January 2021

Osada, Otaka, Kojima, Hirano, Suzuki, Sudo, 26 January 2021

COVID-19 has brought about severe adverse effects on the economy around the globe, and Japan is no exception. This column introduces a model that maps cash shortages to firm's default probability, employing the balance sheet data of about 730,000 SMEs. It uses the model to assesses how a decline in sales due to Covid-19 increases the default probability of firms and how much the government's financial support mitigates a rise in that probability.

Maican, Orth, Roberts, Vuong, 26 January 2021

Firms’ incentives to undertake innovation investments can be affected by their activities in domestic and international markets. This column uses a structural framework to estimate the returns to innovation investments and analyse the impact of trade on those returns. It shows that a firm’s R&D investments raise its future productivity in both domestic and export markets, with a larger impact in the export market. Furthermore, it shows that public efforts to stimulate innovation investments can be offset by trade restrictions limiting access to world markets. These findings are important for policymakers to recognise when fostering innovation. 

Graziano, Handley, Limão, 26 January 2021

Following the Brexit referendum five years ago, firms in the UK and also those in the EU and other countries operated in an environment with increased uncertainty over future trade policies. This column presents evidence of the detrimental effects of this uncertainty on trade in the UK before any changes to trade policy had taken place. Studying the period after the Conservative Party won the general election in May 2015 until just after the Brexit referendum in June 2016, it finds that an increasing probability of Brexit significantly reduced UK export values and product entry, while increasing product exit.

Buggle, Mayer, Sakalli, Thoenig, 25 January 2021

The recent refugee crisis has fuelled discussions about policies restricting immigration. This column quantifies the extent to which asylum policies affect emigration by analysing the migration decisions of German Jewish refugees in the 1930s. Policies have large effects on migration as the effects are multiplied through peers who influence each other in the decision to emigrate. Removing work restrictions for refugees in the recipient countries after the Nuremberg Laws in 1935 would have led to a 28% increase in Jewish emigration out of Germany.

Boot, Carletti, Kotz, Krahnen, Pelizzon, Subrahmanyam, 25 January 2021

Covid-19 has placed renewed pressure on the European banking sector as firms and households struggle to meet the costs imposed by the pandemic. This column provides a comparative assessment of the various policy responses to strengthen banks in light of the crisis. While the authors do not make a specific final recommendation, they review the different options suggested within current research and provide a criteria-based framework for policymakers to guide them in their decision making.

Fasani, Mazza, 25 January 2021

The spread of COVID-19 has had dire consequences for the earnings and employment of workers in Europe. As in most recessions, immigrants are among the most vulnerable workers. This column proposes a measure of employment risk based on workers’ job attributes which sidesteps the lack of an up-to-date European labour force survey, and estimates that the pandemic-induced recession puts 9 million immigrant workers at high risk of unemployment in Europe.

Farronato, Fong, Fradkin, 24 January 2021

Mergers between digital platforms frequently attract widespread attention, not just from the media but from researchers in economics and law as well. This column explores the effects of a merger between two rival platforms, using the case of the two largest US two-sided markets for dog sitting. The results of the study suggest that online users are, on average, no better off with a single dominant platform compared to two competitors. The authors argue that this net effect is the result of two counterbalancing forces: network effects and platform differentiation.

Carneiro, Lopez Garcia, Salvanes, Tominey, 24 January 2021

Parents’ income can affect a child’s earnings later in life but most empirical studies of intergenerational mobility collapse the childhood years into a single period. This column uses administrative data of all children born in Norway 1971–1980 to examine the relationship between adult outcomes of children and the timing of parental income over three periods of childhood: early (ages 0–5), middle (ages 6–11), and late (ages 12–17). Child success increases in households where parents’ income is higher in either early childhood or during adolescence. A balanced level of income across early childhood and adolescence may also improve the child’s success.

Grosjean, Masera, Yousaf, 23 January 2021

The US saw a resurgence of racial and ethnic turmoil and tensions during Donald Trump’s presidency. This column examines how Trump's 2016 presidential campaign affected police behaviour towards Black Americans, using data on nearly 12 million vehicle stops by the police in 142 counties where Trump held a rally during his campaign. It finds that the probability that a driver stopped by police would be Black increased after a Trump event, and estimates that Trump's rallies may have led to nearly 30,000 additional stops of Black people by the police in the months following his rallies. 

Bastian, Lochner, 23 January 2021

As more and more mothers have entered the labour force over the last few decades, it is important to ask what effects this increased participation has had on children. This column discusses how evidence from the Earned Income Tax Credit shows that although working mothers spend less time with their children, this time reduction is not very investment-oriented. This is consistent with evidence showing positive long-run effects of the tax credit on children, suggesting that greater financial resources appear to dominate decreases in time with parents.

Rohner, 22 January 2021

As the climate heats up, what does it mean for the number, and the scale, of conflicts in Africa? Dominic Rohner warns Tim Phillips about the impact that climate change has had in the continent already and the danger signs for the future.

Diebold, 22 January 2021

Measuring real economic activity in real time is crucial for the design and implementation of macroeconomic policies. This column documents the path of the Aruoba-Diebold-Scotti index, which provides a real-time assessment of US business conditions before official data like GDP are officially released, during the pandemic recession entry and relates it to the progress of COVID-19. The index proves a good indicator of the path of real time activity and a strong negative correlation to the rate of new COVID cases.

Sun, Russell, 22 January 2021

As countries worldwide implemented stay-at-home orders to curb the spread of COVID-19, parents lost access to reliable childcare. This column reviews current research on the disproportionate effects these closures have had on mothers of young children. The findings suggest that these closures may have long-lasting and persistent effects on women, even after the pandemic subsides. 

Demmou, Calligaris, Franco, Dlugosch, Adalet McGowan, Sakha, 22 January 2021

Many countries have now entered a second wave of the Covid crisis, forcing firms to deplete even further their cash and equity buffers and to raise new financing. This column investigates the likelihood of firms’ insolvency and the potential implications of debt overhang following the outbreak. It foresees that around 7-9% of otherwise viable companies would become distressed, accompanied by an increase in firms’ leverage ratio of about 6.7 to 8 percentage points. In turn, the latter would decrease investments of the median firm by approximately 2 percentage points. The column also outlines some policy options to flatten the curve of crisis-related insolvencies through recapitalisation and to establish efficient insolvency procedures.

Bailey, Elliott, Ivashina, 21 January 2021

As the Covid-19 crisis continues, policymakers need to address a growing corporate solvency problem and the wider economic harm it could create. The true scale and broader implications of this issue are likely to be substantial. This column recommends three devices to support policymakers in addressing this solvency challenge: a set of guiding principles, a kit of policy tools, and a decision-making framework. These will help policymakers in taking the hard decisions necessary to prepare their business sectors for future growth and resilience.

Dhingra, Freeman, Huang, 21 January 2021

Deep trade agreements are widespread and have taken the world beyond tariff liberalisation in goods trade. As the importance of global supply chains and the services sector increased across the world, shallow tariff reductions gave way to deeper commitments that address non-tariff barriers and behind the border barriers to trade. By matching dissagregated trade data to the universe of deep trade agreements, this column examines their impact on trade in goods and services, and quantifies their welfare impacts. Welfare gains from the commitments involved in such agreements have played a crucial role in overall welfare gains since the conclusion of the Uruguay Round. 

Boeri, Perotti, 20 January 2021

While many will breathe a sigh of relief as President Trump departs from the White House, up to the end US voters still had more faith in him than in Joe Biden when it came to the economy. This column compares the performance of the US in various economic indicators during the (pre-Covid) Trump administration with President Obama’s final three years, as well as in the euro area, to demonstrate that the view of Donald Trump as ‘the businessman who can at least run the economy’ was mistaken. The real danger of this view is that it suggests that economic policy can best be handled by entrepreneurs – something the Italians have learnt is not the case.

Vives, 20 January 2021

The dominance of Big Tech and other ‘superstar’ firms’ has put market power back on the agenda of politicians, as well as in research. But although oligopoly markets have been introduced in macroeconomic and trade models, this is mostly in the context of a very large ‘continuum’ of sectors such that a firm has market power in its sector but no influence on the wider economy.  This column argues that it is high time that oligopoly is integrated fully into the macroeconomics toolbox.

Bordalo, Tabellini, Yang, 20 January 2021

Our beliefs about one another’s political attitudes tend to be substantially mis-calibrated. This column analyses the factors shaping voters’ ideas about the political attitudes of other voters among the US electorate. Starting from the premise that individuals are not equally interested in all issues, it finds that when issue salience changes, beliefs about political groups can shift dramatically even when the underlying fundamentals remain the same. Meanwhile, the removal of a perceived external threat can induce citizens to perceive one another as further apart on domestic issues, undermining a country’s social cohesion. 

Bussière, de Haan, Hills, 20 January 2021

Despite being a central question in international macroeconomic policy debates, there is still only limited empirical evidence on the extent to which macroprudential policy affects the transmission of monetary policy and the propagation of shocks across borders.  This column presents findings from the latest project of the International Banking Research Network. The interactions between monetary and macroprudential policies are shown to significantly alter cross-border bank flows across a wide range of countries, though the magnitudes differ appreciably across countries and instruments.

Acharya, Johnson, Sundaresan, Zheng, 19 January 2021

Quantifying the economic damage caused by the COVID-19 pandemic and the worth of a cure can assist cost-benefit analyses of potential public-sector investment to alleviate the impact of the current pandemic. By reflecting forward-looking expectations, stock prices should indicate the economic value of progress being made towards vaccine development. This column estimates the value of a COVID-19 cure using the behaviour of stock prices and a novel vaccine progress indicator. The value of a cure is worth between 5% and 15% of wealth and rises substantially with uncertainty surrounding the frequency and duration of the pandemic. Understanding the fundamental biological and social determinants of future pandemics may be as important as resolving the immediate crisis.

Andritzky, Schumacher, 18 January 2021

For countries experiencing a debt crisis, the restructuring of government bonds is a possible resolution tool. For investors, however, the literature highlights the short-term losses of such operations. This column provides evidence on investment returns over the longer run and finds that bond returns over the longer run – capturing both pre- and post-crisis times – do not differ significantly between crises with and without debt restructuring. What matters more is bondholders’ investment strategy during crises episodes. Conditional on a debt crisis, debt restructuring can even be financially rewarding for creditors investing in distressed bonds.

Bloom, Bunn, Mizen, Smietanka, Thwaites, 18 January 2021

The Covid-19 shock has had asymmetric effects across sectors of the economy, with those sectors that involve the most social contact in consumption bearing the brunt. This column uses data from the Decision Maker Panel business survey data to assess how the spread of Covid-19 and measures to contain it are likely to affect productivity. It estimates total factor productivity in the UK private sector is likely to be lower than it would have been, by up to 5% in 2020 Q4, falling back to a 1% reduction in the medium term. Firms anticipate a large reduction in ‘within-firm’ productivity, primarily because measures to contain Covid-19 are expected to increase intermediate costs. Since the pandemic disproportionally affected firms in low-productivity sectors, and the least productive firms within these sectors, these become a smaller part of the economy and therefore a positive ‘between-firm’ reallocation effect partially offsets the negative ‘within-firm’ effect.

Espitia, Mattoo, Rocha, Ruta, Winkler, 18 January 2021

As COVID-19 spread across countries, many saw global value chains as transmitters of shocks. Using disaggregated export data for multiple countries, this column shows that participation in global value chains increased exporters’ vulnerability to foreign shocks, but it also reduced vulnerability to domestic shocks. Sourcing inputs from abroad is an example of beneficial diversification through trade when domestic production is disrupted. This evidence corroborates the view that nationalising value chains is not the way to improve resilience. 

Meier, Servaes, 18 January 2021

Governments and central banks worldwide have reacted to COVID-19 with unparalleled emergency measures, including bailouts. One key objective of these emergency measures was to prevent fire sales and the externalities associated with them. Based on 31 years of data on fire sales of real assets, this column documents that there is an underappreciated ‘bright side to fire sales’ in the form of gains to buyers. Furthermore, the negative externalities of fire sales for customers or suppliers, for instance, appear limited. These findings indicate that the welfare losses associated with fire sales are smaller than previously thought, thereby raising doubts about the merits of bailouts to prevent them.

Cagé, Dagorret, Grosjean, Jha, 17 January 2021

The events at the US Capitol earlier this month echo important moments in history where rioters protesting the state include former veterans and political heroes. This column uses novel evidence on extreme right-wing supporters and Nazi collaborators in France to show how democratic values can be undermined by exogenous networks of influential individuals, including military heroes. Heroes are specially positioned to widen the ‘Overton window’ and legitimise views previously considered deeply repugnant. Social networks of individuals sharing such an identity can transmit and reinforce this influence, leading to escalating commitments that entrench political positions and make debiasing more difficult.

Agarwal, Hodgson, Somaini, 17 January 2021

In the US, most patients who need a kidney transplant must participate in a centralised deceased-donor kidney allocation mechanism. The allocation system seeks to make the best use of available organs and maximise ‘life years from transplant’. This column estimates the life years from transplant generated by the US kidney assignment system, using data on transplants and outcomes for patients on the waiting list between 2000 and 2010. Patient choice to reject or accept the transplant increases life years from transplant. The policy goal to maximise life years from transplant would result in younger, healthier patients receiving transplants at the expense of older, more urgently sick patients.

Friedt, 17 January 2021

The COVID-19 pandemic has caused one of the most severe contractions in international trade since the Great Trade Collapse, leading to comparisons between the two episodes. While the Great Trade Collapse has been clearly linked to the collapse in international demand, this column argues that the COVID-19 pandemic has the potential to impact trade through multiple transmission channels, highlighting the role of global value chains in the transmission. Commercial policy responses to bolster the global economy must, therefore, deviate from demand-centred instruments and consider the dependence on and resilience of global value chains to address the triple pandemic effect.

Dahl, Kotsadam, Rooth, 17 January 2021

Despite women making up close to half of the labour force in most developed countries, occupational segregation remains high. One potential reason for this is gender stereotyping. This column uses an experiment conducted with Norwegian Army recruits to explore whether integration can change gender attitudes and related outcomes. It finds that intensive contact with female recruits during boot camp causes men to have more egalitarian attitudes in the short run but no effect on attitudes in the long term – perhaps because the duration of the experiment was relatively short compared to the overall military experience.

Deng, Plümpe, Stegmaier, 16 January 2021

Robots will shape the future of labour. This column uses a large-scale, plant-level survey to provide the first microscopic portrait of robotisation in Germany, the country with the highest robot density in Europe. The findings reveal substantial within-industry heterogeneity – robot use remains relatively rare and its distribution highly skewed. Factors that influence a plant’s decision to adopt robots include size, skill composition, labour costs, and exporter status. New adopters have contributed substantially to the recent growth in Germany’s robotisation.

Adachi, Fukai, Kawaguchi, Saito, 16 January 2021

The outbreak of the COVID-19 pandemic this year has led to a surge in teleworking and prompted renewed interest in the importance of commuting patterns for geographical labour markets. This column introduces commuting zones for Japan, based on the percentage of within-area commuting. The commuting zones, which the authors are making available for future academic use, capture well heterogeneity in the labour market. 

Atmaca, Kirschenmann, Ongena, Schoors, 16 January 2021

Deposit insurance has the potential to preserve and even restore financial stability in times of crises. This column uses evidence from more than 300,000 Belgian depositors of a large European bank during 2008 and 2009 to examine whether increasing deposit insurance coverage supported financial stability during the global financial crisis. It finds that the increase in deposit insurance coverage together with the nationalisation of a bank at the height of the financial crisis in the autumn of 2008 was effective in calming depositors. The effect of increased deposit insurance kicks in most strongly once the bank is reprivatised, and close bank-customer relationships and trust in the government reinforce the effect.

Gandal, 15 January 2021

What is behind the pinballing price movements of Bitcoin? Neil Gandal tells Tim Phillips how supply and demand works for cryptocurrencies.

You can download Neil's paper, The Microeconomics of Cryptocurrencies (Neil Gandal, Joshua Gans, Guillaume Haeringer, Hanna Halaburda), free here

Forni, Turner, 15 January 2021

Dollar bond issuance by non-US companies has dominated foreign borrowing since the global crisis. In many emerging markets, higher leverage and currency mismatches have increased the risk of corporate insolvencies and created new threats to the balance sheets of local banks. This column documents the financial risks created by these recent trends and outlines the necessary implications for regulatory policy. In addition to regulation, financial fragilities have added to demands for fiscal stimulus and led some emerging market central banks to ease monetary policy by buying government bonds, creating new links with fiscal policy. 

Caselli, Grigoli, Rente Lourenço, Sandri, Spilimbergo, 15 January 2021

The COVID-19 pandemic is having very unequal effects across people. Using unique aggregated and anonymised mobility indicators provided by Vodafone for Italy, Portugal, and Spain, this column shows that lockdowns have had a larger impact on the mobility of women and younger cohorts. Younger people also experienced a sharper drop in mobility in response to rising COVID-19 infections. The findings warn about a possible widening of gender and inter-generational inequality and provide important inputs for the formulation of targeted policies.  

Eichengreen, Csonto, El-Ganainy, Koczan, 14 January 2021

Global inequality has fallen in recent decades, but within-country inequality has risen in a significant number of national economies during the same period.  This column identifies the channels through which financial globalisation accentuates inequality and suggests how these could be mitigated by accompanying policies.  

Deryugina, Miller, Molitor, Reif, 13 January 2021

Policies aimed at reducing the harmful effects of air pollution on human health typically focus on improving air quality in polluted areas. This column suggests a shift in focus from targeting the most polluted places to serving the most vulnerable people. Basing air quality regulations on pollution levels may be less valuable than reducing air pollution in regions with vulnerable populations. Programmes that reduce poverty or improve access to health care may also lessen the recipients’ susceptibility to acute pollution exposure.

Rehn, 13 January 2021

Global population ageing will lead to a trend reversal, with saving rates falling, real wages increasing, and greater inflationary pressures. The change in China’s economic model from forced saving towards increased consumption is amplifying this trend. This column reviews a new book by Charles Goodhart and Manoj Pradhan in which the authors examine megatrends reshaping societies and economies. Whether they are proved right or wrong, their arguments should prompt a much-needed reflection on widely held assumptions about future developments.

Schularick, ter Steege, Ward, 12 January 2021

The question of whether monetary policymakers can defuse rising financial stability risks by ‘leaning against the wind’ and increasing interest rates has sparked considerable disagreement among economists. This column contributes to the debate by studying the state-dependent effects of monetary policy on financial stability, based on the ‘near-universe’ of advanced economy financial cycles since the 19th century. It shows that deploying discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them.

Lalive, Magesan, Staubli, 12 January 2021

Policymakers have used a variety of tools to preserve the solvency of social security systems. The life-cycle model of behaviour predicts that financial incentives will shape people’s decisions on when to claim their pensions and when to retire but this is debatable. This column examines a reform to women’s pensions in Switzerland to understand how people respond to different policy instruments. Most people do not claim their pension benefits at the age that the standard model of behaviour would predict. Instead, individuals are influenced by the full retirement age (which they consider ‘natural’) and the fear of losing benefits by claiming early.

Niepelt, Gonzalez-Eiras, 11 January 2021

Infection externalities are a key feature of the Covid-19 pandemic, as individuals fail to account for the full consequences of their actions. This column develops a model of infection dynamics and economic choices and studies the resulting optimal policy outcomes. Under a scenario of the pandemic ending deterministically following an effective vaccination campaign, the model suggests that countries whose vaccination campaigns are proceeding quickly should impose a strict lockdown, while countries whose campaigns will not be completed within a few months should not impose a lockdown at all. In contrast, if the appearance of a cure is more ‘stochastic' – for example, if the virus mutates further or the vaccines turn out to be less effective than hoped – optimal policy calls for alternating between lockdowns and ‘inverse lockdowns’, with the latter stimulating social interaction.

Borchert, Di Ubaldo, 11 January 2021

Uncertainty over the future course of trade policy really matters. Developing countries obtain non-reciprocal tariff reductions from many industrialised countries through Generalised Systems of Preferences, but the uncertainty surrounding the continuation of preferential treatment is likely to undermine the schemes’ effectiveness. This column studies the 2014 reform of the EU’s Generalised System of Preferences, which removed the uncertainty on preferences for a subset of beneficiary countries. It finds that the removal of uncertainty led to an increase in EU imports from affected countries by about 45% without any changes in other market access conditions. This average trade impact is driven by country-sector pairs that are most exposed to preferences uncertainty prior to the reform, for which trade increased by over 70%.

Giovannini, Horn, Mongelli, 10 January 2021

The economic fallout from the COVID-19 crisis has been asymmetric across euro area countries, leaving room for risk-sharing channels to operate. This column studies income risk-sharing in the euro area and finds that while it has so far been low, it was resilient throughout the crisis. Initial portfolio investment reverted quickly and intra-euro area cross-border portfolio investment exhibited low volatility. Only cross-border public flows have been limited. This suggests that the provision of unprecedented policy support has prevented private risk-sharing channels from collapsing, reducing the risk of a sudden stop in cross-border financial flows and a further exacerbation of the crisis.

Bichler, Cramton, Gritzmann, Ockenfels, 10 January 2021

Airport time slots are currently awarded by historic use, with only small number reserved for new entrants. This hampers competition, promotes inefficient slot utilisation, and contributes to congestion. This column revisits the idea of carefully auctioning time slots at congested airports in order to foster competition by more flexibly allocating slots, as opposed to the current use-it-or-lose-it approach which favours the status quo. 

Oyer, Shaw, 09 January 2021

Edward Lazear, the first personnel economist, passed away in November 2020. This column reviews his many contributions to the world of economics and beyond. The authors, two close colleagues and co-authors, highlight some of Lazear’s key research papers, focusing on tournaments, retirement, and piece rate payments. They look at his creation of and contributions to important institutions in the economics community, as well as his work in public policy. Finally, they remember his interests outside of academics.

Chronopoulos, Kampanelis, Oto-Peralías, Wilson, 09 January 2021

The enduring impact of ancient colonialism can still be felt in the economic geography of the Mediterranean region. This column combines historical data on ancient colonies with current data on economic outcomes to show that areas once colonised by the Phoenicians, Greeks, and Etruscans have higher population densities and enhanced economic activity to this day – effects due more to the colonisation episode than to geographic attributes. The impact of ancient colonialism can thus be traced back more than two millennia, to the origin of the Mediterranean urban system.

Thoenig, 08 January 2021

A new study uses detailed data on the persecution of Jews in Nazi Germany to investigate why individuals become refugees. Mathias Thoenig tells Tim Phillips about a simple policy that would have saved hundreds of thousands of lives in the 1930s, but is still ignored today.

Shet, Dhaliwal, Bloom, 08 January 2021

Despite the excitement and hopeful anticipation among the general public, the level of mistrust surrounding the COVID-19 vaccines is deeply concerning. This column argues that a ‘bottom-up’ approach to administering the vaccines – where the community is a resource and an active partner, not just a passive recipient of services – is critical for rebuilding trust and addressing inequities. It is also important to communicate that the vaccination effort is not just about saving lives, but also about improving livelihoods.

Escobari, Levy Yeyati, 07 January 2021

COVID-19’s impact on welfare, as well as its legacy, will likely differ significantly between North and South America because of differences in the labour market structure across the two continents. This column highlights informal labour markets in developing economies of South America as a potential explanation for the larger and more persistent impact of the pandemic in the South as compared to North America. It suggests targeted training and new regulation to mitigate the precariousness of the workforce in these economies.

Seric, Görg, Liu, Windisch, 07 January 2021

The Covid-19 pandemic has exposed the fragility of the global trade network underpinning global value chains. Initial disruptions in the supply chains for key medical goods due to surges in demand and newly erected trade barriers have prompted policymakers around the world to question their country’s reliance on foreign suppliers and international production networks. This column takes a closer look at China’s post-pandemic recovery and argues that its response may hold clues to the future of global value chains.

Vaitilingam, 06 January 2021

The US Federal Trade Commission and 46 states have brought antitrust cases against Facebook, which could potentially require the company to unwind its acquisitions of Instagram and WhatsApp. The IGM Forum at Chicago Booth invited its panels of leading US and European economists to express their views on whether requiring the company to make these divestments is likely to make society better off. As this column reports, a considerably larger proportion of experts on the European panel agree or strongly agree with the statement than the US panel (78% compared with 59%); nearly a quarter of US experts are uncertain; and just over a sixth of US experts disagree.

Botev, Égert, Smidova, Turner, 06 January 2021

Human capital is widely regarded in the theoretical literature as fundamental for economic growth. Yet, quantifying the macroeconomic effects of human capital on growth has produced only mixed results. This column introduces a new measure of human capital which exhibits a strong and robust positive correlation with economic growth. The measure is built on recent findings on U-shaped returns to years of education and allows for variation across countries and over time. Empirical analysis shows the importance of pre-primary education, teaching resources as well as school autonomy for this measure of human capital. 

Caffarra, Scott Morton, 05 January 2021

The European Commission has finally issued the proposed Digital Markets Act, its bid to complement antitrust intervention in digital markets with ex-ante regulation in the form of a set of obligations that platforms identified as “gatekeepers” should abide by. This column argues that the current proposal makes good progress, but lacks the translation tools to map the rules from the settings that inspired them to other businesses that are deemed gatekeepers, that the rules may not do enough to recognise the direct consumer harm that flows from the exploitation of data and the extraction and appropriation of consumer value, and that merger control remains a significant lacuna in the Commission’s digital regime that will need to be addressed separately. In contrast, the UK CMA proposals condition the rules on business models and fold merger control into the digital regime. 

Di Ubaldo, Gasiorek, 05 January 2021

Preferential trade agreements increasingly feature non-trade provisions whose impact on foreign direct investment is yet to be explored. This column exploits a structural gravity setting to study how preferential trade agreement provisions related to civil and political rights, economic and social rights, and environmental protection may affect the flow of bilateral greenfield foreign direct investment. It finds that all three types of non-trade related provisions affect FDI negatively. The largest effects are estimated for FDI directed ‘South’ (to middle- and low-income countries), and between ‘South-South’ countries in particular.

Levinson, Sager, 05 January 2021

Minimum standards for automobile fuel economy were first set in the US in the 1970s, and have since spread to Europe, Asia, and now Latin America. Regulators claim the rules save car buyers money on average, implying a market imperfection or behavioural anomaly. This column presents new evidence that those averages mask enormous variation. While some drivers could likely save money by spending more upfront for efficient cars, many others overspend for efficient cars they rarely use. Demographics, not economics, determine car choices.

Cosar, Thomas, 04 January 2021

Open oceans are vital for the transport of a large share of world trade. But they are also frequently at the centre of geopolitical tensions between nation states. This column estimates the economic costs of impeded shipping access in South East Asia. The results of the study suggest that restrictions to shipping due to military sanctions could have large negative effects on economic welfare for countries all over the world, including oil exporters such as the United Arab Emirates and Saudi Arabia.

Prettner, Chen, Kuhn, Bloom, 04 January 2021

Proponents of the ‘herd immunity’ approach to COVID-19 argue for a largely uncontrolled outbreak in the low-risk population, while protecting the vulnerable, to achieve natural immunisation at minimal economic cost. In contrast, others favour fighting COVID-19 with all possible means, including lockdowns. This column describes simple, effective, and low-cost policy measures designed to fight the spread of COVID-19 that should be amenable to both camps. 

Bagues, Roth, 03 January 2021

Countries across Europe have struggled in recent decades to prevent secessionist movements, win wide support for social safety nets, and tackle problems demanding collective action. This column argues that to accomplish such goals requires a sense of shared, national identity. Exploiting a unique natural experiment – the random assignment of conscripts in Spain to serve outside their home region – it finds that intergroup contact in early adulthood can encourage interregional social cohesion. Governments looking to promote national identity should consider policies, such as mobility in higher education, that bring together people from different regions.

Di Ubaldo, McGuire, Shirodkar, 03 January 2021

The adoption of environmentally friendly production methods matters to both firms and policymakers, as both are concerned with reducing the emissions of greenhouse gases and pollutants. This column studies the effect on emissions of environmental protection provisions in EU free trade agreements, as well as that of private ISO-14001 environmental certifications. Environmental protection provisions in EU trade agreements are associated with lower levels of sulphur dioxide and nitrogen oxide emissions, while ISO-14001 certifications are associated with lower levels of greenhouse gas emissions. For carbon dioxide, ISO-14001 certifications matter only for members of trade agreements with environmental protection provisions, suggesting the existence of complementarities between private and public environmental regulation.

van den End, Samarina, 02 January 2021

Policy announcements by a central bank policy can have a significant impact on financial markets. This column examines the sensitivity of various asset prices and other metrics to the ECB’s monetary policy announcements. Bond spreads, stock prices, and the euro-dollar exchange rate became more sensitive to policy announcements over time. But volatility of market ‘surprises’ was significantly higher after easing compared to after tightening decisions. This suggests that the ECB’s monetary policy communication has become an increasingly important market-moving event.

Égert, Guillemette, Murtin, Turner, 02 January 2021

Policymakers have faced a crucial trade-off between curbing the spread of the Covid-19 pandemic and minimising further damage to economic activity. Employing reduced form econometric estimates of the Covid-19 pandemic, this column seeks to quantify the impact of government interventions on disease progression and mobility. It finds that a wide-ranging package of public health policies – including comprehensive testing, tracing and isolation, mask-wearing, and policies directed at vulnerable people in care homes – are crucial to avoid full lockdowns while also containing the spread of the virus. Such policies may, however, need to be complemented by selective containment measures such as restricting large public events and international travel or localised lockdowns. 

Ilzetzki, 02 January 2021

Global economic activity took a large hit during the Covid-19 pandemic, and the euro area was no exception. This column reveals how the majority of the CfM-CEPR panel of macroeconomic experts on the European economy predict a 2-5% decline in the level of potential euro area GDP, but no impact on the potential long-run growth rate. 

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