October 2020

Barrera-Osorio, Kugler, Silliman, 24 October 2020

Policymakers are growing increasingly interested in the effects of vocational training on labour market outcomes. This column uses an experimental design to test whether technical and/or soft skills can sustain the returns from vocational programmes. Using survey and administrative data, it finds large and persistent positive effects of training on employment and wages. In addition, an emphasis on technical skills increases short-term outcomes, while soft skills training improves labour market dynamics in the long run. Finally, resource constraints may be an important obstacle for obtaining such training, particularly for lower-income households.

Galbiati, Henry, Jacquemet, Lobeck, 24 October 2020

In order to promote social distancing to contain the spread of Covid-19, governments introduced strict regulations. This column uses interviews from before the 23 March announcement of a nationwide UK lockdown and after the announcement to show that the introduction of the new laws affected the perception of social norms regarding the various containment measures – that is, what people thought the prevalent norms were. This appears to have been the result of fewer misperceptions about the social norms after the introduction of the laws, rather than actual changes in the social norms. 

Capolongo, Eichengreen, Gros, 23 October 2020

Seeking to internationalise the euro is now an official policy of EU institutions.  But a constraint on wider use of the euro, by central bank reserve managers in particular, is the shortage of safe euro assets – a problem that is being made worse by the ECB’s asset purchase program. This column proposes a solution to this problem: issuance by the ECB of its own certificates of deposit.

Borri, Drago, Santantonio, Sobbrio, 23 October 2020

In response to the Covid-19 outbreak, many countries imposed lockdowns to control the spread of the virus. This column evaluates the Italian economic lockdown and its effect on mortality due to Covid-19. It finds that the intensity of the lockdown is associated with a significant reduction in mortality among people aged 40 and over, with larger and more significant effects for individuals over 50. Back-of-the-envelope calculations indicate that in the 26 days between 5 April and 30 April 4,793 deaths were avoided in the 3,518 municipalities which experienced a more intense lockdown.

Bargain, Aminjonov, 23 October 2020

As a second wave of COVID-19 threatens the health of communities across the globe, governments are considering another round of lockdowns. But the success of those policies will depend largely on the levels of compliance, which will in turn depend on the confidence that citizens have in their leaders. This column summarises the results of recent studies examining the effect of civic trust during the first wave of the pandemic. The evidence points to a higher rate of compliance with stay-at-home policies in regions with a higher level of long-term trust in politicians.

Padilla, Perkins, Piccolo, 22 October 2020

Alleged market abuse by technology firms with large bases of loyal customers has become a pressing policy concern. This column argues that significant consumer harm can result from the attempts of these ‘gatekeeper platforms’ to gain revenue from their installed bases of platform users at the expense of third-party firms offering complementary services. The authors suggest possible ways forward for competition authorities currently considering new regulation of digital markets.

Pradelski, Oliu-Barton, 22 October 2020

On 13 October 2020, EU member states agreed to common criteria for mapping epidemiological risk and to implement non-discriminatory travel restrictions. The strategy agrees in its key aspects with the concept of green-zoning introduced in the original version of this column, which was published in April and circulated to European decision makers. It is based on four principles: (1) divide each country into smaller zones; (2) label zones green if the virus is under control, and red otherwise; (3) adopt colour-dependent public health measures; (4) allow free travel between green zones, but control other travel. This approach is aimed at curbing the spread of the virus while ensuring lasting economic recovery.

Tovar Jalles, de Mello, 22 October 2020

Widening income disparities and slow productivity growth in many countries have rekindled interest in the policies that can deliver strong and equitable growth in output and living standards. This column presents a chronology of inclusive growth episodes, defined as increases in GDP per capita without a concomitant deterioration in the distribution of household disposable income. These episodes are more likely to occur where human capital is high, tax-benefit systems are more redistributive, productivity grows more rapidly, and labour force participation is high. Trade openness and a range of institutional factors, including political system durability and electoral regimes, also matter.

Baranowski, Doryń, Łyziak, Stanisławska, 22 October 2020

To achieve macroeconomic stabilisation, central banks attempt to manage the expectations of the private sector. Decisions on short-term interest rates and communication can both impact expectations, but communication is especially important under the effective lower bound, when the room to move interest rates down is limited. Using data from Poland, this column shows that while monetary policy shapes the expectations of the private sector through both communication and interest rate decisions, the impact can differ depending on the variable forecasted and on the forecasting horizon.

Degorce, Monnet, 21 October 2020

The surge in savings following the 2008-2009 Global Crisis and the recent pandemic have rekindled the interest of economists and policymakers in the paradox of thrift, formulated by Keynes in the 1930s. Subsequent research on the Great Depression of the 1930s, however, has not addressed the link between precautionary savings and growth. Using data on deposits in savings institutions of 22 countries, this column studies the fate of savings during the Great Depression and shows that Keynes' intuition was right. Banking crises had an impact on economic growth not only through the direct lending channel, but also indirectly through an increase in precautionary savings. This bears important lessons for today.

Dedola, Georgiadis, Gräb, Mehl, 21 October 2020

Since the onset of the Global Crisis in 2008, central banks around the world have rolled out a broad array of quantitative easing measures, resulting in dramatic expansions of their balance sheets. This column reveals that that these policies have had large and persistent effects on the dollar/euro exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance also affect the response of the dollar/euro exchange rate to quantitative easing.

Eggertsson, Egiev, Lin, Platzer, Riva, 21 October 2020

The Federal Reserve has recently announced a new policy strategy of average inflation targeting. The column argues that while this is unambiguously a positive step, it may not – under all circumstances – subscribe to a sufficiently aggressive make-up strategy when the zero lower bound is binding. This is particularly likely to be the case if episodes of high unemployment are not associated with material fall in inflation, a scenario that seems empirically relevant. The authors suggest alternatives that could do better, such as a targeting rule that treats the dual objective of the Federal Reserve in a symmetric way, or one that aims at minimising cumulative deviation of nominal GDP from trend.

Ananyev, Poyker, Tian, 20 October 2020

The death toll in the US from Covid-19 is much higher than that of many other developed nations. This column investigates how the conservative media has affected containment efforts in the country during the pandemic. Using smartphone data to measure mobility and social distancing combined with data on the historical line-up of cable channels as the source of variation in viewing habits, it shows a corelation between exposure to Fox News, smaller reductions in distance travelled, and less inclination to heed public health guidelines. Political polarisation and the politicisation of science thus appear to have harmed containment efforts in the US.

Micossi, 20 October 2020

As the world comes to terms with a post-Covid reality, the euro area must confront its growing fiscal and sovereign debts. This column argues that common euro area policies are justified in order to address sovereign debt externalities and risks to financial stability. It considers a mechanism involving large transfers of euro area sovereigns from the ECB to the ESM as a possible way forward.

Nakamura, Ohashi, 20 October 2020

Recent studies have shown average firm markups increasing in the US and other developed countries, driven by a small share of ‘superstar’ firms which have expanded their market shares and consolidated technological advantages. This column uses firm-level data to show that similar trends in markups are missing in Japan. In addition, intangible capital investments do not boost market power in the country. Instead, a strong predictor of average markup in Japan is firm age, with older firms enjoying significantly higher market power. 

Chudik, Mohaddes, Pesaran, Raissi, Rebucci, 19 October 2020

The Covid-19 pandemic is unprecedented in its global reach and impact, posing formidable challenges to policymakers and to the empirical analysis of its direct and indirect effects within the interconnected global economy. This column uses a ‘threshold-augmented multi-country econometric model’ to help quantify the impact of the Covid-19 shock along several dimensions. The results of the analysis show that the global recession will be long lasting, with no country escaping its impact regardless of their mitigation strategy. These findings call for a coordinated multi-country policy response to the pandemic.

Giommoni, Loumeau, 19 October 2020

During the COVID-19 outbreak many countries responded with the introduction of social containment measures, but the effects of these ‘lockdown’ policies are unclear. This column examines the electoral impact of the lockdown in France. Focusing on differential restriction measures implemented across French departments, it looks at voting behaviour in the pre-lockdown first round of municipal elections and in the second round after lockdown was implemented. Lockdown regulations appear to have significantly affected electoral outcomes, with higher vote shares for the incumbent and higher voter turnout in localities under harder restrictions.

Hinnosaar, Liu, 18 October 2020

Alcohol is one of the leading killers among substances, but little is known how various factors interact to affect individual alcohol consumption. This column explores how much the environment –, including supply conditions, alcohol regulation, taxes, and peers – drives alcohol consumption, by analysing changes in alcohol purchases when US consumers move from one state to another. The current environment explains about two-thirds of the differences in alcohol purchases, with consumers’ alcohol purchases converging sharply toward the average purchase level in their destination state right after moving.

Aşik, Karakoç, Pamuk, 17 October 2020

Unlike for developed countries, only a limited number of studies exist on the long-term evolution of regional inequalities in today’s developing countries. With the help of a novel dataset, this column examines the evolution of regional income inequality within present-day borders of Turkey. It finds an inverse U-shaped pattern for regional disparities since 1880, with a peak at around 1950 (although the East lagged further behind until the end of the 20th century). A combination of causes led by geography, including proximity to Europe, structural change, industrialisation and agglomeration economies, as well as ethnic conflict and demographic movements, appear to be behind this pattern.

Koyama, 16 October 2020

Seven hundred years ago the worst pandemic in history killed almost half the population of Europe and the Middle East. Mark Koyama tells Tim Phillips about the centuries-long economic impact of the Black Death.

Inui, Takahashi, Ishida, 16 October 2020

Central bank digital currencies are currently being considered by many central banks around the world. This column advocates the introduction of an Asian digital common currency as a multilateral synthetic currency comparable to the euro. It argues that the benefits it would bring – such as a deepening cooperation within multilateral frameworks and the protection of the rights of small and medium-sized countries – are greater than the disadvantages of inefficiencies in multilateral frameworks. 

Ivaldi, Palikot, 16 October 2020

Sharing a ride with a stranger during a pandemic involves a health hazard. This column studies whether drivers price such risks, and how perceived risks shape attitudes towards ethnic minorities. Using data collected from a ridesharing platform in France, it finds a correlation between geographical variation in the intensity of Covid-19 outbreaks, the use of ridesharing, and the level of prices. The data also show a simultaneous increase in the number of ethnic minority passengers and signs of discrimination against passengers from minority communities.

Holmes, Magntorn Garrett, Rollo, 15 October 2020

The global economy appears to be shifting from a rules-based to a power-based trading system. This column argues that a high degree of coherence in the values projected by its member states can help the EU harness its soft power to promote its policy objectives externally. Using a similarity index to explore the coherence of trade-related aid objectives between the institutions of the EU and four key member states, it finds what the authors call a ‘positive complementarity’, whereby EU institutions and the member states currently promote similar but not identical aims.

Antràs, Redding, Rossi-Hansberg, 15 October 2020

Throughout human history, globalisation and pandemics have been closely intertwined. This column introduces a theoretical framework to analyse the relationship between the two. Deepening global integration can either increase or decrease the range of parameters for which a pandemic occurs. For countries sufficiently similar to one another, globalisation increases the prevalence and severity of pandemics; for countries sufficiently different from one another, it reduces them. When agents internalise the threat of infection, trade flows (even as a share of output) are largely reduced but recover quickly after the pandemic.

Alfani, 15 October 2020

The relationship between pandemics and inequality is of significant interest at the moment. The Black Death in the 14th century is one salient example of a pandemic which dramatically decreased wealth inequality, but this column argues that the Black Death is exceptional in this respect. Pandemics in subsequent centuries have failed to significantly reduce inequality, due to different institutional environments and labour market effects. This evidence suggests that inequality and poverty are likely to increase in the aftermath of the Covid-19 crisis.

Lang, Mihalyi, Presbitero, 14 October 2020

To mitigate the effects of the Covid-19 crisis, the international community has endorsed a programme suspending debt service payments for poor countries. This column shows that the programme has led to a substantial decrease in sovereign borrowing costs by providing liquidity. Importantly, the results do not lend support to the widespread concern that such debt relief could generate stigma and signal debt sustainability concerns.   

Appelt, Bajgar, Criscuolo, Galindo-Rueda, 14 October 2020

Tax incentives have become the number one policy tool that governments use to encourage companies to invest in research and development. This column presents the results of a new analysis of firm-level records in 20 OECD countries, which suggests that, overall, R&D tax incentives are effective in boosting business R&D but their effectiveness differs sharply across firms of different sizes and across countries. Tax incentives are also better suited for supporting R&D projects closer to the market while direct government funding – such as through grants and R&D procurement – is more conducive to research that may not immediately result in new goods or services.

Carroll, Crawley, Slacalek, White, 14 October 2020

The 2020 US CARES Act aimed to bolster consumer spending. This column tests the effectiveness of the Act by modelling the spending and saving behaviour of households during the COVID-19 pandemic, differentiating between the employed, temporarily unemployed and persistently unemployed. In the case of a short-lived lockdown, it finds that the CARES Act should prompt a swift recovery in consumer spending. If a longer-lasting lockdown is imposed to combat a ‘second wave’ of the virus, an extension of enhanced unemployment benefits will likely be needed.

Bolton, Gulati, Panizza, 13 October 2020

The Covid-induced economic harm may soon result in multiple sovereign debtors moving into default territory – a situation that the global financial architecture is not built to tackle. This column makes the case for ex post state intervention in debt contracts to provide temporary legal protection to debtor countries while they divert resources to deal with the Covid-19 crisis. It shows that in the case of Greece, when such intervention was necessary, there were no negative spillovers on periphery euro area debt markets associated with the Greek ex post modification of contract terms.

Lesher, 13 October 2020

Many new innovations do not fit neatly into the traditional definitions of markets as recognised by existing regulatory bodies. One way policymakers can define new regulatory frontiers for such technologies is to implement ‘sandboxes’ – frameworks that provide participant companies with some regulatory flexibility while insulating the impact on consumers. This column argues that while sandboxes can bring benefits, they are not always the best approach and policy experimentation can – and should – take many forms.

Bighelli, di Mauro, Melitz, Mertens, 13 October 2020

Aggregate firm concentration has increased in Europe in the last decade. Using firm-level data, this column shows that concentration is positively associated with productivity at the sector level. As a result, rising concentration should not be viewed as conclusive evidence of a weak competitive environment and need not necessarily be a cause for concern. Rather, rising concentration may be a reflection of more efficient market processes. This has important consequences for industrial and antitrust policy, which must carefully evaluate the costs and benefits of increasing concentration.

Chuard, Grassi, 12 October 2020

Equal opportunities are not only ethically desirable but also important for economic growth, and one important facet is intergenerational income mobility. Using administrative data, this column documents intergenerational income and educational mobility in Switzerland. It finds that income mobility in Switzerland is high, but education depends strongly on parental income. It goes on to ask whether the country's vocational training and education system might be the primary reason for this ‘high income, low educational mobility’ conundrum. 

Minesso Ferrari, Mehl, Stracca, 12 October 2020

The majority of central banks around the world are working on their own digital currency. This column argues that central bank digital currencies would not only have domestic macroeconomic and financial implications for the issuing economy, they would also have implications for the rest of the world. In particular, the unique characteristics of a central bank digital currency, if used internationally, would create a new ‘super charged’ uncovered interest parity condition which would induce stronger international linkages in a quantitatively relevant way. 

Eichengreen, Gupta, Choudhary, 12 October 2020

Inflation targeting in India is a work in progress, but the interim assessment presented in this column suggests that significant progress has already been achieved to date.  This progress is evident in the reduced volatility of a range of inflation-related outcomes (the volatility of inflation, of inflation expectations, and of exchange rates and equity markets) and in the stronger anchoring of inflation expectations, which appears to have enhanced the ability of the Reserve Bank of India to respond to the exceptional shock of the COVID-19 pandemic. The Bank would appear to be one of a substantial number of inflation-targeting central banks that were able to respond more forcefully than their non- inflation-targeting counterparts.

Frohm, 11 October 2020

Until the outbreak of the Covid-19 crisis, wage growth had remained sluggish in many advanced economies, while labour markets appear to have improved substantially. This column argues that real-time indicators based on qualitative survey data provided an overly optimistic picture of labour market conditions in the aftermath of the Great Recession. A new establishment-level measure in Sweden, that utilises survey respondents’ quantitative assessments of labour shortages, overcomes some of the shortcomings of purely qualitative data and indicates that labour markets have typically been much weaker than initially assumed during the recovery. As labour shortages are strongly correlated with wage growth at the establishment level, their lower level can help explain why wage growth in Sweden has been sluggish. 

Hyun, Kim, Shin, 10 October 2020

During periods of turmoil such as the Covid-19 pandemic, firms with more resilient business models tend to survive and expand more than others. This column presents evidence that firms with higher global connectedness and market power are more resilient to domestic pandemic shocks. While global production and export networks expose firms to foreign pandemic shocks, they potentially make firms less susceptible to domestic pandemic shocks through diversification of suppliers and markets. In addition, higher market power could provide buffers by allowing bigger margins of adjustment. 

Akcigit, Pearce, Prato, 10 October 2020

For economies to innovate and grow past the COVID-19 crisis, policymakers have to understand the implications of various policies for innovation and economic growth, and take into account how people sort into professions and how potential scientists and innovators respond to policy. This column presents a comprehensive framework to study theoretically and empirically the role of education and R&D policies for boosting innovation and economic growth. It finds that policy tools in both education and R&D are complementary in developing talent, which is the key ingredient to innovation. The best mix of policies depends on how unequal society is and how urgently innovation is needed.

Rueda, 09 October 2020

Some ethnic groups are active in African politics, and some are not. Valeria Rueda tells Tim Phillips the fascinating story of how two socioeconomic revolutions more than a century ago shaped post-colonial political power.

Boz, Casas, Georgiadis, Gopinath, Le Mezo , Mehl, Nguyen, 09 October 2020

Most global trade transactions are invoiced in just a few currencies, regardless of the countries involved in the transaction. This column presents a new dataset that offers a comprehensive and up-to-date understanding of trade invoicing patterns within the major currencies. It finds that vehicle currency use has been on the rise, with dollar invoicing increasing over time despite the decline in the share of global trade accounted for by the US, and euro invoicing also rising among certain countries (typically at the expense of the dollar). 

Bloomfield, Marvão, Spagnolo, 09 October 2020

Theory suggests that the use of relative performance evaluation in managerial compensation should be widespread, but the evidence shows that this is not the case. This column argues that the potential for executives to seek to improve their relative standing by employing costly sabotage – for example, in the form of overly aggressive product market strategies – is an important deterrent to firms' use of relative performance evaluation. Explicit collusion mitigates this possibility, thereby facilitating more efficient risk-sharing between shareholders and executives.

Karaivanov, Lu, Shigeoka, 09 October 2020

The mandatory wearing of face masks remains a contentious policy issue during the COVID-19 pandemic. This column evaluates the impact of mask mandates on the spread of COVID-19 in Canada, using the different timings that masks were mandated across the 34 health districts of the province of Ontario. Mask mandates are associated with a 25% or larger weekly reduction in new COVID-19 cases in July and August, relative to the absence of mandates. Requiring indoor masks nationwide in early July could have reduced new COVID-19 cases in Canada by 25%–40% in mid-August, which translates into between 700 and 1,100 fewer cases per week.

Cerutti, Obstfeld, Zhou, 08 October 2020

Covered interest rate parity has been a central principle in international finance, but important departures have persisted since the Global Crisis. This column argues that several macro-financial factors – reflecting risk appetite, monetary policies, and financial regulations – correlate over time with the evolution of covered interest parity deviations. The failure of covered interest rate parity has several policy implications, ranging from the domestic and international transmission of monetary policies to inefficient market allocations.

Gentile, Miroudot, De Vries, Wacker, 08 October 2020

Rapid improvements in robot capabilities have fuelled concerns about the implications for jobs. This column examines the effect robots have had on jobs in industries across high-income and emerging countries from 2005 to 2015. The rise in robot adoption relates to a fall in the employment share of occupations that are intensive in routine tasks. This relation is observed in high-income countries, but not in emerging market and transition economies.

Colas, Sachs, 07 October 2020

There is a widespread perception that low-skilled immigration is a fiscal burden for society. This column incorporates indirect fiscal effects of immigration that arise in general equilibrium into various models that have been emphasised in the empirical immigration literature. It finds that the indirect fiscal effect is in fact positive, with one low-skilled immigrant in the US adding between $700 to $2,100 to the public finances through this channel each year.

Bierbrauer, Boyer, Peichl, 07 October 2020

The design of redistributive tax policies is an evergreen in the public discourse. This column proposes a new approach for the political economy analysis of tax policies based on examining the political support for reforms in contrast to the tax systems themselves. Focusing on monotonic tax reforms, it demonstrates that such reforms are only supported by a majority of the population if the voter with median income is among the beneficiaries. It also yields predictions on how sequences of politically feasible reforms should affect marginal taxes: (1) a shift towards lower marginal tax rates, even negative ones, for below median incomes; (2) pronounced progression for close to median incomes; and (3) a shift to higher and higher marginal tax rates for top earners, unless tax rates in the status quo are already over the top of the Laffer curve.

Fernandez-Stark, Bamber, Walter, 07 October 2020

Driven by the two themes of digitalisation and green technologies, the COVID-19 economic recovery packages are expected to accelerate the arrival of the new age of copper. Stemming from green infrastructure development, the widespread adoption of electric vehicles and the long-anticipated roll out of 5G, a future copper boom offers producing countries a window of opportunity to harness greater benefits from their resources. This column examines current and future trends in copper supply and demand, and discusses the mechanisms for producers to increase their value capture within the sector.

Milanovic, 06 October 2020

Recent analyses of developments in global inequality have largely been based on relatively old data. By widening the country coverage and using household-based data from each country, this column surveys developments in the global income distribution since the 2008 Global Crisis and brings the analysis up to 2013-14. Broadly speaking, the post-2008 period was good for the globally poor and for the global middle class; it was not good for the Western middle classes and the global top 1%. If developments from the past three decades continue for another 20 years, the gap between the West and Asia will shrink further and will eventually entirely disappear.

Garicano, Saa-Requejo, Santos, 06 October 2020

One lasting effect of the Global Crisis and the Covid-19 crisis will be a large increase in general government debt worldwide. This may lead to a scenario of ‘fiscal dominance’, in which expansionary fiscal policies are combined with accommodating monetary policies to alleviate the debt burden. This column argues that such a situation would put central banks in a precarious position of having to contain inflationary pressures and maintain financial stability. Expanding the independence of central banks and reaffirming the commitment to fighting inflation may be necessary in case of an unexpected inflation shock. 

Nguyen, Paczos, 06 October 2020

As the amount and variety of data collected by companies has increased in recent decades, data have become an essential resource. This column sets out a framework for understanding how businesses monetise data – distinguishing between data-enabled businesses that would not exist without access to large amounts of data and analytics, and data-enhanced businesses that exploit data to coordinate pre-existing business operations better. Allowing the increasing use of data to act as an unmeasured input in production handicaps key economic statistics – from output to productivity and beyond. 

Caffarra, Crawford, 05 October 2020

Another week, another tech merger, but this time with huge potential implications for who owns our health data and how it is used. Cristina Caffarra and Greg Crawford tell Tim Phillips why 17 economists have written a paper describing harm that Google's acquisition of Fitbit would cause to consumers.

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Kempf, Pastor, 05 October 2020

The effectiveness of central banks’ asset purchase programmes (‘quantitative easing’) has been a subject of intense debate in both academic and policy circles. Much of the analysis is conducted by the staff of central banks themselves, which is not unlike pharmaceutical firms evaluating their own drugs. Indeed, as this column shows, papers by central bank researchers in the US, the UK, and the euro area report systematically larger effects of unconventional monetary policy on output and inflation than papers by independent academics. This is not to argue that central bank research should be discounted or to question its credibility – but it does highlight a previously unexplored conflict of interest.

Bindseil, Panetta, 05 October 2020

The prospect of central bank digital currency has raised concerns over its potential to cause structural (i.e. permanent) or cyclical (i.e. crisis-related, temporary) bank disintermediation. Moreover, negative interest rate policy is incompatible with the unconstrained supply of zero-remunerated central bank digital currency. This column argues that a two-tier remuneration system for the currency would be an efficient solution to these issues. It would allow households to access the digital currency as a means of payment with non-negative remuneration and would also make it possible to overcome the perceived dichotomy between ‘retail’ and ‘wholesale’ central bank digital currencies. 

Bertocchi, Bozzano, 05 October 2020

For most of history, women have been undereducated relative to men. While the gender gap in education has closed – and even reversed – in recent times, sharp differences still exist across levels of education and countries. Even where women have outpaced men in educational attainment, gender gaps in employment, entrepreneurship and politics persist. Women are visibly underrepresented in STEM and economics – fields typically lead to higher employability and wages. This column reviews the historical roots of the gender gap, which, despite changing conditions and incentives, continue to exert an influence through labour markets, family formation dynamics, and cultural factors. 

Caballero, Simsek, 05 October 2020

While the Fed’s massive policy response to the Covid-19 shock was successful in reversing the financial meltdown, it did not prevent a dramatic collapse in the real economy. This column argues that the patterns observed are consistent with optimal monetary policy once the subtleties of the relationship between monetary policy, the stock market, and the economy are considered.

Azmat, Hensvik, Rosenqvist, 04 October 2020

The recent COVID-19 public health crisis has – at least temporarily – changed the organisation of work and the requirement for presenteeism in the workplace. Using data from Sweden, this column argues that such change could help close the gender earnings gap by lowering the wage penalties to unpredictable work absence. 

Galletta, Giommoni, 03 October 2020

The COVID-19 outbreak is expected to increase income inequality around the world as the poorer are likely to be hit harder by the pandemic’s negative economic impact. Focusing on Italy, this column argues that such distributional consequences also appeared during the 1918 influenza pandemic. Income inequality became higher in areas more afflicted by the flu pandemic, and this is mostly explained by a reduction in the share of income held by poorer people. This effect seems to persist even a century after the pandemic.

Altavilla, Barbiero, Boucinha, Burlon, 03 October 2020

The spread of the COVID-19 virus and the associated economic downturn has prompted vast policy responses by governments. This column assesses the effectiveness of policies targeted at supporting bank lending conditions in the euro area. It finds that banks were largely able to accommodate the unprecedented credit demand due to the funding cost and capital relief of the pandemic response measures. The close coordination between monetary policy and prudential measures has contributed by generating a sizable amplification effect on lending. Consequently, an even larger decline in firms’ employment was averted. 

Meijerink, Hendriks, van Bergeijk, 02 October 2020

The outbreak of the Covid-19 pandemic led to a 14% dive in world trade by April 2020. Using the CPB’s World Trade Monitor and a Bayesian VAR model, this column compares the recent contraction, and partial recovery, to the 2008/2009 Global Crisis and the Great Depression. The current trade recession appears to have a sharper ‘V-shape’, with a stronger collapse but a quicker recovery than the previous crises.

Oliu-Barton, Pradelski, 02 October 2020

With coronavirus vaccines potentially on the horizon, attention is now turning to how to distribute them once they are available. This column makes the case for vaccination deployment being dependent on the prevalence of the virus in a zone (i.e. a predefined geographical area). Red zones should focus on vaccinating people at risk and health workers to reduce fatalities and keep hospitals operational. Green zones, where community transmission is low, should additionally focus on vaccinating inter-zone travellers and highly central individuals to reduce the risk of re-importation and keep virus spread near zero. 

Krogstrup, Kuchler, Spange, 02 October 2020

Negative policy rates are controversial and raise questions about their transmission to the economy and financial markets. This column presents emerging evidence from Denmark, where the central bank's objective of maintaining a fixed exchange rate against the euro means that the key policy rate has been negative almost continuously since 2012. Recent and ongoing analyses suggest that the transmission is working well under negative rates, although pass-through to bank lending rates appears to be slower compared with periods of positive policy rates.

Fleck, Monninger, 02 October 2020

Household portfolios in the euro area differ systematically between countries. As a result, ECB policies have asymmetric effects and views on a potential EU financial transaction tax are divergent. This column argues that cross-country variation in portfolio structures is due to variation in country-specific beliefs on social and communal insurance. These beliefs lead to differences in subjective expectations regarding the availability of external support during financial distress. This means that they regulate the extent to which households use their portfolios for self-insurance, as well as their readiness to participate in debt markets.

Liao, Zhang, 01 October 2020

Institutional investors and borrowers often hedge a sizeable portion of their currency mismatches. This column examines the role that this currency hedging of foreign assets and liabilities plays in determining exchange rates. It shows that countries’ hedging demands from their external imbalances can explain forward and spot exchange rate dynamics during the COVID-induced financial turmoil in March 2020, as well as their usage of the Federal Reserve central bank liquidity swap lines.

Daniele, Martinangeli, Passarelli, Sas, Windsteiger, 01 October 2020

The COVID-19 shock prompted an economic collapse unrivalled in peacetime. Using a large survey conducted during the pandemic’s first wave, this column measures the impact of the crisis on socio-political attitudes in Italy, Spain, Germany, and the Netherlands. The results show severe drops in interpersonal and institutional trust, as well as in support for the EU and a tax-financed welfare state. But they also suggest a rallying effect around scientific expertise and incumbent governments that – together with populist positions losing ground – hints at a growing demand for competence.

Buiter, 01 October 2020

National central banks within the Eurosystem with substantial holdings of own risky sovereign debt are at material risk of default if their sovereign defaults, since the likelihood of recapitalisation of an insolvent national central bank by its defaulted sovereign is low.  Risk exposures of a national central bank that are out of line with the risk exposures of the consolidated Eurosystem are therefore an existential threat to the monetary union. This column discusses the key flaws in the design of the Eurosystem responsible for this threat and explores three approaches to reducing the insolvency risk of national central banks.

Andrews, Deutscher, Hambur, Hansell, 01 October 2020

Young people bore the brunt of the labour adjustment to the Great Recession and the COVID-19 shock appears to be having similar effects. Using Australian data over 1991-2017, this column shows that graduating in a recession imparts scarring effects on earnings for up to ten years. Recessions disrupt worker-firm match quality, but the resulting scarring effects fade over time as workers switch to more productive firms. Timely macroeconomic stimulus and labour mobility-enhancing structural reforms can ameliorate the scarring effects of recessions.

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