February 2021

Siotis, Ornaghi, Castanheira, 28 February 2021

A perplexing feature surrounding generic entry is that the price of the other on-patent potential substitutes is barelyaffected, leading competition authorities to conclude sometimes that a single molecule may constitute a distinct antitrust market.  Using data on prices, quantities, and promotional effort for a large number of molecules sold in the US, this column finds that there is no such thing as a single/natural antitrust market, even for a fixed set of products (and absent technological, regulatory, or trade shocks).  

Jedwab, Barr, Brueckner, 28 February 2021

Housing prices in many countries are growing faster than incomes. Much of this affordability problem can be explained by regulatory barriers to new construction. This column calculates countries’ ‘building-height gaps’ – the difference between the total height of a country’s stock of tall buildings and what the total height would have been if building height regulations were relatively less stringent, based on parameters from a benchmark set of countries. These gaps are larger for richer countries and for residential buildings rather than for commercial buildings, and they correlate strongly with housing prices, sprawl, congestion, and pollution. 

Iacono, Palagi, 27 February 2021

A crucial element in the study of wealth inequality is the difference between the rate of return and the growth rate of income. However, the focus on these measures at the aggregate level belies important heterogeneities along the wealth distribution. This column uses rich micro-data from Norway to show that wealthy households enjoy higher rates of return relative to growth, while the opposite is true for poorer household and the lower-middle-income class. It discusses policy implications of these findings for capital and wealth taxation in order to curb the rise of inequality. 

Danielsson, 26 February 2021

As the price of bitcoin continues to rise, this column argues that most of us would not want to live in a society where bitcoin succeeds. Fortunately, the internal contradictions and perverse consequences of cryptocurrencies' success mean that they are destined for failure. Until then, it might make sense for speculators to ride the cryptocurrency bubble, so long as they get out in time.

Pradhan, Goodhart, 26 February 2021

Milton Friedman and Bill Phillips most likely assumed that their separate methods for predicting inflation would lead to much the same outcomes. Recently, however, monetary aggregates and the Phillips curve have provided extremely disparate signals. This column discusses recent economic developments leading to these disparate signals, concluding that inflation will most likely end up somewhere between the predictions of the two models – which is almost certainly higher than what central banks and the IMF are expecting.

Hong, Saito, 25 February 2021

Firm exits have been at the centre of policy discussions since the start of the Covid-19 pandemic. This column explores Japanese firm exit patterns during severe crises as well as during normal times. Using a dataset that distinguishes firm exit types, the authors find that Japanese firms mainly exit voluntarily, while bankruptcy rates are extremely low. Further, Japanese firms respond to economic shocks mainly through adjustments to output instead of exits – as was seen during the Covid-19 crisis. The ‘cleansing effects’ of firm exits vary by exit type, but appear stable during the current crisis.

Jouvanceau, Mikaliunaite, 25 February 2021

The Euro Area Monetary Policy Event-Study Database makes available intraday asset price changes around ECB policy announcements for a wide range of assets, but conceals unrecognised effects of the ECB’s actions and communications. This column presents three new types of monetary surprises: ‘duration’, ‘sovereign spread’, and ‘save the euro’. These reflect the frequent and significant reactions of long-term sovereign bond yields to ECB monetary policies.

Mendicino, Nikolov, Rubio-Ramirez, Suarez, Supera, 24 February 2021

Well-capitalised banks make the financial system more resilient to episodes such as the COVID-19 crisis. This column assesses how much capital would be optimal for banks to hold, taking into consideration the risk of banking crises driven by borrower defaults. It finds that capital requirements of around 15% provide the optimal trade-off between lowering the frequency of banking crises caused by borrower defaults and maintaining the availability of credit in normal times. While the exact figure depends on a number of assumptions, it is higher than both the Basel III minimum and the optimum implied by macroeconomic frameworks that underestimate or neglect the impact of borrower default on bank solvency.

Djankov, Panizza, 23 February 2021

Africa’s citizens have so far mostly been spared the direct health consequences of the pandemic, but many of its economies are on life support. Ugo Panizza and Simeon Djankov, two of the editors of a new CEPR ebook about Africa's recovery, talk to Tim Phillips about post-Covid debt, FDI, food security, and how it's in all our interests to step up and help.
Download the free eBook, Shaping Africa’s Post-Covid Recovery, here.

Persaud, 23 February 2021

The switch to renewable energies is necessary for humanity’s future, but it is currently too slow. For developing countries, the critical obstacle is the pricing, ownership, land-use and approval processes renewable projects have to go through. This column argues that to bring dividends for sunnier, developing countries, provide more projects for green investors, and for some redemption for the rest of humanity, countries should (1) streamline the approval process, (2) broaden the ownership of assets through mandated initial public offerings and small-investor allocations while supporting big foreign investors in the short-run, and (3) offer an attractive feed-in tariff that predictably ratchets down in favour of consumers once investors reach their return threshold.

Alogoskoufis, 23 February 2021

Greece experienced a deep recession in 2020, and pandemic relief measures have led to further increases in its exorbitantly high public debt. This column outlines three potential methods for dealing with increasing debt after the crisis: (1) increases in taxation/reductions of government spending, (2) debt restructuring and (partial) debt write-offs, or (3) a policy of ‘gradual adjustment’ in which economic growth helps the debt burden shrink relative to GDP over time. The precise policy mix will involve significant coordination among euro area countries, but Greece must also implement domestic reforms to facilitate a dynamic and sustainable recovery. 

Arezki, Djankov, Panizza, 23 February 2021

While most African countries have been largely spared so far from the direct health effect of the Covid-19 pandemic, the continent’s economy has been significantly hurt by the economic consequences. This is particularly concerning given Africa’s high prevalence of extreme poverty.  A new eBook from CEPR Press focuses on business and household responses to the Covid-19 crisis in Africa, as well as access to international finance, patterns in international borrowing, and country-specific experiences during the pandemic. 

Leeds, Rockoff, 22 February 2021

African American jockeys were once a common feature of horseracing in the US. This column uses historical sources and statistical analysis to document the exclusion of Black jockeys in the late 19th and early 20th centuries, despite their proven talent. While the barriers have been lifted in recent years, Black jockeys have been unable to approach the level of performance that had once been commonplace, and horseracing has become another sad example of the legacy of Jim Crow. 

MacLeod, Urquiola, 22 February 2021

In 1875, the US had none of the world’s leading research universities; today, it accounts for the majority of the top-ranked ones. Many observers cite events surrounding WWII as the source of this reversal, but US universities were well on their way to leadership before WWII. This column argues that an explanation of their dominance must therefore begin earlier, and highlights reforms that began after the Civil War and enhanced the incentives and resources the system directs at research.

Iddawela, Lee, Rodríguez-Pose, 21 February 2021

Differences in the quality of local and regional governments and their implications for development have attracted considerable attention, especially in Europe and Asia. In Africa, the recent drive towards decentralisation has, however, neglected how variations in the quality of sub-national governments affect development prospects. This column addresses this gap in knowledge by measuring variations in subnational government quality in 22 African countries, and connecting these variations to differences in levels of development across the continent. The quality of sub-national governments is an important driver of economic development in African regions.

Jia, Roland, Xie, 21 February 2021

Property rights and the rule of law were weaker in Imperial China than in premodern Europe. And yet, ordinary people in Imperial China had more access to elite status than their European counterparts. This column makes sense of the seeming contradiction by employing a theory of power structures in which a more symmetric relationship between elites and ordinary people stabilizes autocratic rule. If a ruler’s power is absolute, this stabilising effect will be stronger, and the ruler’s incentive to promote such symmetry will be greater. 

Devictor, Do, Levchenko, 20 February 2021

It is usually observed that countries neighbouring a conflict area end up accommodating the largest numbers of refugees often for very long periods of time. Using data on worldwide bilateral refugee stocks from 1987-2017 compiled by the United Nations High Commissioner for Refugees, this column examines the spatial distribution of refugees and its evolution over time. It finds that while most refugees still remain in a country neighbouring their country of origin, the past decades have seen a trend towards greater geographic diffusion.

Andrews, Whalley, 20 February 2021

We have witnessed significant changes in economic geography over the last years. However, little is known about the spatial concentration of innovation over time. This column uses a novel dataset containing the location of all US patents between 1836 to 2016 to analyse the geography of innovation over time. It finds that while concentration was as high as it is today in the late 1860s, it has seen a substantial decline thereafter, remaining at significantly lower levels for the larger part of the 20th century. It further finds substantial turnover in the identities of top inventing places.

Schankerman, 19 February 2021

Diffusion of new drugs is painfully slow in low-income countries. Mark Schankerman tells Tim Phillips about how patent pools accelerate the process, and how we could still do a better job of licensing life-saving medicines.

Abad, Maurer, 19 February 2021

While the COVID-19 pandemic seemed to have affected the 2020 US presidential elections, it had remarkably little effect on the electoral returns. This column compares the situation to the 1918 influenza pandemic and examines whether the flu pandemic affected US congressional, gubernatorial, and presidential elections during 1918–1920. Flu deaths did have a small effect on elections – voters did indeed blame incumbent parties for bad health outcomes. However, it appears they cared about other things much more.

Aussilloux, Baïz, Garrigue, Martin, Mavridis, 19 February 2021

The Covid-19 crisis has presented policymakers across the euro area with an unprecedented challenge, not least of all because the shock has come to both the supply side and the demand side of the economy. This column presents a preliminary analysis of different nations’ responses so far, focusing on which measures have been deployed to address each side of the economic shock and where a ‘mixed approach’ has been taken to work in tandem. At a time where coordinated action may be needed, there is a concerning level of inconsistency in strategy. 

Gersbach, 18 February 2021

Since the financial crisis of 2007/08, bank equity regulation has been tightened. This is one reason why broad money supply reacted only weakly to the enormous expansion of the monetary base. This column argues that the process of tightening bank equity regulation has come to an end and will not have the same disinflationary effects after the pandemic. The large reserve balances held by banks may become a greater concern and pose larger inflation risks in the years to come. 

Kelly, Watt, Hardie, Lawson, 18 February 2021

As populations age and labour productivity slows, policy agendas that support stronger diversity and inclusion measures could provide a much needed shot in the arm for the global economy. This column describes the constraints limiting women’s full participation in the workforce across a wide sample of countries, and suggests that governments looking to maximise growth prioritise paternity leave legislation, tax wedges, and employment protections. Policies targeting gender parity must focus not only on women’s labour-supply decisions but on men’s behaviour as well. 

Andrew, Attanasio, Augsburg, Behrman, Day, Jervis, Meghir, Phimister, 17 February 2021

Despite the importance of female networks, many women worldwide face substantial barriers to creating and maintaining social connections. This column examines new mothers’ social networks in rural Odisha, an eastern state in India, and finds that young mothers tend to be extremely isolated, with potentially important consequences for mental and physical wellbeing, access to services, and maternal empowerment. The networks that exist display strong negative socioeconomic status gradients, with dominant-caste and wealthier women being much more isolated than their lower-status peers.

Eggleston, Lee, Iizuka, 17 February 2021

Firm-level studies are important for understanding how robots augment some types of labour while substituting for others, yet evidence outside manufacturing is scarce. This column reports on one of the first studies of service sector robots, which suggests that robot adoption has increased some employment opportunities, provided greater flexibility, and helped to mitigate turnover problems among long-term care workers. The wave of technologies that inspires fear in many countries may be a remedy for the social and economic challenges posed by population ageing in others.

Funke, Schularick, Trebesch, 16 February 2021

The rise of populism in the past two decades has motivated much work on its drivers, but less is known about its economic and political consequences. This column uses a comprehensive cross-country database on populism dating back to 1900 to offer a historical, long-run perspective. It shows that (1) populism has a long history and is serial in nature – if countries have been governed by a populist once, they are much more likely to see another populist coming to office in the future; (2) populist leadership is economically costly, with a notable long-run decline in consumption and output; and (3) populism is politically disruptive, fostering instability and institutional decay. The analysis suggests that populism is here to stay.

Giagheddu, Papetti, 16 February 2021

Data from countries across the world have confirmed that the elderly face a much higher risk of dying from COVID-19. This column discusses the role of age-specific socioeconomic interactions to examine the effect of different containment measures on the spread of COVID-19 and its impact on the macroeconomy. By adding an economic dimension to a standard epidemiological framework, it demonstrates that policymakers can limit the death toll at a lower economic cost using age-specific containment measures which focus on limiting social interactions between the elderly and the young to a much stricter extent.

Hanspach, Sondergeld, Palka, 15 February 2021

Women economists remain underrepresented in leadership positions across the academic world as well as in the private and public sectors. This column uses data from the 2020 edition of the Women in Economics Index (WiE) to document imbalances in the profession’s gender distribution, discuss what those imbalances reveal about the state of the profession broadly, and emphasise the importance of equal opportunity to the field’s future. Removing barriers in economics will not only facilitate workplace fairness but may also improve outcomes.

Çakmaklı, Demiralp, Kalemli-Ozcan, Yesiltas, Yıldırım, 15 February 2021

Countries around the world are beginning to vaccinate their populations against Covid-19. This column calculates the global economic costs from the absence of an equitable distribution of vaccines, with a focus on international trade and production linkages. Under the scenario where advanced economies are vaccinated universally within four months in 2021 but only 50% of the population is vaccinated in emerging markets and developing economies by early 2022, it finds that the global economic costs might be as high as $3.8 trillion. Up to 49% of these costs are borne by advanced economies.

Verwey, Vyskrabka, Pfeiffer, 15 February 2021

The breakthroughs in vaccine development in the autumn of 2020 and the start of mass vaccination campaigns in 2021 brightened the near-term outlook for the EU economy. However, hopes of a quick recovery have, to some extent, been overshadowed by the recent resurgence of the pandemic. In order to highlight the extent of prevailing uncertainty and the importance of vaccinations for EU’s economic trajectory, this column describes the optimistic and pessimistic model-based scenarios for the EU economy forecast by the European Commission. It finds that effective vaccines and their quick roll-out could add about three percentage points to annual growth of EU this year. 

Gropp, Mosk, Ongena, Simac, Wix, 14 February 2021

The implementation of supranational regulations at the national level often provides national authorities with substantial room to engage in discretion and forbearance. Using evidence from a supranational increase in bank capital requirements, this column shows that national authorities may assist banks' efforts to inflate their regulatory capital to pass such supranational requirements. While supranational rules should be binding in theory, national discretion may effectively undermine them in practice.

Behrens, Kichko, Thisse, 13 February 2021

Containing Covid-19 has required more people to work from home, accelerating the trend towards telecommuting. This column uses a general equilibrium model to analyse the long-term effects of this trend, and finds that it may prove to be a mixed blessing. Working from home saves time that would be spent commuting but deprives firms of the benefits from information and knowledge spillovers. Firms use less office space, but workers require more space at home. Overall, GDP will likely be maximised when working from home occurs one or two days per week.

Blandhol, Mogstad, Nilsson, Vestad, 13 February 2021

Worker representation on corporate boards has gained popularity as a way to promote the workers’ interests. This column explores whether worker wages are linked to worker representation on corporate boards, using ten years of data from Norway. Workers are paid more and face less earnings risk if they work in firms with worker representation on the board, but these benefits can be entirely explained by firm size and the share of unionised workers. While workers may benefit from being employed in firms with worker representation, they would not benefit from legislation mandating worker representation on corporate boards.

Ferraresi, Gucciardi, 12 February 2021

In the first wave of the COVID-19 outbreak, central governments around the world played a central role in defining policy options to combat the pandemic, while the local authorities saw their executive powers temporarily reduced or even cancelled. This column examines the change in policy decisions induced by the pandemic that led to centralised decision-making in Italy. Using an indicator of local governance approval, it investigates the difference between cities politically aligned and non-aligned with the central government before the pandemic, when municipalities enjoyed the usual discretion in policy decisions, and after the COVID-19 outbreak, when decisions were centralised. The findings suggest a public ‘discontent’ with the policy decisions of the central government, which might reflect a sense of a lack of government preparedness against the pandemic.

Corradin, Hoerova, Schepens, 12 February 2021

Euro area money markets have gone through substantial changes and turbulent periods over the past 15 years. These have included the global and euro area sovereign debt crises, new liquidity and leverage requirements, and the expansion of the Eurosystem balance sheet through asset purchase programmes. This column discusses the interaction between money markets, new Basel III regulations, and central bank policies. The analysis shows that money market conditions worsen when financial stress increases, or if central bank asset purchases induce scarcity effects. It outlines implications of changing money market conditions for monetary policy implementation and transmission.

Delpeuch, Fize, Martin, 12 February 2021

How much can trade imbalances account for the rise in protectionism of the past ten years? This column reveals that both bilateral and multilateral trade imbalances are strong predictors of protectionist attacks, partly – but not entirely – driven by the US and the Trump years. Moreover, countries with more expansionary fiscal policies react to the ensuing trade imbalance by a more protectionist trade policy. A transatlantic gap in the fiscal response to the COVID crisis may therefore pave the way to renewed trade tensions.

Edmans, 11 February 2021

Policymakers, investors, and stakeholders are demanding that companies report sustainability metrics so that they can be held accountable for delivering social performance. Doing so increases the total amount of information in the market and reduces the cost of capital. However, real decisions depend on not the total amount of information, but the balance between ‘hard’ (quantitative) and ‘soft’ (qualitative) information. Since sustainability metrics only contain the former, they distort this balance – skewing managers’ sustainability investments to ones with short-term payoffs.

Gupta, Peeters, Mittal, Van Nieuwerburgh, 11 February 2021

Covid-19 and the attempts to contain it have disrupted patterns of working and living across the globe. This column explores the impact of the pandemic on real estate markets in the US, documenting sizable enough changes in rent and price gradients to suggest that urban residents are fleeing city centres for the suburbs. Limits placed on city amenities combined with expanding opportunities to work from home have reduced the premium on urban living.

De Fraja, Matheson, Rockey, Timms, 11 February 2021

The Covid-19 outbreak has led to an unprecedented rise in the number of jobs done from home. This column discusses the implications of this shift for locally consumed services such as restaurants, hairdressers, and gyms. Using precise data on the location of homes and offices of workers across the UK, it finds that there is large heterogeneity in the impact of working from home on these businesses. While city centres suffered a significant drop in demand for services, suburban neighbourhoods experienced an increase in demand. Policies aimed at helping the service industry should take this diverse impact into account.

Buti, Polli, 11 February 2021

The Recovery and Resilience Facility is at the heart of Next Generation EU, Europe’s plan to tackle the economic fall out of the pandemic crisis. Member states must prepare national plans to receive the EU contributions. These plans include the investment and reform projects as well as their implementation mechanisms. This column uses the veto players’ theory to explain and predict the governance arrangements chosen by EU countries. It shows that the institutional features of countries and the internal cohesion of governments are important determinants of the governance of Recovery and Resilience Programmes.

Bartscher, Kuhn, Schularick, Wachtel, 10 February 2021

Racial income and wealth gaps in the US are large and persistent. Central bankers and politicians have recently suggested that monetary policy may be used to reduce these inequalities. This column investigates the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Over multi-year horizons, it finds that while accommodative monetary policy tends to reduce racial unemployment and thus earnings differentials, it exacerbates racial wealth differentials, which implies an important trade-off for policymakers.

Bluth, 10 February 2021

Christian Bluth, author of a new CEPR Press eBook on Europe's trade strategy, tells Tim Phillips that nations are increasingly using global trade as a means of political arm-twisting. Should the EU do the same?

Download the free eBook here

Evenett, Baldwin, 10 February 2021

Following the appointment of its new Director-General, the World Trade Organization has the best opportunity in years to revive its fortunes. This column, written as an open letter to the incoming Director-General of the WTO, argues why and offers ideas on how.

Bluth, 10 February 2021

The nature of globalisation is changing, with the US and China making increasing use of geoeconomic instruments in their big power competition. A new CEPR/RESPECT book discusses how, in its new trade strategy, the EU will have to react to this development as well as coming up with responses to the challenges posed to its trade policy by climate and demographic change, technological developments, a weakening of multilateral institutions, and an increased politicisation of trade policy. The answer must lie in a value-driven trade policy, efforts to restore the rules-based trading order, risk management, and the development of defensive geoeconomic capabilities.

Duca-Radu, Kenny, Reuter, 09 February 2021

When interest rates cannot go any lower, the economy can be stabilised if consumers expect the rate of inflation to increase. Yet, the evidence for this stabilising effect has been very mixed. This column presents new evidence from a monthly survey of over 25,000 individual consumers across the euro area, showing that consumers are indeed more ready to spend if they expect inflation to be higher in the future. While generalised in the population, the stabilising effect is stronger when nominal interest rates ­are constrained at the lower bound.

Ilzetzki, 09 February 2021

Over the past year, concerns about inflation have reappeared. This column presents evidence on inflation expectations from the January 2021 survey by the Centre for Macroeconomics. The panel of experts is split between those predicting that UK inflation will be roughly at its current target and those believing that inflation will be above target in the upcoming decade. A smaller minority worry that the UK growth rate will be too low for the Bank of England to stimulate inflation. Beyond the growth rate of the economy, additional factors that panellists are monitoring to project inflation include the effects of Brexit, rising public debts, and global factors.

Adachi, Kawaguchi, Saito, 09 February 2021

Previous studies have reported that the adoption of robotic technologies in industry reduces both employment and wages. This column examines the experience of Japan, which is unique due to early industry penetration and the fact that almost all the robots were domestically produced. Applying a different method from those in previous studies, it shows that the penetration of industrial robots has positive impacts on both employment and wages. This implies the potential for harmonisation of human work with future labour-replacement technology, such as artificial intelligence.

Pradelski, Oliu-Barton, 09 February 2021

EU member states agreed to adopt a joint strategy to exit Covid-19, based on setting public health measures and travel restrictions dependent on a region’s epidemiological situation. The strategy follows three of the four key principles of green zoning as introduced in the original version of this column, published in April and circulated to European decision makers: (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. However, the strategy falls short on the last and critical principle: (4) allow free travel between green zones, but control other travel. This update argues that the unconditional protection of green zones through travel restrictions must become the EU’s focus to curb the spread of the virus, avoid the repeated lockdowns experienced over the past year, and minimise economic and social damage.

Vaitilingam, 08 February 2021

The UK’s exit from the EU was finally completed on 1 January 2021. The IGM Forum at Chicago Booth invited its panels of leading European and US economists to express their views on the likely long-term effects of Brexit on both the UK economy and the aggregate economy of the remaining 27 EU members. As this column reports, a strong majority (86% of the panellists) agrees that the UK economy is likely to be at least several percentage points smaller in 2030 than it otherwise would have been. Views are more divided on the EU-27 economy: nearly a quarter of respondents agree that it will be at least several percentage points smaller in 2030 than it otherwise would have been; but more than a third are uncertain; while 41% do not expect the impact to be that strongly negative.

Nagler, Schnitzer, Watzinger, 08 February 2021

The secular decline in productivity growth is blamed by some on the slow diffusion of new general purpose technologies, so it is important to understand what slows down this diffusion and how it can be speeded up. This column presents evidence from the diffusion of the transistor, one of the most important general purpose technologies of our time. It shows that patents on general purpose technologies are likely to cause considerably more harm than patents on other technologies unless a standardised licensing regime is put in place. Not only do they block more follow-on innovation, but in particular they block valuable follow-on innovation arising from cross-technology spillovers. 

Landau, 08 February 2021

The fiscal stimulus pushed by the new US administration – much larger that the remaining output gap – has recently triggered a new and fascinating debate on the risk of inflation. This column argues, however, that the focus on short-term imbalances may obscure the long-term risk of fiscal dominance. This points to the need for a new, revitalised approach to central bank independence which would aim less at solving the time-inconsistency problem (eliminating the incentive to cheat) and more on preserving central banks’ unconstrained ability to act and avoid fiscal dominance in the future.

Manescu, Bova, 07 February 2021

Expenditure rules are recognised as one of the most effective tools to manage budgetary aggregates, and many EU members have recently chosen to add an expenditure rule to their national frameworks. In many cases, the 2012 introduction of the expenditure benchmark at the EU level was a major catalyst. Against this background, this column takes stock of the current design of national expenditure rules across EU member states and provides new evidence on their effectiveness in reducing the procyclicality bias of fiscal policy.

Farooq, Kugler, Muratori, 07 February 2021

Economists have long debated whether extensions to unemployment insurance benefit durations help or hinder the labour market. Using US administrative microdata, this column shows that the generosity of unemployment insurance benefits has a positive effect on the labour market by improving job match quality. Importantly, these benefits are greater for women as well as for minority and less educated workers. In light of the current economic crisis, giving ideally suited workers and firms sufficient time to find each other can be part of the healing. 

Ainsworth, Dehejia, Pop-Eleches , Urquiola, 07 February 2021

While giving households the freedom to choose their children’s schools is said to improve educational outcomes, households do not always choose the option that would boost their child’s performance the most. This column uses an informational experiment in Romania to examine whether households simply lack information about the schools’ ‘value-added’ or prefer to prioritise other school traits. When informed about the value-added of the local schools, households assigned higher preference ranks to high value-added schools. However, the experiment also affected the preferences of the students, suggesting that both information limitations and preferences seem to matter in school choice.

De Nardi, Fella, Paz-Pardo, 07 February 2021

The optimal size and structure of government benefit programmes crucially depend on households’ income risk and their ability to self-insure against it. This column demonstrates that in the UK, earning dynamics, such as income risk and shock persistence, differ substantially depending on age and position in the income distribution. Taking these dynamics into account when evaluating benefit policies is of crucial importance, as it dramatically changes the estimated welfare improvements. When the dynamics are incorporated, the 2016 reform of the UK’s benefit system is found to have been welfare-improving on average. 

Midões, Seré, 06 February 2021

The COVID-19 outbreak has induced dramatic economic shocks in European countries. Using ECB survey data, this column examines households’ financial vulnerability to an income shock in seven European countries and assesses the degree of protection awarded to employees by COVID-19 employment protection schemes. It finds that 18.2 million individuals, or 7% of the population of the countries analysed, cannot cover one month of food and utilities by resorting to their deposits, pensions, and public transfers. Importantly, there is a significant drop in the number of vulnerable with COVID-19 unemployment benefits. Rent and mortgage suspensions are more effective in some countries than in others.

Gylfason, 06 February 2021

Trust is a crucial norm in any democratic system. And respect for the truth, as well as support for the institutions that uphold it, are fundamental for a functioning market economy. This column argues that recent controversies in the US, as well as the UK, have seen this norm begin to erode, and that this may have negative effects for democracies and economies worldwide. Citing evidence from Iceland, the author argues that unless reforms are implemented soon, advocates for democracy may see greater power slide into the hands of those who propagate mistruths for their own material gain.

Martín Fuentes, Moder, 05 February 2021

The COVID-19 pandemic is an unprecedented shock to the global economy and its potential scarring effects are thus difficult to predict. This column presents estimates of the long-term impact of past crises, suggesting that past epidemics and other exogenous shocks did not cause scarring effects, while the negative impact of financial crises on the long-term level of potential growth tends to be persistent. However, unlike previous exogenous shocks, the COVID-19 pandemic could affect the supply side of the economy through several channels and thus lead to a permanently lower level of potential output.

Niepelt, 05 February 2021

The role of central bank digital currency is increasingly being discussed, both in terms of its utility in monetary policy as well as the controversy of bank-level profit from money creation. This column presents a method for quantifying the funding cost reduction enjoyed by banks, highlighting that money creation substantially contributes to profits. This raises important questions for policymakers to address as they seek to optimise the deployment of digital currencies within financial institutions.

Smith, 05 February 2021

Serious illness can be life-changing. Does it inspire us to be more charitable? Sarah Smith tells Tim Phillips whether we give more to charity after we suffer, to which charities - and what this means for their funding after Covid-19.

Di Gialleonardo, Marè, Motroni, Porcelli, 04 February 2021

It was clear from early on in the Covid-19 pandemic that combatting it would require governments to monitor mass transit, schools, workplaces, and large public events. Less appreciated was the role played by social capital and family ties in the spread of the virus. This column provides an empirical analysis demonstrating a robust positive relationship between family ties and the contagion rate across the world. Death rates, by contrast, are not affected by family ties or other social factors, but by structural variables – from geography and GDP to median age and available hospital beds.

Ravallion, 04 February 2021

The extraordinary reduction in poverty that China underwent after 1980 is often attributed to the pro-market reforms of Deng Xiaoping. This column uses counterfactual analysis – comparing China’s development to neighbouring countries with similar cultures and strong historical ties – to propose a new perspective. When judged against the development of South Korea and Taiwan, the bulk of China’s progress since the reforms began seems mostly a matter of making up for the failures of the preceding 30 years, when Maoist policies left an extra quarter of the Chinese population in poverty.

Goodhart, Masciandaro, Ugolini, 04 February 2021

‘Helicopter money’ is an often-evoked concept in macroeconomics, but the occurrence of helicopter money, strictly speaking, is exceedingly rare in history. This column describes one episode that actually provides a concrete illustration of this policy: the monetary financing of the pandemic recovery plan put in place by the Republic of Venice during the bubonic plague of 1630.

Djankov, Zhang, 04 February 2021

Bankruptcies have fallen sharply in OECD economies because of the array of COVID-related support available to businesses, as well as imposed moratoria on bankruptcy filings. This column argue that this situation won’t last, and that governments should start planning for a surge by the end of 2021 – ideally by reforming their bankruptcy laws, as the UK has done, and lessening the burden on courts.

Auer, Burstein, Lein, 03 February 2021

In 2015, the Swiss National Bank discontinued the minimum exchange rate of the Swiss franc relative to the euro, prompting a large and sudden appreciation of the franc. This column describes how the episode affected border prices, retail prices, and consumer expenditure. It shows how cross-sectional variation in border price changes by currency of invoicing carried over to consumer prices and allocations. This episode can help inform estimates of the sensitivity of retail prices to border prices and the sensitivity of import expenditures to relative price movements. 

Bown, Conconi, Erbahar, Trimarchi, 03 February 2021

In a world in which production processes are fragmented across countries, the effects of tariffs propagate along supply chains, with firms in downstream industries suffering from protection upstream.  This column studies the effects of US antidumping duties applied against China – its most frequent target – over 1988-2016 on US firms in downstream sectors. It finds that tariffs have large negative effects on downstream industries, increasing production costs and decreasing employment, wages, sales, and investment.

Huang, Sampson, Schneider, 03 February 2021

The Scottish National Party is calling for a second referendum on independence from the UK. This column examines the likely effect of changes in trade costs resulting from independence and Brexit on the Scottish economy, finding that independence would be two to three times more costly for Scotland than Brexit. In addition, rejoining the European Union following independence would do little or nothing to mitigate these costs, reflecting the fact that Scotland’s trade with the rest of the UK is around four times greater than its trade with the EU. The combination of Brexit and independence is estimated to reduce Scotland’s income per capita by between 6.3% and 8.7%. 

Cornelli, Doerr, Gambacorta, Merrouche, 02 February 2021

The rapid growth of innovative companies that use new technology has the potential to transform the financial sector fundamentally. This column shows that regulatory sandboxes – a prominent and widely adopted regulatory tool to spur innovation in the financial sector while staying alert to new risks – help these fintechs raise capital. They do so by reducing informational frictions and regulatory uncertainty.

Chernoff, Warman, 02 February 2021

COVID-19 may accelerate the automation of jobs, as employers invest in technology to safeguard against pandemics. This column uses survey data from the US to show that women with medium to low levels of wages and education are at the highest risk of COVID-induced automation.

Battisti, Kourtellos, Maggio, 02 February 2021

While the long-run costs of Covid-19-related school closures in terms of human capital losses are sure to be enormous, especially for low-income countries, the benefits in terms of reducing the spread of the virus are less clear. This column investigates the role of schools in the diffusion of Covid-19 using a natural experiment in Sicily, where the reopening of some schools in autumn 2020 was delayed due to a national referendum and local elections. It finds that school openings do appear to increase the number of Covid-19 cases at a local level, although the effects are highly heterogeneous across school, population, and institutional characteristics. Interestingly, the effects disappear when class size is below average.

Aghion, Bergeaud, Van Reenen, 01 February 2021

While there is suggestive evidence that regulations may have a stifling effect on innovation, there is as yet no rigorous economic framework to quantify the magnitude of such regulatory effects on innovation and the aggregate economy. This column proposes such a framework tests its implications on data from France. As the framework predicts, regulations do indeed hamper innovation, but the negative effects concern only incremental innovations and are absent for radical innovations.  Overall, regulations are estimated to reduce aggregate innovations by 5%. 

Bofinger, Haas, 01 February 2021

Central bank digital currencies are increasingly being discussed, mainly in relation to monetary policy and financial stability, but with less focus on their fundamentals. This column provides a comprehensive taxonomy for categorising central bank digital currency design options, and evaluates these options based on their allocative efficiency and attractiveness for users. The analysis shows that digital cash substitutes cannot be justified from either perspective. Instead, there is huge potential for central bank digital currencies in a retail payment system organised by the central bank, but without a new, independent payment object.

CEPR Policy Research