVID-19 crisis has demonstrated the importance of preparing for pandemics and other catastrophic events that require the quick availability of some essential goods and services. Relying only on private incentives and market forces would be insufficient. Instead, governments and preferably supranational institutions should design and implement prevention, detection and mitigation measures. This requires putting in place competitive mechanisms to accumulate essential goods, establishing rationing protocols, and facilitating the ramping up of production when the crisis hits. In particular, public institutions should secure the provision of essential goods in sufficient quantity and quality at a reasonable cost. A new CEPR Policy Insight argues that the economics of electricity capacity markets provides important lessons for such a provision.

Fuchs, Kaplan, Kis-Katos, Schmidt, Turbanisch, Wang, 16 September 2020

China assumed an important role during the worldwide outbreak of COVID-19 as the main exporter of critical medical goods such as face masks and disinfectants. However, shipments of medical goods have been turned into propaganda campaigns by Chinese state media, raising the question if access to medical goods is granted upon political goodwill. This column uses official monthly trade data from Chinese Customs to investigate the emerging trade patterns, both for commercial exports and donations of medical goods. It shows that both existing trade linkages and political ties to Chinese provinces can help to attract Chinese medical goods.

Chen, Ioannides, 15 September 2020

With the COVID-19 pandemic raging at the beginning of the summer of 2020, countries that depend heavily on international tourism were confronted with the dilemma of whether or not to let travel restart. This column uses international data to explore the relationship between tourism specialisation and short-run economic growth. The results suggest that a 1% increase in tourism specialisation is associated with 0.01 percentage point increase in the growth rate of GDP per capita for OECD countries. This is in line with previous findings but is based on up-to-date panel data.

Bhattacharya, Rabovic, 15 September 2020

The balance between merit and diversity in university admissions is a controversial issue, but statistical analysis is challenging because applicant characteristics are only observed by admissions officers and post-entry test scores are only available for those who were admitted. This column uses a novel, outcome-based test of merit-based admissions at Cambridge University, where some applicants enter via a second-round clearing mechanism from a ‘pool’, to bypass the non-observability problems. The test reveals robust evidence of higher admissions standards for men in STEM and economics, and weak evidence of the same for private school applicants. The gender gap is non-evident in law and medicine.

Adams-Prassl, 15 September 2020

Abigail Adams-Prassl (University of Oxford) talks to Tim Phillips about recent research on the UK's furloughed workers, including who exactly has been furloughed, what effect this had on whether they actually continued to work or not and what the likely prospects are for their employment going forward. 

This is an audio-only version of Vox video interview The UK's furloughed workers: Who, why, what next?

Angeloni, 14 September 2020

The long-awaited outcome of the Federal Reserve’s monetary strategy review is finally out. This column argues that while the ‘Powell doctrine’ responds to a genuine need to address issues in the Fed’s policy framework, it also introduces complexities in the interpretation and implementation of monetary policy which are likely to become more apparent over time. The hurdles involved do not have easy solutions, and other central banks pondering their own monetary policy framework are well advised to take heed.

ElFayoumi, Hengge, 14 September 2020

The COVID-19 pandemic and associated policy responses triggered a historically large wave of capital reallocation between markets, asset classes, and industries. This column uses high-frequency data to show that capital market dynamics were not exclusively driven by undiscriminating global factors. Instead, the degree of the spread of the virus, the stringency of the lockdown, and the fiscal policy response played key roles in explaining the wide heterogeneity in international portfolio flows across countries, particularly for emerging markets.

Immordino, Berlin, Russo, Spagnolo, 13 September 2020

Domestic violence appears to have surged during the Covid-19 crisis in almost all countries. This column argues that dwindling prostitution markets during the lockdown might be partly responsible for the surge. Analysing the effects of the one-sided criminalisation of prostitution introduced in Sweden in 1999, it finds that the law reduced street prostitution but increased domestic violence against women outside the prostitution market. This evidence suggests that the freeze of sex markets caused by the Covid-19 crisis might have contributed to the observed spike in domestic violence. 

Argente, Hsieh, Lee, 13 September 2020

Cross-country price indexes are an essential tool for comparing living standards in different countries. But those indexes are constructed from data that does not always account for heterogeneity in shopping behaviour, the uneven quality of products, and variety availability. This column compares barcode-level data on prices and quantities for consumer packaged goods in the US and Mexico, and finds that Mexican real consumption relative to the US is larger than previously estimated. It highlights the importance of addressing sampling, quality, and variety biases in international price comparisons.

Armelius, Claussen, Reslow, 12 September 2020

While the ratio of physical cash to GDP has increased in most countries over the last years, it has fallen dramatically in Sweden. This column argues that rather than being ahead of the curve, a unique combination of events and policy measures have led to the falling cash demand in Sweden. Among those are measures to reduce tax evasion and the informal sector, an aggressive notes changeover, the introduction of an electronic payment app, the withdrawal of central bank subsidies to cash distribution, and a track record of protecting commercial bank money during crises.

Juranek, Paetzold, Winner, Zoutman, 12 September 2020

Sweden attracted international attention for not imposing a strict lockdown after the outbreak of COVID-19. This column analyses the labour market effects of this strategy by comparing unemployment and furlough spells in Sweden to three of its Nordic neighbours. The evidence suggests that the labour markets of all countries were severely hit by the pandemic, but Sweden performed slightly better than its neighbours. 

Blundell, Borella, Commault, De Nardi, 11 September 2020

As populations age in many countries, the risks associated with health shocks become increasingly important. Health shocks can affect consumption by changing a household’s available resources and/or the marginal utilities of different goods. This column quantifies the response of consumption to health shocks and uses a structural model to disentangle the two mechanisms above. It shows that temporary changes in health are associated with significant changes in non-durable consumption, with stronger effects in low-wealth households. In addition, the marginal utility channel is significantly stronger in explaining these effects than through households’ resources. 

Fell, Mazzaferro, Portes, Schaanning, 11 September 2020

On 23 July 2020, the European Systemic Risk Board published a technical note summarising the findings of a cross-sectoral, top-down analysis that sought to quantify the aggregate potential impact of large-scale corporate bond downgrades. This column summarises the main findings of the exercise, provides a rationale for such analyses, and suggests repeating such system-wide exercises regularly and on a global level to uncover vulnerable links and improve institutions’ own risk management. 

Drechsler, Savov, Schnabl, 11 September 2020

In a recent speech in Jackson Hole, Fed Chair Jay Powell laid out the Fed’s new monetary policy framework.  Under this framework, the Fed will allow inflation to run above its 2% target in order to boost employment following a downturn.  The new framework marks a departure from the perceived wisdom of the 1970s’ Great Inflation.  Under this perceived wisdom, the Fed must respond aggressively to rising inflation or risk losing its credibility and letting inflation spiral out of control.  New research on the Great Inflation challenges this perceived wisdom and offers a new explanation for what really drives inflation.  Instead of Fed credibility, this explanation puts the financial system and how it transmits monetary policy front and centre.  In doing so, it reconciles the 1970s with the current environment and provides a foundation for understanding why the Fed’s new framework is unlikely to trigger runaway inflation.

Ager, Cinnirella, 11 September 2020

At the beginning of the 20th century more than 7,000 kindergartens were set up in the US. Philipp Ager and Francesco Cinnirella tell Tim Phillips about the profound effect of preschool on the life chances of a generation of immigrants.

Inada, Jinji, 10 September 2020

Policy uncertainty is believed to affect foreign direct investment significantly, but, empirical evidence on the impact is scarce. This column proposes a unique empirical strategy for identifying the impact of a change in policy uncertainty on FDI at the sector level by utilising information about reservations of certain obligations contained in international investment agreements. It provides evidence that policy uncertainty discourages FDI. Policy uncertainty will continue to rise in the post-COVID-19 era, and the results highlight the importance of aligning globalisation with the mitigation of public health threats by implementing policies to reduce uncertainty.

Guerreiro, Rebelo, Teles, 09 September 2020

Immigration policy has become a hot-button issue in both Europe and the US, with questions concerning optimal policy as well as the welfare state dominating discussions. This column revisits the idea of the immigration surplus, exploring a number of possible scenarios in terms of how policymakers should address the challenge. Correctly configuring fiscal policy so as to capture the benefits of both high- and low-skill immigrant (and native) workers is at the heart of optimal policy design and may help to address the swelling anti-immigrant sentiment that continues to exist in many countries today. 

Coibion, Gorodnichenko, Weber, 08 September 2020

A major component of the 27 March CARES Act in the US was a one-time transfer to all qualifying adults of up to $1200, with $500 per additional child. Using a large-scale survey of US consumers, this column studies how these large transfers affected individuals' consumption, saving and labour supply decisions. Most respondents report that they primarily saved or paid down debts with their transfers, with only about 15% reporting that they mostly spent it. On average, individuals report having spent or planning to spend only around 40% of the total transfer. The payments appear to have had no meaningful effect on labour-supply decisions from these transfer payments, except for 20% of the unemployed who report that the stimulus payment made them search harder for a job.

Adam, Henstridge, Lee, 08 September 2020

The small open economies of sub-Saharan Africa are substantially constrained in their ability to respond to the COVID-19 shock through fiscal adjustment. The scale of contraction in external demand, combined with limited fiscal space, means that without substantial external support, feasible policy packages in many of these countries translate to austerity programmes. This column uses a dynamic general equilibrium model calibrated to data from Uganda to characterise the macroeconomics of the pandemic and its aftermath in sub-Saharan Africa. It finds that the recovery depends significantly on how the public finances are restored to sustainability, and may be accelerated with external support.

Calmfors, 08 September 2020

Assar Lindbeck, who died on 28 August, aged 90, was for decades Sweden's leading economist. As a research entrepreneur, he developed the Institute for International Economic Studies (IIES) at Stockholm University to an internationally prominent research institution, he was instrumental in creating the Nobel Prize in economics, and he reformed and internationalised the country’s economics PhD teaching. His own research spanned monetary and fiscal policy, the welfare state, the importance of social norms and the labour market – and he also played a key role in both Swedish and international public debates on these issues. He always emphasised that economists should both do research at the international frontier and participate actively in the policy debate – and that these two activities should cross-fertilise one another.

Button, Rojicek, Waldron, Walker, 07 September 2020

The spread of Covid-19 and the measures taken to contain it have led to a sharp fall in economic activity, which has put pressure on many companies’ cash flows.  This column estimates a cash flow deficit summing to £135 billion for the 2020-21 financial year for mid-size and large UK companies. Supported by public policy, UK companies have already raised a large amount of external finance, providing them with liquidity to help bridge some of the disruption.  But additional liquidity will be required and equity finance will likely be important during the recovery phase.

Felbermayr, Gröschl, Heiland, 06 September 2020

Rising anti-European sentiments over the past decade have prompted economists to assess the economic consequences of undoing Europe. Focusing on trade, this column uses a state-of-the-art sector-level gravity model to estimate the cost savings achieved through each individual step of integration and then simulate the economic consequences of reversing those steps. The results suggest that if all steps were to be reversed, EU manufacturing exports would drop by 26% and services exports by 12%. A complete breakdown of the EU would also generate significant real consumption losses for all EU members, with small open economies and younger and poorer EU members from central and Eastern Europe having the most to lose.

Lotti, 05 September 2020

More than half of all young offenders in the US are rearrested within the first year of their release from prison. And yet, the relationship between crime and punishment remains understudied. This column examines three quasi-experiments and the criminal records of 6,444 offenders in England and Wales to compare the effects of harsh versus rehabilitative incarceration practices. The findings suggest that young offenders sent to rehabilitative facilities are less likely to reoffend, while those exposed to harsher facilities are 27% more likely to reoffend, and also more likely to commit future violent offences. 

Papageorge, Zahn, Belot, van den Broek-Altenburg, Choi, Jamison, Tripodi, 05 September 2020

Individual behaviours affect the spread of infectious disease. This column examines factors that predict individual behaviour during the COVID-19 pandemic in the US using novel survey data. People with lower income and less flexible work arrangements are less likely to engage in behaviours that limit the spread of disease. The burden of measures to stem the pandemic is unevenly distributed across socio-demographic groups in ways that affect behaviour and potentially the spread of illness. Policies that assume otherwise are unlikely to be effective or sustainable.

Essers, Grigoli, Pugacheva, 04 September 2020

Knowledge and ideas – spread, among other channels, through the publication of research papers – are considered key contributing factors to economic growth. In recent years, research papers have increasingly been produced through collaborations among researchers. This column presents evidence on the importance of network effects for starting and maintaining research collaborations. Based on the IMF working papers co-authorship network, it finds that researchers closer to each other are significantly more likely to collaborate. Hence, incentives aimed at connecting researchers and spurring collaborations are likely to result in more dynamic knowledge generation, in turn promoting economic growth.

Tenreyro, 04 September 2020

Understanding the nature of the global economy remains an important and interesting topic of discussion for both policymakers and researchers. This column presents a summary of two recent evaluations of aspects of the open economy. The author summarises work concerning global currencies and trading networks, offering insights into how the research agenda on each area may evolve over the coming years. 

Lu, 04 September 2020

Many Americans blame China for Covid-19. Runjing Lu tells Tim Phillips that the way politicians have exploited the pandemic has led to an increase in prejudice against the US Asian community.

Allen, Čapkun, Eyal, Fanti, Ford, Grimmelmann, Juels, Kostiainen, Meiklejohn, Miller, Prasad, Wüst, Zhang, 04 September 2020

Many central banks are considering, and some are even piloting, central bank digital currency. This column provides an overview of important considerations for central bank digital currency design. While central banks already provide wholesale digital currency to financial institutions, a retail central bank digital currency would expand access to more users and provide opportunities for innovative central banking. The design must balance these benefits with the potential risks created by retail central bank digital currency deployment.  

Mathur, Sengupta, 03 September 2020

Since the 2008 Global Crisis, significant attention is paid to central bank communication, especially for countries with an inflation targeting mandate. This column analyses the monetary policy statements of the Reserve Bank of India, which formally adopted inflation targeting in 2016. It finds that the length of statements has dramatically declined, the linguistic complexity has improved, and the content is more focused on inflation topics since the regime change. In addition, there is a strong relationship between the length of statements and stock market volatility, highlighting the real impacts of effective communication.

Lonergan, Greene, 03 September 2020

The low interest rate environment since the Global Financial Crisis has led economists and analysts to suggest that major central banks have run out of monetary policy tools with which to face major downturns, including the Covid-19 crisis. This column argues that a dual interest rate approach could help to eliminate the effective lower bound and given central banks infinite fire power. By employing dual interest rates, central banks can go beyond targeting short-term interest rates and providing emergency liquidity to provide a stimulus across the economy. As political support for fiscal stimulus in the face of the Covid-19 crisis wanes, central banks can and should step in with overwhelming force.

Dippel, Frye, Leonard, 03 September 2020

In 1887, the US government began allotting millions of acres of previously tribe-owned land to individual Native American households. The Indian Reorganization Act ended that policy in 1934, placing all allotted-trust land into trusteeship and creating a patchwork of land tenures that characterise reservations to this day. This column provides an empirical analysis of the impact that non-transferable property rights have on land cultivation, and suggests that either converting allotted-trust lands to private property or reverting the land to tribal control would improve on a system that severely impedes economic development.

Valsecchi, Durante, 02 September 2020

Many internal migrants returned to their place of origin after the initial outbreaks of COVID-19 and before national lockdowns were in place. Has this behaviour contributed to the further spread of the pandemic and to its heavy death toll? Looking at the case of Italy and using data on the place of origin and destination of internal migrants, this column finds that provinces more exposed to return migration from areas hit by the pandemic earlier on experienced considerably more COVID-19 deaths in the ensuing months.

Adams-Prassl, Boneva, Golin, Rauh, 02 September 2020

Working from home during the Covid-19 pandemic has provided shelter from both the health risks and the economic shock brought about by the pandemic. This column uses survey data from the US and the UK to demonstrate systematic variation in individuals’ ability to work from home both across and within occupations and industries. In addition, men and workers with a college degree can do a substantially higher share of their tasks from home, while workers on low incomes report being able to do a smaller share. This polarisation has increased over the course of the pandemic, as workers who were already able to carry out a large share of tasks remotely have become able to do even more from home.

Aghion, Amaral-Garcia, Dewatripont, Goldman, 01 September 2020

While EU countries have been able to rely on a more resilient social model and a science-based approach in managing the Covid crisis more successfully so far than the US, Europe has fallen short in matching the US effort to incentivise Covid vaccine innovation. This is due to a lower level of financial investment and also an inability to ensure coordination across different (national and European) funding schemes. This column calls for the creation of a European equivalent to the US Biomedical Advanced Research and Development Authority to tackle these problems, thereby strengthening European industries' leadership in vaccine research and innovation.

Handley, Kamal, Monarch, 01 September 2020

The rise of global supply chains means that many firms that import are also exporters. This column uses confidential firm-trade linked transaction data to identify the firms facing new US import tariffs in the period 2018-2019. It shows that product exports with higher firm-level exposure to new import tariffs had weaker export growth after 2018 than less exposed products. This impact on export growth is equivalent to an ad valorem tariff on US exports of 2-4% for the average product.

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