December 2020

Wyplosz, 24 December 2020

From early March, it became clear that economists around the world, like everyone else, were mesmerised by the Covid-19 pandemic and trying to make sense of the unfolding events. This column describes how the tradition of pre-prints in physics and the medical sciences inspired the creation of CEPR's “Covid Economics: Vetted and Real-Time Papers”. Beyond its contribution to a faster understanding of the pandemic, the Covid Economics experiment may help the economics profession think about how research is published.

Ugarte, Olarreaga, 24 December 2020

By 2025 the UN aims to have eliminated child labour, a practice that affects roughly 10% of the world’s children and severely impedes sustainable development. But reaching that target will require a clear understanding of how global value chains interact with child labour. This column analyses 26 developing countries from 2007–2015 and concludes that countries participating in global value chains experienced reductions in child labour except in cases when an increase in exports was accompanied by additional imported content from third countries.  

Binzel, Link, Ramachandran, 24 December 2020

The use of a language in written and formal contexts that is distinct from the languages used in everyday communication – such as Latin in early modern Europe and Standard Arabic in the Arabic-speaking world, both past and present – comes with benefits, but also with costs. Drawing on publishing data from early modern Europe, this column shows that the Protestant Reformation led to a sudden and sharp rise in vernacular printing, such that by the end of the 16th century, the majority of works were printed in spoken tongues rather than in Latin. This transformation allowed broader segments of society to access knowledge. It also diversified the composition of authors and book content and had long-term consequences for economic development.

Conti, Gruber, Ollendorf, Neumann, 23 December 2020

Gene therapy offer patients the promise of improved health, longevity, and hope. However, the infancy of the technology and its sizable impact on budget conscious payers raises fundamental questions regarding gene therapy’s value. This column addresses the challenges associated with its value assessment and suggests initiatives which may help address these issues. Given payers’ reliance on value assessments to decide whether to provide access to these technologies and innovators’ reliance on such assessments to set prices, further analytic research in this direction is essential.

Milosh, Painter, Sonin, Van Dijcke, Wright, 23 December 2020

As the use of face masks has been shown to effectively diminish the spread of COVID-19 without hampering economic activity, it should be among the least controversial public policy responses to the pandemic. This column shows, however, that mask usage is strongly associated with political partisanship in the US. Using various research designs, it finds that localities which voted for Trump in 2016 are significantly less likely to wear masks, even if mask wearing is mandated. Leadership is shown to matter as well – tweets with positive sentiment towards masks surged after Trump wore a mask in public the first time. 

Machin, McNally, Terrier, Ventura, 23 December 2020

England introduced University Technical Colleges – hybrid education institutions which combine general and vocational education – in 2010. This column presents the results from the first evaluation of the causal effect of attending such a college on student academic and vocational achievement, and on eventual labour market outcomes. While college enrolment can have positive effects on the probability of studying a STEM subject at university, the age that a student enrolls plays a key part in determining their overall attainment.

Dai, Singh, 23 December 2020

The US continues to struggle with insufficient COVID-19 testing capacity. At the same time, US laboratories use ultrasensitive diagnostic criteria in their tests, leading to a large proportion of positive diagnoses associated with negligible viral loads. This column seeks to construct a theory that explains both undertesting and overdiagnosis. The theory predicts both phenomena may arise in the absence of mandatory viral load reporting. Despite the obvious clinical advantages of viral load reporting, mandating such reporting may not be optimal when considering laboratories’ capacity building decisions and potential benefits of widespread quarantining. 

Baker, Baksy, Bloom, Davis, Rodden, 22 December 2020

Elections can cause economic uncertainty, especially when elections take place in a politically polarised context. This column studies how national election cycles in 23 countries influence economic policy uncertainty, as measured by the share of newspaper articles that discusses uncertainty and economic policy. Economic policy uncertainty clearly rises in the months leading up to national elections. Average economic policy uncertainty values are 13% higher in the month before and the month of national elections than in other months during the same election cycle. In the US, economic policy uncertainty increases are especially pronounced around close and highly polarised presidential elections. 

Rungcharoenkitkul, Borio, Disyatat, 22 December 2020

In recent years, a key challenge for central banks has been the shrinking room for policy manoeuvre as interest rates have declined to historical lows in many countries. The Covid-19 pandemic has inevitably exacerbated the problem. Once the worst is over, rebuilding policy space will be critical. This column presents a theoretical model in which the impact of monetary policy on financial vulnerabilities can complicate that challenge by constraining policy choices down the road. The model includes two realistic features typically excluded from standard setups: banks create money, and lending behaviour generates endogenous booms and busts. As it turns out, in such a framework the very notion of a natural rate of interest driven by saving and investment comes into question.

Lombardi, Riggi, Viviano, 22 December 2020

The Phillips curve – the relationship between economic activity and inflation – has become elusive since the 1980s in most advanced economies, including the euro area. This column argues that an important driver of this phenomenon is the erosion of workers’ bargaining power, which induced firms to react to business cycle fluctuations by adjusting the number of workers rather than hours worked per employee.

Revoltella, de Lima, 21 December 2020

The Covid-19 pandemic poses severe risks for Europe’s economy, but it also presents opportunities. The sharp short-term shock will be followed by large structural changes to the global economy in the long term. This column sheds light on the challenges ahead using data from the European Investment Bank Investment Survey. Large sectors of Europe’s economy, particularly SMEs, need to innovate and adopt digital technologies to avoid falling behind. Policy support needs to evolve from liquidity provision to a more targeted push for structural transformation. 

Hodbod, Hommes, Huber, Salle, 21 December 2020

The profound and protracted experience of the COVID-19 crisis may fundamentally change consumer preferences. This column reveals how a representative consumer survey in five EU countries indicates that many consumers do not miss certain goods and services they have cut down on since the COVID-19 outbreak. It concludes that fiscal policy must recognise that some firms will become obsolete in the altered post-COVID-19 environment. To achieve a swift recovery, these obsolete firms must be allowed to fail fast so that resources can be reallocated to more efficient uses. 

Sánchez-Mangas, Sánchez Marcos, 20 December 2020

While gender differences in the labour market outcomes of developed countries have declined markedly in recent decades, substantial gender gaps remain. This column examines wages among European university graduates across fields of study and finds that women with degrees in economics, business, or law experienced a significant annual wage-growth penalty if they had children, whereas women with degrees in education, humanities and the arts, STEM, health or the social sciences paid no such penalty.

Anderson, Yotov, 20 December 2020

The gravity equation of international trade raises several empirical puzzles relating to the decreasing impact of distance, the declining trade-related costs of bilateral trade, and the estimation of trade elasticities. This column introduces a new, ‘short-run gravity’ model which simultaneously resolves all three of the above-mentioned puzzles. The model estimates a 14% decline in the distance elasticity and shows that capacity reallocation raised world manufacturing trade by 75% between 1998 and 2006. Finally, an estimated structural parameter implies that the short-tun trade elasticity is about one-fourth of its long-run counterpart. 

Maclean, Mallatt, Ruhm, Simon, 20 December 2020

Opioid misuse in the US is estimated to cost over $500 billion annually, with fatalities from opioid overdoses exceeding the American death count from the Vietnam War. This column examines the causes and consequences of the opioid crisis, based on a review of more than 100 economic studies. Policies such as prescription drug monitoring programmes, pill mill laws, prescribing limits, and doctor-shopping laws reduce opioid prescribing. However, their effects may be more limited in environments where many have already become addicted to opioids. 

Woloszko, 19 December 2020

A pre-requisite for good macroeconomic policymaking is timely information on the current state of the economy, particularly when economic activity is changing rapidly. Given that GDP figures are usually only available on a quarterly basis, the current crisis has prompted a search for alternative high‑frequency indicators of economic activity. This column presents evidence from a new tracker developed by OECD which uses Google Trends and machine learning to provide real-time estimates of GDP growth in countries all over the world.

Henderson, Storeygard, Weil, 19 December 2020

Population density and its effect on economic activity have long been of interest to scholars. This column develops a new measure of land quality which takes into account agricultural productivity, biomes, proximity to the sea, navigable rivers, large lakes, natural harbours, terrain roughness, and elevation. The measure is used to compute quality-adjusted land area as well as population density for each country in the world. Correlating quality-adjusted population density with income per capita, it finds a starkly negative relationship, which is suggested to be the result of differential population growth between poor and rich countries over the last 200 years.

Sussman, 18 December 2020

The development of contact tracing apps was a promising response to the COVID-19 pandemic, but too few people appear to be using the apps to make them effective. This column offers three economic explanations for non-use: 1) the economic and social costs of quarantine, 2) underestimation of social externalities of app use, and 3) procrastination. It argues for the immediate application of carrots in the form of financial incentives and sticks in the form of regulation to accompany holistic policies that cover education, public campaigns, trust building, accountability, and nudging.

Cerqua, Letta, 18 December 2020

There is widespread concern about the toll of the pandemic on local economies, but little causal evidence to assess its real costs. This column presents an impact evaluation of the local economic effects of the COVID-19 crisis in Italy, based on a counterfactual application of machine learning algorithms. It documents that, to date, impacts on employment and firms have been dramatically uneven across the Italian territory and spatially uncorrelated with the epidemiological pattern of the first wave. It shows that this heterogeneity is associated with sectoral specialisation, exposure to social aggregation risks, and pre-existing labour market fragilities. Finally, it argues that such diverging local trajectories call for a place-based approach in the policy response to the crisis.

Barrera-Osorio, Gertler, Nakajima, Patrinos, 18 December 2020

Parents play an important role in their children’s educational experiences and outcomes, but they often face challenges when supporting their children through school. This column examines the effects of parental involvement programmes implemented at scale by the national government of Mexico. The results suggest that low-cost, group-based information interventions can increase parental engagement in schools, change parenting behaviour at home, and improve children’s behaviour in school. The impacts were particularly large for indigenous families, suggesting that parental involvement programmes can help improve school-family relationships for the most excluded populations

Sonin, 18 December 2020

Among other things, it has not been a great year for global democracy. So in the final VoxTalk of 2020, Konstantin Sonin tells Tim Phillips how authoritarian leaders grab and hold on to power. 

Breckenfelder, 17 December 2020

High-frequency trading has increased rapidly since the mid-2000s, and now represents about 50% of trading volume in US equity markets and between 24% and 43% in European equity markets. This column explores empirically whether increased competition among high-frequency traders has adverse effects on market liquidity. It exploits a European tick size reform which led to more competition among high-frequency trades for certain groups of stock, and finds an adverse effect on market liquidity. The negative effect is driven by increased use of speculative trading strategies if competition increases.

Bloch, Demange, 17 December 2020

Tax avoidance by multinational firms presents a substantial challenge to policymakers and to international organisations. This column explores two possible policy regimes that could be introduced to target global firms focused on digital services: separate accounting and formula apportionment. The results of the study suggest that the separate accounting approach could be optimal, inducing lower efficiency costs and larger fiscal revenues. Such a policy regime would also make country-by-country reporting compulsory and reliable, which would induce additional outside benefits.

Feyen, Alonso Gispert, Kliatskova, Mare, 17 December 2020

Authorities around the world have implemented a wide array of support measures to mitigate the impact of the COVID-19 crisis on the financial sector. This column introduces a new global database that tracks these measures. It finds that banking sector measures constitute the majority of policies taken and that they aim to take advantage of the flexibility embedded in the international standards. However, emerging market and developing economies tend to rely more on prudential measures that go beyond this embedded flexibility compared to advanced economies which may reduce bank balance sheet transparency and increase risks to financial stability. Financial authorities in richer and more populous countries appear to have taken more actions and were more responsive.

Garicano, 17 December 2020

Without completion of the Banking Union, Europe’s Economic and Monetary Union will continue to be fragile and exposed to a return of the doom loop. This column provides a politically and economically viable solution based on first, creating a model ‘Safe Portfolio’ and, through a reform of the regulatory treatment of sovereign exposures, incentivising banks to move towards it; and second, reforming the resolution framework to empower the Single Resolution Board while simultaneously setting up, within it, a European deposit insurance based on the emerging consensus around a ‘hybrid model’.

Hvidberg, Kreiner, Stantcheva, 16 December 2020

How individuals understand their own social position – and how that understanding shapes their stance on inequality more broadly – are questions of longstanding concern to social scientists. This column uses a unique combination of data to address these questions, linking a large-scale Danish survey that elicited perceptions of income and fairness to detailed administrative data on true income positions and life histories. It finds that individuals are well informed about their own social positions, and that their beliefs about fairness and unequal outcomes correlate more closely to that position than their political views do.

Antoniou, Delis, Ongena, Tsoumas, 16 December 2020

Effective environmental policy should consider the behaviour of financiers of polluting firms. In 2013 the EU Emissions Trading System implemented a reform, which translated to higher compliance costs for producers. This column discusses that, in contrast with possible program intentions, loan spreads fell on average by 25% starting in 2013, and this dynamic partly undermined the expected reduction in CO2 emissions. It identifies a key role of permits storage in driving the fall in loan spreads for affected firms. 

Fazzio, Eble, Lumsdaine, Boone, Bouy, Hsieh, Jayanty, Johnson, Silva, 16 December 2020

Achieving universal basic literacy and numeracy has long been a policy goal for development agencies working in areas of extreme poverty. This column presents evidence from a bundled intervention in rural Guinea Bissau which suggests that targeted education policies can have substantial positive effects on children’s schooling outcomes. Such policies could play a key role in helping people ‘escape’ the poverty trap, as the education gains from such interventions elevate local children’s attainment levels far beyond those found in neighbouring areas.

Bartsch, Bénassy-Quéré, Corsetti, Debrun, 15 December 2020

When the COVID-19 crisis hit, neither monetary easing nor fiscal support alone was sufficient to buffer the shock. Monetary and fiscal authorities had to join forces to deliver the required macroeconomic backing, blurring the traditional boundaries between monetary and fiscal interventions. While some interpret these developments as the end of a decades-old consensus on the respective roles of central banks and treasuries, others see a stress test calling for the existing paradigm to adapt. Putting the notion of policy mix at the centre of the discussion, this column argues that policymakers have usefully exploited complementarities between monetary and fiscal instruments. However, such monetary-fiscal coordination can only work if the credibility of commitments to desirable long-term goals – healthy growth under price stability and public debt sustainability – is preserved and backed by a resilient institutional framework. Because effective monetary-fiscal coordination has its limits, rebuilding policy space is a priority. To do so, internationally coordinated efforts to raise equilibrium interest rates, correcting current imbalances between investment and saving, could set in a virtuous circle of stronger growth and reduced indebtedness. 

Amaral-Garcia, Nardotto, Propper, Valletti, 15 December 2020

The internet is fundamentally changing the relationship between healthcare suppliers and demanders, leading to concerns that social media will increase demand for unnecessary and unsafe products and reduce demand for appropriate treatments. This column looks at demand in the UK for caesarean section births, and finds that mothers with better, faster access to the internet are 2.5% more likely to have a C-section than mothers living in areas with worse internet access. This effect comes from an increase in elective C-sections, with no effect of the internet on the likelihood of having an emergency C-section.

Rodríguez-Pose, Ganau, Maslauskaite, Brezzi, 15 December 2020

Does institutional quality mitigate the negative returns of credit rationing on labour productivity? Using data on a large sample of manufacturing firms in 11 European countries, this column demonstrates that this is indeed the case, especially for micro, small, and medium-sized firms. The negative effects of credit constraints on productivity are mitigated in those areas of Europe with high-quality governance. ‘Good’ regional institutions not only drive firm-level productivity but also, and in a more indirect way, reduce the negative productivity returns of credit constraints.

Bai, Chen, Liu, Xu, 15 December 2020

Global e-commerce platforms present new export opportunities for small and medium-sized enterprises in developing countries by significantly lowering the entry barriers of exporting. This column shows, however, that the lack of market selection can lead to severe congestion in consumers' search process and, when firms' intrinsic quality is not perfectly observed, hinder market allocation towards better firms. Policies aimed at alleviating information frictions and reducing the number of firms can help to improve allocative efficiency and raise consumer welfare.

Djankov, Trumbic, Zhang, 14 December 2020

The global pandemic has exacerbated the gender pay gap for many, but not all, advanced economies. This column examines evidence from eight countries to show that certain policy responses to the pandemic have better served women’s participation in the labour force than others – notably those tailored to flexible working to accommodate home and childcare responsibilities, as well as those serving industries with greater participation by women. Such policies should be taken into account, especially as historically the reintegration of women into the labour force can take time after a crisis.

di Giovanni, Levchenko, Mejean, 14 December 2020

Superstar firms have recently been linked to phenomena such as top income inequality, comparative advantage in trade, and the fall in the labour share. Another important feature of superstar firms is their international trade linkages. This column studies how susceptible an economy with few large firms which account for the majority of imports and exports is to international business cycle shocks.  It finds that at the micro level, such larger firms respond more strongly to foreign shocks than smaller firms. At the macro level, this heterogeneity dampens the domestic GDP response to a foreign shock. 

Flores, Granelli, 14 December 2020

In April 2020, G20 Finance Ministers and Central Bank Governors endorsed the ‘G20 Action Plan Supporting the Global Economy Through the COVID-19 Pandemic’, setting out the key principles guiding the global response to the crisis and commitments to specific actions for driving forward international economic cooperation. The G20 agenda in 2021 – under the Italian Presidency – will be closely linked to the Action Plan. This column develops a few principles to support the G20’s work in 2021.

Mairesse, Pezzoni, Visentin, 13 December 2020

The observation that few women reach the highest positions in science prompts the question of whether they are discriminated against. This column shows that at the French Institute of Physics at CNRS, one of Europe’s largest public research organisation, differences in research productivity account entirely for the average gender gap in the promotion from junior to senior positions. This finding does not contradict the observation that other promotion factors – such as family characteristics, mentoring, professional networks, and research responsibilities – have different impacts on female and male researchers.

Cutler, Meara, Stewart, 13 December 2020

Recent analyses suggest that pain is on the rise among working age adults in the US. Like many public health challenges, the burden of pain is unequal. This column explores why knee pain – the top joint problem in the US – differs by education. It finds that physical demands on the job and obesity each explain about one-third of the education gradient in knee pain and that there is an interaction between the two, with physical requirements on the job associated with knee pain primarily in those who are obese.

Booth, Meng, Zhang, 13 December 2020

Rural-urban migrant workers in China often do not receive the same benefits at the workplace as their urban counterparts. This column uses a rich longitudinal survey to study the effects of union presence on the welfare of migrant workers. It finds that relative to workplaces without unions or with inactive unions, union-covered non-members and union members in places with active unions earn higher incomes and receive better benefits and insurances. In addition, there is a notable premium for union members compared with union-covered non-members, particularly on wages. 

Ehlers, Mojon, Packer, Pereira da Silva, 12 December 2020

Projects financed by green bonds have not always resulted in decreased carbon emissions at the firm level. This column – published on the 5th anniversary of the Paris Agreement – outlines three features of a simple rating system that could both encourage firms to reduce their carbon footprint and provide a useful signal to investors. By focusing on firms’ carbon intensity (emissions relative to revenue), this system would complement existing green bond labels while embracing the features most conducive to decisively lowering carbon emissions.

Stapleton, Webb, 12 December 2020

There has been much speculation that automation in high-income countries will lead to reshoring of production from lower-income countries or further reduce offshoring. Using rich data on Spanish manufacturing firms between 1990 and 2016, this column studies how automation in Spanish firms affected imports and multinational activity involving lower-income countries. It shows that, contrary to the typical assumption, the deployment of robots in Spanish manufacturing firms actually caused them to increase offshoring to lower-income countries. This effect was mainly caused by firms starting to newly offshore as a consequence of automation.

Goebel, Mayrhofer, Schmitz, 12 December 2020

Many people tend to avoid the worst outcome when making decisions – a concept known as ‘prudence’. This column presents results from an experimental setting which relate risk attitudes to willingness to get vaccinated. It shows that more prudent individuals are less likely to take a vaccine. Moreover, this effect is stronger in risk groups, such as older participants and those with pre-existing illnesses. The findings could help politicians convince people to get vaccinated against Covid-19, by appealing not only to risk assessments but also to social responsibility.

Wilde, 11 December 2020

Will the pandemic create more or fewer babies? Joshua Wilde tells Tim Phillips how Google search data can provide the answer.

Aksoy, Poutvaara, Schikora, 11 December 2020

Around 2.4 million refugees and irregular migrants arrived in Europe from 2015 to 2016. This column presents systematic evidence on how local unemployment and attitudes towards immigrants at refugees’ initial place of residence shape their multi-dimensional integration in the context of the European refugee crisis. Leveraging Germany’s centralised allocation policy, which exogenously assigns refugees to live in specific counties, it finds that high initial local unemployment negatively affects refugees’ economic and social integration. Further, favorable attitudes towards immigrants promote the economic and social integration of refugees.

Evenett, Fiorini, Fritz, Hoekman, Lukaszuk, Rocha, Ruta, Santi, Shingal, 11 December 2020

One of the instruments many governments resorted to in responding to the COVID-19 pandemic was trade policy. This column introduces a new high frequency dataset on trade policy changes targeting medical and food products since the beginning of the pandemic, documenting how countries used such instruments on a week-by-week basis. While there was a burst in trade policy activism in February and March 2020 in tandem with the rise in COVID-19 cases, there was significant variation across governments in their resort to trade policy, the types of measures used, and the duration of interventions.

Griffith, O'Connell, Smith, 11 December 2020

Negative externalities from consumption are common, ranging from the social and health costs of drinking, smoking or drug abuse, to the environmental damage caused by fossil fuel use. This column exploits the introduction of a price floor for alcohol in Scotland but not in other parts of the UK to assess the efficacy of a price floor for tackling the externalities associated with alcohol consumption. It shows that, if the external cost of an additional drink is at least moderately higher for heavy compared with lighter drinkers, then a price floor leads to larger welfare gains than a simple Pigouvian-style tax on ethanol. However, a tax system that taxes the ethanol in stronger drinks more heavily can do as well as a price floor at reducing heavy drinking while raising tax revenue.

McDougall, Orlov, McKee, 10 December 2020

Many higher learning institutions have shifted to remote learning in response to the COVID-19 pandemic. Although research has found that online classes can be just as effective as in-person classes, there is evidence that suggests disadvantaged students may perform relatively worse. This column compares student performance on a set of standard assessments at four PhD-granting institutions in the US before and after the switch to online classes. It finds little evidence that disadvantaged groups were further disadvantaged by the pandemic in their college learning. Instructor experience with online teaching and the use of active-learning techniques have a positive effect on student outcomes.

Akovali, Yilmaz, 10 December 2020

Balancing the trade-off between strict public health measures and economic activity has been the key concern for governments since the Covid-19 outbreak. This column studies Covid-19 infections and their connectedness across US states.  It finds that states with lax government policy and community mobility response had higher case growth trajectories and generated connectedness of Covid-19 cases to other states.  Further, states with Republican governors tend to have higher connectedness of Covid-19 cases among themselves and generate net connectedness to states with Democratic governors.

Irwin, Chepeliev, 09 December 2020

The repeal of the Corn Laws in 1846 was a significant policy change that led the move to freer trade by Britain. This column assesses the impact of the repeal using a new general equilibrium framework and input-output data from 1841. The aggregate welfare effects of the policy change were negligible, due to an offsetting terms-of-trade impact and static efficiency gains. However, there were notable distributional consequences, as the welfare of the top 10% of income earners declined while the bottom 90% benefited. In line with recent findings, the move to free trade was thus a progressive ‘pro-poor’ policy. 

Kleine-Rueschkamp, Özgüzel, 09 December 2020

Workers in essential services have been crucial during COVID-induced lockdowns. This column assesses the contribution of migrants to ‘key worker’ occupations across regions in 31 European countries. Based on individual-level data on occupations from the EU labour force survey and the European Commission’s definition of key workers, it shows that migrants are as likely to support regional economies in key worker occupations as native-born workers are. However, within countries, large differences exist across regions and between cities and rural areas. Overall, migrants play an especially important role in low-skilled key occupations and in cities. At the same time, they also provide a vital source of labour supply in skilled jobs critical for European healthcare systems, such as doctors and nurses.

Shingal, Agarwal, 08 December 2020

International health crises have the ability to send shockwaves through global value chains. This column examines how value chains have responded to two previous health shocks – SARS and MERS – in order to draw lessons for the current pandemic. There is evidence of geographical diversification within value chains, as well as of an overall non-resilience to the SARS epidemic in particular. The effects are driven by lower-middle-income importers that were more integrated in global value chains, received more investment, were more competitive, and were more reliant on the severely affected partners. Similar disruptions are likely to follow Covid-19.

ter Ellen, Larsen, Thorsrud, 08 December 2020

Though the transmission channels of central bank communication to financial institutions are well researched, less is known about how they relay information to the public at large. This column shows how central bank communication indirectly reaches the general public by affecting news media coverage on topics of particular relevance for monetary policy decisions. The findings suggest that the media, and how it acts as an information intermediary, can have a sizeable effect on economic outcomes.

Jokipii, Nyffeler, Riederer, 08 December 2020

 A growing body of literature has highlighted important flaws in the credit-to-GDP gap computed according to the BIS guidelines as a measure of excess credit for policy purposes. This column assesses the relevance of these critiques from the Swiss perspective. It finds no compelling evidence to suggest the need to deviate from using the BIS gap. However, authorities should be cautious in interpreting the gap’s signal, particularly during periods of large and strong GDP movements and during long-lasting boom phases and subsequent busts. Authorities should also consider strengthening their decision-making frameworks with additional credit relevant indicators.

Spiegel, Tookes, 07 December 2020

As the COVID-19 pandemic continues worldwide, policymakers are still grappling with the question of which non-pharmaceutical policy interventions are effective. In the US, state and county policies varied widely, as did the growth in fatalities due to COVID-19. This column examines US business policies to help shed light on which policies save more lives. Stay-at-home orders, mandatory mask requirements, beach and park closures, restaurant closures, and high-risk (Level 2) business closures most consistently predict lower fatality growth four to six weeks ahead. Closures of low- and medium-risk businesses do not appear effective and, despite their costs, may even be counterproductive.

Bluwstein, Brzoza-Brzezina, Gelain, Kolasa, 07 December 2020

Transmission of monetary policy depends to a large extent on the phase of the housing cycle. This is because residential property prices are important determinants of banks’ willingness to lend. This column presents analysis for the US which shows that in the mature phase of the housing market boom, or immediately after a bust began, the effects of a monetary expansion were smaller than they were earlier in the housing cycle. This is relevant for central banks which are considering responding to the Covid-19 pandemic by easing monetary policy during a period of relatively high house prices.

Barkema, Gudmundsson, Mrkaic, 06 December 2020

Output gaps remain a popular metric for assessing the stance of countries’ business cycles. However, their usefulness for real-time policymaking is disputed due to the challenges in estimating potential output. This column studies the use of output gaps in IMF surveillance work and finds that output gap measures are skewed to the downside, often revised, and only slightly correlated with other indicators of slack. Furthermore, text analysis finds a limited connection between the size of the output gap and policy recommendations. Taken together, these results suggest caution in using output gap estimates for policymaking during the Covid-19 recovery.

Roessler, Pengl, Marty, Sorlie Titlow, van de Walle, 06 December 2020

The colonial history of Africa still casts a shadow on development in the continent. This column uses a new geospatial dataset to study the long-term effects of colonial cash crop extraction in Africa. It finds that cash crop production had a positive long-run effect on local development in terms of urbanisation, road infrastructure, night-time luminosity, and household wealth. However, this came at the expense of investments in surrounding areas, which appear worse off today than predicted by precolonial factors. The legacy of the colonial economy in Africa was a negative feedback loop of weak institutions and spatial inequities.  

Angrist, Autor, Pallais, 06 December 2020

The US government and private organisations spend substantial amounts on financial aid for college students. Does this lead more students to complete college, or simply reimburse students who would have earned degrees anyway? This column reports on a randomised controlled trial with a private provider of post-secondary grant aid in Nebraska. It finds that awards increase enrolment and that recipients are considerably more likely to enrol at a four-year, rather than a two-year, college. Awards also boost bachelor’s degree completion rates in particular among subgroups that are typically less likely to complete a college degree.

Matray, 05 December 2020

Academic research has so far had little to say on the impact of an increase in payout taxes on firm behaviour and the allocation of capital across firms. Using French administrative tax files that cover the universe of firms, this column tracks firm outcomes over the period 2008–2017 and estimates the effect of a steep increase in the dividend tax rate in 2013. It finds that the tax reform led to increased investment and cash holding, improved allocation of capital, and no discernible reduction in investment even among equity-dependent firms.

Panza, 05 December 2020

Political disintegrations have the potential to cause large disturbances in international trade. This column investigates the effect of the breakup of the Ottoman Empire on commodity market integration in the Near East. Rising political and economic nationalism, tariff wars, and other protectionist practices prevailed over trade cost-reducing forces, leading to the disintegration of regional markets. At the same, new trade ties were created and colonial market linkages strengthened, despite the anti-global environment of the interwar era. However, the process of trade diversion reflected a shift from multilateralism to bilateralism.

Arteaga, Desierto, Koyama, 04 December 2020

When the galleon San José sank in a typhoon in 1694, it was carrying a cargo worth 2% of the GDP of the entire Spanish empire. Fernando Arteaga, Desiree Desierto and Mark Koyama tell Tim Phillips about how bribes sank Spanish treasure ships.

Djankov, Zhang, 04 December 2020

Foreign direct investment flows to the US have seen a sharp decline in the past two years, despite a cut in the corporate tax rate from 35% to 21% in 2017. Previous research suggests that such a tax cut should have resulted in increased investor appetite. This column argues that countervailing forces, in particular the shift in investment sentiment driven by the corrosion of US openness to trade and global cooperation, have played the dominant role in reducing flows.  

Baarsma, van den Broek-Altenburg, Fransman, Jacobs, Koopmans, Teulings, 04 December 2020

The aim of the Dutch government’s current policy to combat COVID-19, as in many other countries, is to reduce the number of infections as much as possible. This column argues that recent data show that societies can handle a much larger number of infections during this second wave without excessive social costs, and that the Dutch policy should therefore move away from almost eliminating infections towards creating herd immunity by letting the COVID-19-virus circulate more freely among the non-vulnerable groups, while strictly protecting the vulnerable groups.

Bonfatti, Poelhekke, 03 December 2020

Africa’s interior-to-coast roads are well placed to export natural resources, but not to support regional trade. Are they the optimal response to geography and comparative advantage, or the result of suboptimal political distortions? This column investigates the political determinants of road paving in West Africa in 1965–2014. Autocracies focused more than democracies on connecting metal and mineral deposits to ports, resulting in more interior-to-coast networks. This deposit-to-port bias was only present for deposits located on the elite’s ethnic homeland, suggesting that Africa’s interior-to-coast roads were the result of ethnic favouritism by autocracies.

Borgioli, Horn, Kochanska, Molitor, Mongelli, Mulder, Zito, 03 December 2020

The COVID-19 shock is unprecedented in terms of the scale and speed of its effects. This column provides an overview of financial fragmentation in the euro area during the crisis through the lens of a novel high-frequency composite indicator. It reveals that after an initial sharp deterioration, euro area financial integration broadly recovered to pre-crisis levels by mid-September, thanks to unprecedented fiscal, monetary and prudential policy responses.

Ranaldi, Milanovic, 03 December 2020

Similar levels of income inequality may coexist with completely different distributions of capital and labor incomes. This column introduces a new measure of compositional inequality, allowing the authors to distinguish between different capitalist societies. The analysis suggests that Latin America and India are rigid ‘class-based’ societies, whereas in most of Western European and North American economies (as well as in Japan and China), the split between capitalists and workers is less sharp and inequality is moderate or low. Nordic countries are ‘class-based’ yet fairly equal. Taiwan and Slovakia are closest to classless and low inequality societies. 

Cette, Lopez, Mairesse, Nicoletti, 02 December 2020

The COVID-19 crisis has highlighted the importance of the swift reorganisation of tasks and logistics in cushioning economic shocks. While it is too early to study the effects of managerial talent on resilience to the COVID-19 crisis, useful insights can be drawn from the experience of the Great Recession. This column shows that countries with a higher quality of management before the Great Recession have been more able to limit employment losses. This was achieved through the ability to moderate real wage growth.

Hamdani, Kosenko, Yafeh, 02 December 2020

Pyramidal groups – tiered structures where an apex firm controls multiple tiers of subsidiaries – allow a small number of powerful individuals or families to dominate many Asian, European and Latin American economies. This column examines the experiences of four countries that adopted measures to dismantle or limit the power of pyramids: the US in the 1930s, Japan under American occupation, Korea in the 1990s, and Israel in the last decade. It concludes that to successfully address concerns of arising from the concentration of economic power and curb the influence of large corporate entities, it is important to implement multiple regulatory tools which can address economy-wide, rather than industry-specific, economic power.

Abildgren, Kuchler, 01 December 2020

The extent to which negative monetary policy interest rates stimulate the economy has a subject of recent discussion among academics and policymakers. Using new comprehensive Danish microdata, this column shows that firms exposed to negative deposit rates to a higher degree than other firms increase their fixed investments and employment – after due control for changes in the level of interest rates. These findings are suggestive of an additional monetary transmission channel operating as nominal interest rates cross zero and become negative.

Welsch, 01 December 2020

The science behind mask usage and its ability to reduce airborne particles seems clear. Despite this, many individuals are sceptical that wearing masks can reduce the spread of COVID-19 and many refuse to wear one even when required. This column examines the effect of mask usage using county-level data from the US, employing an instrumental variable approach. The findings show that increasing the amount of individuals who frequently or always wear a mask when within six feet of people by 1% could reduce COVID-19 deaths by 10.5%, which translates into approximately six deaths in the average county. 

Griffith, Levell, Norris Keiller, 01 December 2020

On 31 January 2020 the UK formally left the EU after over 40 years of membership. On 31 December, the UK’s transition period will come to an end and the UK and EU will establish a new trading relationship with greater trade frictions. At the time of writing, the terms of this relationship remain unclear. However, since the EU is by far the UK’s largest trading partner, the implications for the UK economy are likely to be profound. This column discusses potential consequences for the labour market – and earnings inequality – in the UK.

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