March 2021

Aghion, Artus, Oliu-Barton, Pradelski, 31 March 2021

With the pandemic continuing now for over a year, it has become clear that there is no trade-off between health and wealth. Successful pandemic management has relied on aiming for and protecting Covid-free green zones. This column argues that by choosing a swift elimination strategy, several countries around the world have gained control over the virus. They did this by minimising fatalities and uncertainty, and are now already rebuilding their economies. By contrast, most European countries have followed a stop-and-go logic that turned out to be more restrictive, more dangerous, and more damaging to the economy.

McCauley, 30 March 2021

US banks currently hold almost $4 trillion in Fed deposits, as a result of the ongoing balance sheet expansion by the Federal Reserve. Meanwhile, a year-long exclusion of Fed deposits and US Treasuries from bank capital rules is set to expire on 31 March. This column proposes a simple, feasible, and mandate-consistent strategy to replace $3 trillion in deposits with Treasury bills. These Treasuries could be held not only by banks, but also by mutual funds and non-residents, and this substitution could also save taxpayers money.

Goldstein, Levy Yeyati, Sartorio, 30 March 2021

Non-pharmaceutical interventions have been key to containing the impact of the COVID-19 pandemic. This column examines whether the effectiveness of lockdowns on the virus’s spread and death toll has changed over the past year, using data from 152 countries from the onset of the pandemic through 31 December 2020. Initially, lockdowns are associated with a significant reduction in the spread of the virus and the number of related deaths, but this effect declines over time. Lockdown does not work as a continuous containment policy in the event of a protracted pandemic.

Graf von Luckner, Meyer, Reinhart, Trebesch, 30 March 2021

Today, more than half of low-income countries eligible for relief under the Debt Service Suspension Initiative are either in debt distress or at high risk. Several emerging markets have either recently restructured (Argentina and Ecuador) or remain in default (Lebanon, Surinam, and Venezuela). In this context, this column reviews some of the features of external sovereign debt restructurings. It shows that default spells are lengthy and that the road to debt-crisis resolution is often littered with serial restructuring agreements.  

Morelli, Vannoni, 29 March 2021

The link between regulation and the economy has been central in political economy since the 1970s. Using data on US states from 1965 to 2012, this column argues that regulation may be good or bad for the economy depending on its type and the information and incentives of the regulators. More regulation leads to higher economic growth when that regulation is more detailed, when the current level of regulation is lower, when uncertainty is higher, and in contexts with greater competition and/or opportunity of experimentation among regulation proposers and greater accountability. 

Utar, 28 March 2021

The Mexican Drug War, including the ostentatious killings and the targeting of civillians, has been amply covered in the media. What is less known are the economic impacts of the violence, particularly at the firm level. This column presents evidence from Mexican firms, focusing on the differing experiences of ‘blue-collar’ and ‘white-collar’ organisations. The results suggest that violence can cause a negative labour supply shock, particularly in sectors that more frequently employ lower-skilled female workers.

Ahammer, Bauernschuster, Halla, Lachenmaier, 27 March 2021

Teenage binge drinking is more prevalent in Europe than in the US, where alcohol is forbidden to people under the age of 21. This column looks at the relationship between minimum legal drinking ages and alcohol abuse. Using administrative health and survey data from Austria, it finds significantly increased alcohol consumption – particularly among boys and those from underprivileged backgrounds – when drinking becomes legal. Raising the minimum legal drinking age in Europe could reduce alcohol poisonings and the early socioeconomic gradient in teenage binge drinking. 

Bianchi, Lu, Song, 27 March 2021

In most countries, there tends to be a large gap between urban and rural education outcomes. This column examines the impact of a 2004 Chinese education reform that connected high-quality teachers in urban areas with more than 100 million students in rural primary and middle schools through the use of satellite internet. Exposure to the reform in middle school significantly increased students’ academic achievement and their labour outcomes in the long run, suggesting that technology can be an effective way to close the rural–urban gap in education.

Danielsson, 26 March 2021

What would the world look like if Bitcoin completely displaced fiat currency? Jon Danielsson tells Tim Phillips that it wouldn't be a society that he would like to live in. 

Bloom, Chen, Counts, Han, Malik, Nandi, Seligman, Vigo, 26 March 2021

Alzheimer’s disease and related dementias not only cause suffering to the individual but have high societal and economic costs. This column estimates that, globally, these diseases contributed to a loss of 33.1 million years of full health (measured in disability-adjusted life years) in 2019. Over the next 30 years, the loss could more than triple, with the burden increasingly falling on low- and middle-income countries. To ensure the future health and functioning of an ageing global community, the global community must invest effectively and efficiently in R&D and scale effective supportive interventions for Alzheimer’s and related dementias. 

Monnet, 26 March 2021

Since 2008, a new central banking model has emerged. Monetary authorities increasingly engage in targeted lending, hold large amounts of public debt, and focus on climate change. This column argues that the new practices of central banks call for an updated institutional framework in order to maintain democratic legitimacy. It proposes the creation of a European Credit Council, which would provide impartial assessments of the ECB’s decisions, particularly those with large distributional consequences. In addition, it would develop proposals for coordinating monetary policy with other EU policies and reinforce the role of the European Parliament.

Inoue, Murase, Todo, 25 March 2021

The economic benefit from lifting lockdowns may depend significantly on the lockdown strategies of other regions and countries due to supply chain links. This column analyses the importance of supply chain links in this context by conducting a simulation analysis applying rich firm-level data from Japan to an agent-based model of production. It finds that the production of two regions can attain greater recovery by lifting their lockdowns together when they are closely linked through supply chains in either direction. These results point to the need for policy coordination among regions when regional governments impose or lift lockdowns.

Klusak, Agarwala, Burke, Kraemer, Mohaddes, 25 March 2021

Enthusiasm for ‘greening the financial system’ is welcome, but does the explosion of ‘green’ finance indicators reflect the science? This column reports research that uses artificial intelligence to construct the world’s first ‘climate smart’ sovereign credit rating. The results warn of climate-driven downgrades as early as 2030.

Bolton, Kacperczyk, 24 March 2021

A company’s carbon-transition risk – associated with curbing carbon emissions within a relatively short period of time – is proportional to the size and growth rate of the company’s carbon emissions. This column asks whether companies with different carbon emissions have different stock returns. The total level of a company’s CO2 emissions and the year-by-year growth in emissions significantly affect its stock returns in most geographic areas of the world. The increasing cost of equity for companies with higher emissions can be a form of carbon pricing by investors seeking compensation for carbon-transition risk.

Eisfeldt, Kim, Papanikolaou, 24 March 2021

Intangible assets are absent from traditional measures of value, despite their large and growing importance in firms’ capital stocks. As a result, the fundamental anchor for value that uses book assets is mismeasured. This column presents a new intangibles-adjusted value factor based on an improvement to the traditional Fama and French approach. The new measure prices assets as well as or better than the traditional value factor but yields substantially higher returns. Both asset pricing researchers and practitioners can benefit from incorporating intangibles in their fields of work. 

Moench, Pelizzon, Schneider, 23 March 2021

In March 2020, a ‘dash for cash’ driven by the Covid-19 crisis affected the liquidity of the US Treasury bonds market as well as numerous other financial markets around the globe. This column investigates how euro area sovereign bond markets fared during the same period. While deteriorations in sovereign debt market liquidity are evident, these appear to be driven by a ‘dash for collateral’ in euro-denominated safe assets. This suggests some differences from the US experience, as well as variations across European countries. 

Beuve, Moszoro, Spiller, 23 March 2021

The frequent renegotiation of public contracts is variously attributed to collusion between officials and bidders, the desire to circumvent budgetary rules, and other factors. This column challenges the industrial organisation view of public contract renegotiation, showing that frequent renegotiations can be understood as a consequence of the non-remediable, rigid nature of contracts rather than an inherent consequence of opportunistic behaviour.

Bosio, Ramalho, Reinhart, 22 March 2021

In sub-Saharan Africa, the government is one of the biggest purchasers of works and services in the economy. Countries in sub-Saharan Africa are also the least efficient when it comes to paying outstanding invoices. This column estimates that the size of government arrears in sub-Saharan Africa was 4.26% of GDP in 2019, and likely increased by an average of 1.92 percentage points of GDP across the region in 2020. Financing the COVID relief and recovery programmes by delaying payments is negatively affecting suppliers and contractors at a time when liquidity is crucial for firm survival, which in turn burdens the banking sector and increases the likelihood of a banking crisis.

Papoutsi, 22 March 2021

Following the COVID-19 outbreak, managing lending relationships has become even more important for bank governance, risk, and credit supply. Using a novel dataset on corporate loans during a bank reorganisation in Greece in the mid-2010s, this column presents evidence that continuous lending relationships between bank loan officers and corporate borrowers improve the outcomes of loan renegotiations. It finds that firms experiencing an exogenous interruption in their loan officer relationship are less likely to renegotiate a loan, receive tougher loan terms, and raise more equity, reduce their overall borrowing, and partially substitute borrowing from other banks.

Dietrich, Müller, Schoenle, 22 March 2021

Climate change has emerged as a major challenge for central banks, although its extent and the immediate consequences are highly uncertain. This column uses a survey of over 10,000 US consumers to show that irrespective of when and how climate change actually plays out, what matters for monetary policy is how people expect it to play out. Central bankers ignore the expectations channel of climate change at their peril.

Bursztyn, Chaney, Hassan, Rao, 21 March 2021

Hostility towards ethnic groups deemed ‘non-native’ has risen sharply in many countries over the last decade, in concert with a wave of far-right populism predicated on opposition to minorities and immigrants. This column examines the idea that greater intergroup contact can mitigate prejudice and increase altruism. Using a case study of Arab-Muslims in the US, it finds that long-term contact makes a majority group less prejudiced, less politically hostile, more altruistic toward minority communities, and even influences the political preferences of voters. 

Gollin, Hansen, Mose Wingender, 20 March 2021

The Green Revolution was a crucial episode of agricultural innovation based on the application of modern crop-breeding techniques and high-yielding crop varieties. This column studies the economic effects of agricultural productivity growth in the context of the Green Revolution across the developing world. It finds positive but unevenly distributed effects of agricultural productivity on food crop yields, GDP per capita, schooling, and life expectancy across different countries. In the face of climate change, further investments in agricultural science targeting the developing world may have the potential to sustain these gains in the decades ahead. 

Foged, Hasager, Peri, 20 March 2021

The labour market integration of refugees and immigrants is key to their ability to contribute to the economy of the receiving country and to enhancing the fiscal sustainability of more open immigration policies. Using the quasi-random assignment of Danish refugees to language training, this column shows that language acquisition significantly increased the lifetime earnings of refugees. Refugees with language training became more likely to work in communication-intensive jobs and obtained additional education. The positive effects are transmitted to the next generation in terms of improved schooling outcomes for male children of refugees.

Coibion, Gorodnichenko, Weber, 19 March 2021

Households in advanced economies are quite uninformed about inflation. Does this mean that they ignore inflation their economic decisions? This column uses a randomised control trial, a large-scale survey, and spending data to show that the answer is ‘no’. When households change their inflation expectations, this causally alters their spending decisions. This suggests communication strategies that meaningfully impact household expectations can also be expected to affect their decisions. 

Hale, 19 March 2021

Do looks matter in economics? Good-looking economists get better academic posts. Galina Hale tells Tim Phillips about surprising new research that challenges our assumptions about how departments rate and recruit candidates.

CEPR Discussion Paper, DP15893 Do Looks Matter for an Academic Career in Economics? by Galina B Hale, Tali Regev, Yona Rubinstein, can be read here

De Haas, Martin, Muûls, Schweiger, 19 March 2021

Many countries are striving for net-zero carbon emissions by 2050, requiring massive investments over the next decades. But many companies, especially smaller ones, will not be able or willing to invest in cleaner technologies. This column explores how organisational constraints can hold back the green transition of firms in less-developed economies. The findings reveal how financial crises can slow down the decarbonisation of economic production and caution against excessive optimism about the potential green benefits of the current economic slowdown, which – like any recession – has led to temporary reductions in emissions.

Döttling, Ratnovski, 19 March 2021

Technological progress increases the importance of corporate intangible assets such as research and development knowledge, organisational structure, and brand equity. Using US data covering 1990 to 2017, this column shows that the stock prices and investment of firms with more intangible assets respond less to monetary policy shocks. Similarly, intangible investment responds less to monetary policy compared to tangible investment. The key channel explaining these effects is a weaker credit channel of monetary policy, as firms with intangible assets use less debt.

Gottlieb, Grobovšek, Poschke, Saltiel, 18 March 2021

The ability to work from home, which has proved crucial to the resilience of labour markets during the Covid-19 pandemic, may have shifted employment patterns permanently. Data on this shift have thus far come largely from advanced economies. This column proposes a measure of the ability to work from home in low- and middle-income countries. It indicates that fewer than 10% of urban jobs in developing countries can be done remotely, and in particular workers in low-wage occupations and the self-employed have fewer opportunities to work from home.

van Bergeijk, 18 March 2021

The COVID-19 pandemic is the first time in history that closing entire economies has been used as a medical tool, simultaneously and worldwide. This column argues that such ‘pandonomics’ cannot be repeated during future pandemics that are sure to come – the costs are too heavy. Since lockdowns are very costly, future economic non-pharmaceutical interventions need to be designed more intelligently, helping the economy to restructure and support the transition from a basically ignorant and domestically oriented society into a pandemic-aware one.

Roope, 18 March 2021

Nearly all income inequality measures are associated with a benchmark income or position, above which income gains increase inequality, and below which income gains decrease inequality. Looking at ten contrasting countries, this column finds that the benchmark incomes associated with the Gini coefficient ranged from the 62nd percentile to the 85th percentile. Knowledge of benchmark incomes could be used to predict the impact on inequality of subsidies to incomes in particular parts of the distribution, or to identify the richest person for whom it might be deemed fair to subsidise income financed by taxation and the poorest person for whom it is just and fair not to subsidise income.

Persaud, 17 March 2021

For the countries on the frontline in the war against climate change, there is a nasty nexus between climate change and debt. The cost of environmental damage, the loss of revenues from a natural disaster, and the high price of building back better all contribute to higher debt. This column proposes three ways to break this climate–debt nexus: (1) redistribute special drawing rights using a new classification of vulnerability; (2) incorporate natural disaster clauses into multilateral development banks’ lending arrangements; and (3) use the unused special drawing rights of the world’s strongest countries to recapitalise regional development banks to finance resilience in the vulnerable countries without adding to their debt.

Edmans, 17 March 2021

It is often taken for granted that sustainability reduces a company’s cost of capital. This column argues that the relationship is significantly more complex and depends on a number of factors. It highlights an important distinction between the ‘cost of capital’ and ‘expected cash flow’ channels, which may lead to similar final outcomes but imply different underlying mechanisms. Additional factors, such as the level and nature of systemic risk, the amount of risk aversion, and the cyclical behaviour of public trust in business, are also crucial in determining whether sustainable companies enjoy a lower cost of capital. 

Beck, Carletti, Bruno, 17 March 2021

The combined effect of the measures implemented to maintain banks’ ability to provide funds during the Covid crisis was to create a virtuous circle between corporates, banks, and sovereigns, avoiding a funding crunch for either and keeping risk premiums at deflated levels. However, it also created the basis for possible increased systemic risk in the future. This column argues that the exit strategy from the various support measures must be carefully designed and coordinated, as well as communicated in a clear and timely manner.

Jacks, Pendakur, Shigeoka, 16 March 2021

The year 2020 marked the centenary of Prohibition, under which the production and sale of alcohol in the US was banned for nearly 14 years. Though it required an unprecedented intervention into the nation’s economic and social fabric, there has been little quantitative analysis of Prohibition’s impact on public health. This column presents new research suggesting that a substantial increase in infant mortality followed the repeal of Prohibition in the 1930s – an unanticipated, negative health outcome worth considering as debates resume over the legalisation of cannabis and other drugs.

Carta, D'Amuri, Wachter, 16 March 2021

Population ageing reduces labour supply and burdens pension systems. At the same time, delaying the statutory retirement age may have an impact on firms’ productivity and risks crowding out younger workers. This column exploits an unexpected pension reform in Italy in 2012 which sharply increased the full retirement age for workers aged 55 or above to show that such concerns may not be warranted. A rise in employment of older workers led to an increase in value added while holding labour costs constant. Employment in other age classes also increased. This suggests older workers are valuable to employers and that pension reforms postponing retirement can remove a constraint rather than placing a burden on firms.

Bonnet, Chapelle, Trannoy, Wasmer, 16 March 2021

Housing wealth is now between two and four times as large as GDP in many Western economies. This column reintroduces land and housing structures to the theory of optimal taxation, and finds that first-best taxation is achieved through a property tax on land and requires no tax on capital. Even absent land taxes, one can tax land indirectly and reach a Ramsey second best still with no tax on capital and positive housing rent taxes in the steady state. 

Goy, Hoogland, Petersen, 15 March 2021

On the back of fiscal accommodation, a rebounding economy, and the Federal Reserve’s newfound tolerance for inflation overshoots, market-based inflation measures have surged, triggering concerns of an overheating of the US economy. By decomposing recent yield curve movements, this column shows that the steepening of the US Treasury curve corresponds with higher real term premia and a boost in both inflation expectations and the inflation risk premium. Lower real rate expectations suggest that markets do not yet expect the Fed to lean against the fiscal expansion. Simultaneously, the width of the distribution suggests that markets are relatively uncertain about the exact degree of overshooting the Fed will allow before stepping in. 

Malmendier, Shen, 15 March 2021

Economic crises have prolonged consequences on consumer behaviour, beyond effects captured by standard economic variables. Standard life-cycle consumption channels often fail to explain these lasting effects. This column argues that economic downturns ‘scar’ consumers in the long run. Consumers who have lived through times of high unemployment remain pessimistic about the future financial situation, spend less in future years, and accumulate more savings, controlling for income, wealth, and employment. These results suggest a novel micro-foundation of fluctuations in aggregate demand and imply long-run effects of macroeconomic shocks. 

Taneja, Mizen, Bloom, 15 March 2021

Attitudes towards working from home have changed substantially since the start of the pandemic. This column discusses the findings from a survey of 5,000 working adults in the UK in January and February 2021, which suggest that about half of the UK labour force are currently working from home. Two days a week at home is the most commonly expected working pattern post-COVID, with implications for many large and medium-sized businesses.

Cohen, Gurun, Li, 14 March 2021

Covid-19 has revealed the importance of quick, efficient, but safe medical innovation. The development of various vaccines, as well as a range of treatments, have been tech tools in the fight against the public health and economic crises. This column explores the impact of informal deadlines within the drugs market, arguing that such regulatory pressures can end up distorting product safety and marketability. The findings highlight the need for well-designed regulatory systems which allow medical innovators to move swiftly but safely during the next health shock.

Régibeau, 13 March 2021

On 15 December 2020, the European Commission approved the acquisition of Fitbit by Alphabet, subject to a number of commitments. The case caused considerable concern that Google will gain unfair advantages in the online advertising market and ensure its dominance in digital health, with dire consequences for privacy. Critics also feared the acquisition would reduce Google’s incentives to keep its Android ecosystem open to rival wearable products. This column argues that the decision is appropriate, addressing the four main concerns. The suggested theories of harm have remedies or they are not supported by evidence to the requisite legal standard. 

Barba Navaretti, Pozzolo, 12 March 2021

It has been two years since Wirecard suddenly collapsed. Giorgio Barba Navaretti and Alberto Pozzolo explain to Tim Phillips why it is so hard to supervise global fintechs, and how regulators can do a better job next time.

Morikawa, 12 March 2021

Working from home has become much more prevalent across advanced economies during the Covid-19 pandemic. This column uses survey data from Japan to explore how widely working from home has been adopted across industries and how productive employees are at home. It finds that the overall contribution of working from home to labour input is surprisingly small. Even where firms adopted the practice, many employees did not exploit it; and even those who did work from home did not necessarily do so throughout the week. The firm survey responses suggest that across industries, the average productivity of employees when working from home relative to at the workplace is 68.3%, which is similar to the findings from an employee survey. The results suggest that there is room for improvement to make working from home more feasible.

Yashiro, Kyyrä, Hwang, Tuomala, 12 March 2021

Across OECD countries, promoting longer working lives is an important policy objective for mitigating fiscal pressures from population ageing. This column uses data from Finland to examine how technological change and access to early retirement pathways reinforce each other in pushing older workers out of employment. It finds that the probability of leaving employment is higher for individuals in occupations with higher automation risks and increases faster for individuals closer to the eligible age for early retirement pathways.Reforms that tighten access to such pathways substantially extend the working lives of older workers exposed to high automation risks, but have little effect on old workers exposed to low automation risks.

Balasubramanian, Kumar, Loungani, 12 March 2021

India has seen a four-fold increase in average incomes since 1990, which has lowered the share of the population living in absolute poverty from 45% to 20% and improved the lot of 130 million people. But while most segments of society have shared in this remarkable performance, inequality in incomes within India remains large. This column argues that increased attention to mitigating urban–rural and inter-state income and opportunity differentials – leveraging the digital technology in which the country excels – would be a prudent investment to help sustain growth.

Beck, Keil, 11 March 2021

Across the globe, economies have been hit hard and fast by COVID-19. This column explores the effect of the pandemic on US banks’ health and their ability to support the economy with lending, using a novel measure to gauge banks’ exposure to COVID-19 and lockdown measures. The findings suggest that banks are catching coronavirus, although the effect is not so obvious from bank balance sheets given the easing of regulatory requirements on loan classification and provisioning. Exposure to COVID has led to an increase in lending to support the economy, but driven by government support programmes, as well as a tightening in loan conditionality. 

Björkegren, Lindahl, Palme, Simeonova, 11 March 2021

It is well documented that children from affluent families tend to be healthier than poor children, but distinguishing between the genetic and environmental causes of these health outcomes remains difficult. This column uses data from a large sample of Swedish children to compare those raised by their biological parents to adoptees. It finds that the link between parents’ education level and children’s long-term health is forged by mediating factors – from the formation of cognitive and non-cognitive skills to health-related life habits – and due primarily to investments in children’s human capital.

Ilzetzki, Jia, 10 March 2021

Debates have emerged recently on central banks’ role in mitigating climate change, or at least on increasing their awareness of their environmental impact. The February 2021 CfM-CEPR survey asked members of its European panel of experts about measures the ECB could take to address the environmental impact of its bond-purchasing policies. The majority of the panel supports active measures to use the ECB’s bond-purchasing programme to either exclude industries with negative environmental impact or bias its portfolio towards green investments. An additional 30% of the panel believes that the ECB should rebalance its portfolio to correct its current bias in favour of polluting industries. However, a majority also believes it would be inappropriate to change the ECB’s mandate to reflect green objectives.

Comunale, Dainauskas, Lastauskas, 09 March 2021

International trade flows are volatile, imbalanced, and fragmented across offshored supply chains. But there is still a lack of understanding about why global trade shocks, such as the Covid-19 pandemic, result in synchronised, but remarkably unequal trade flow responses across countries. This column argues that less-integrated countries focusing on arm’s-length trade experience the greatest trade flow disruptions in response to global trade shocks, while trade flows between more integrated countries relying on intermediate imports tend to dip less and bounce back more rapidly.

Adda, Fawaz, 09 March 2021

Globalisation has affected workers and firms in developed countries over the last decades, leading to loss of employment and worker displacement. This column exploits data on over 40 million Americans to evaluate the many diverse health effects of such an economic shock. It shows that import competition has affected both health and health behaviour, increasing hospital admissions for conditions ranging from infectious diseases to cancer, as well as for mental health issues and substance abuse. However, these effects are only present in areas where jobs tend to involve a high level of routine tasks.

Chernozhukov, Kasahara, Schrimpf, 08 March 2021

Policymakers must weigh up the consequences of prolonged school closures on young people against any impact of reopening them on the spread of COVID-19. This column shows that counties in the US that opened K-12 schools with in-person learning modes experienced an increase in the growth rate of COVID-19 cases by 4.7% on average and by 6.4% when mask-wearing was not mandated for staff at school. The findings suggest that local governments should promote mask-wearing requirements and other mitigation measures at schools.

Cohen, Hazan, Weiss, 08 March 2021

The gender gap in corporate America is increasingly well documented, but the literature has not yet examined how a CEO’s political preferences might be associated with gender equality in the executive suite. Focusing on the US, this column compares the fraction of a CEO’s political contributions that went to Republican, rather than Democratic, candidates and the gender balance among top executives (excluding the CEO). Companies run by a CEO who only donates to Democrats employ a 15–25% higher fraction of women in the executive suite than those run by CEOs who only donate to Republicans.

Thygesen, Beetsma, Bordignon, Debrun, Szczurek, Larch, Busse, Gabrijelcic, Jankovics, Santacroce, 08 March 2021

National governments and EU institutions enacted unprecedented budgetary measures to mitigate the economic and social impact of the Covid pandemic, a truly exogenous shock. While everyone agrees that a forceful response was needed, the pandemic magnified a number of pre-existing challenges and vulnerabilities in public finances, which need to be addressed in the coming years. This column discusses this year’s conference of the European Fiscal Board on 26 February, at which a prominent line-up of speakers had an open and inspiring exchange on the future of the EU fiscal framework. 

Colombo, Tojerow, 07 March 2021

Decentralisation can help build trust in institutions by giving constituents a more transparent view of local decision makers and a hand in shaping public services. This column examines the impact of reforms that introduced the direct election of mayors to a region of Belgium in which mayors also lead the local police force. The region saw a statistically significant decrease in crime following the reform, but those effects were diluted when neighbouring municipalities shared policing responsibilities, thereby obscuring the window onto outcomes and offsetting the benefits of direct elections.

Ambrocio, Ferrero, Jokivuolle, Ristolainen, 06 March 2021

Central banks often have inflation targets at the centre of their monetary policy regimes. This column presents survey data from 613 leading economists to explore their views on these inflation targets and wider policies within their countries of residence. The results suggest that maintaining the prevailing inflation target (for central banks that have one) has more support than changing it does. But more respondents are pessimistic about central banks’ ability to meet these targets, particularly in the euro area.

Ben-David, 05 March 2021

Anti-pollution laws penalise firms whose activities emit CO2. Itzhak Ben-David tells Tim Phillips that well-intentioned regulation may be causing multinationals to shunt polluting activities to poorer countries where regulation isn’t so strict.

Dix-Carneiro, Goldberg, Meghir, Ulyssea, 05 March 2021

Shifts into and out of the informal sector are important margins of labour market adjustment to economic shocks, particularly in developing countries. This column develops a structural equilibrium model of trade and informality to study the effects of trade openness on unemployment, welfare, productivity, and wage inequality. Higher trade openness leads to strong positive effects on aggregate welfare and productivity, decreases in overall wage inequality, and moderate increases in unemployment. Modelling the informal and non-tradable sectors is crucial to reaching a comprehensive understanding of the effects of trade in developing countries.

Crozet, Hinz, Stammann, Wanner, 05 March 2021

Sanctions are imposed on a target country to exert political and economic pressure. But there is little evidence on how exporting firms regard trade with the sanctioned country. This column uses detailed monthly customs data from French firms to investigate the extensive margin of trade in episodes of sanctions-use against Iran, Russia, Cuba, and Myanmar. It finds the impact of sanctions is heterogeneous along firm dimensions and advises caution in the use of a policy tool with imprecise and unpredictable results.

Pichler, Wen, Ziebarth, 05 March 2021

By now, it should be clear that presenteeism (going into work when sick) contributes significantly to the transmission of diseases. This column summarises current evidence on sick-pay mandates in the US and the spread of flu-like illnesses and COVID-19. Over the last ten years, states that introduced sick-pay mandates saw a decrease in seasonal flu activity by up to 30% in the first years compared to states that didn’t introduce such mandates. Introducing sick-pay mandates did not result in significant employment or wages decreases. Mandating COVID-19-related emergency sick leave also significantly reduced COVID-19 infection rates in states previously without sick-pay mandates, especially affecting low-income and service-sector employees.

Barbu, Fricke, Moench, 04 March 2021

Institutional funds manage the majority of the assets under management of all German investment funds. This column documents that institutional funds act in a strongly procyclical manner, by actively investing in higher-yielding, longer-duration and lower-rated assets as yield spreads compress. The authors show that this intensifies asset price volatility and highlight reasons behind this procyclical investment behaviour.

Cros, Epaulard, Martin, 04 March 2021

Concerns have emerged that public support to firms in the COVID-19 crisis has been too generous, reducing exit of unproductive firms and preventing Schumpeterian creative destruction. Using data on French firm failures in 2020, this column suggests that these concerns are, at this stage, unwarranted. Although the number of firms filing for bankruptcy was well below its normal level, the same factors that predicted firm failures in 2019 – primarily low productivity and debt – were at work in a similar way in 2020. Overall, the findings point to hibernation rather than zombification.

Goldhaber, Imberman, Strunk, Hopkins, Brown, Harbatkin, Kilbride, 04 March 2021

Following the Covid-19 outbreak, in-person instruction in US schools was dramatically reduced in favour of hybrid and online teaching modes. School reopening is now a contentious issue, with the desire to limit community spread of the virus having to be weighed against the benefits to children of in-person teaching. This column uses regional data from Michigan and Washington to study the effects of different instructional modes on Covid-19 case rates. It shows that in-person teaching correlates with higher case growth in the community only when the pre-existing Covid-19 case rates are moderate or high.

Djankov, Zhang, 03 March 2021

Steep falls in entrepreneurial activity were recorded in early 2020 across G7 economies. In the US, however, the creation of US startups shot up by 24% relative to the previous year. This column uses data on new company applications in the US since 2004 to show that firm birth generally accelerates in the aftermath of economic crises and that this pattern was particularly pronounced in 2020, fuelled by the government assistance provided to small businesses. It also shows that US firm births are estimated to have surpassed firm deaths in 2020, unlike in the aftermath of the previous financial crisis.

Acemoğlu, Autor, Hazell, Restrepo, 03 March 2021

As artificial intelligence technologies improve rapidly, there is increasing interest in the effects on workers. This column uses data on skill requirements in US vacancies posted since 2010 to examine the impact of artificial intelligence on the US labour market. While the estimates suggest that AI has started to replace workers in certain tasks, it does not yet seem to be having effects on the aggregate labour market.

Qi, De Haas, Ongena, Straetmans, 03 March 2021

Digitalisation, FinTech, and the expansion of mobile banking have changed the way in which many banks operate on a day-to-day basis, including where they choose to have physical branches. This column explores the effect of digitalisation on the geography of banks, testing the effects of digital information-sharing on branch locations in Europe. findings suggest that information sharing has a strong positive effect on branch clustering, with banks more likely to open new branches in areas where they do not yet operate but where other banks are already present.

Cruz, Rossi-Hansberg, 02 March 2021

The effects of climate change are heterogenous across space. While some regions will be significantly negatively impacted, others may benefit from warmer temperatures. This column uses an integrated assessment model with rich spatial data that looks at interactions between regions to show how the effects of global warming on production and migration are large, worrying, and unequal. Policies such as carbon taxes are effective delaying tools, but prevention of global warming will require greater and more localised policies.

Boll, Nikolka, 02 March 2021

The role of intergenerational contact in the spread of Covid-19 has been the subject of debate since the onset of the pandemic. This column uses survey and administrative data to explore the link between grandparental childcare and Covid-19 infection rates in Germany. The findings cast doubt on simplistic narratives that suggest a link between intergenerational contact and infection rates. The statistical significance of the positive relationship between the frequency of regular grandparental childcare and Covid infection rates breaks down as soon as potentially confounding factors, in particular the local Catholic population share, are controlled for.

Diao, Ellis, McMillan, Rodrik, 01 March 2021

Before Covid-19 struck, many economies in sub-Saharan Africa were expanding rapidly – faster than at any time since independence. Yet African growth accelerations were anomalous when viewed from the perspective of comparative development patterns; structural changes were accompanied by declining within-sector productivity growth in modern sectors. This column explores this anomaly in the context of African manufacturing using newly created firm-level panel data for Tanzania and Ethiopia. In both countries, there is a sharp dichotomy between larger firms that exhibit superior productivity performance but do not expand employment much, and small firms that absorb employment but do not experience any productivity growth. These patterns appear to be related to technological advances in global manufacturing which are making it more capital intensive.

Bilbiie, Eggertsson, Primiceri, 01 March 2021

How the US economy will emerge from the COVID-19 pandemic hinges in part on what will happen to the large amount of ‘excess savings’ that US households have accumulated since last March. This column argues that, in fact, these savings are not that excessive when considered against the backdrop of the unprecedented government interventions adopted over the past year in support of households, and that they are unlikely to generate a surge in demand post-pandemic.  

Bornstein, Krusell, Rebelo, 01 March 2021

Oil markets have long been central to discussions of the global economy, and fluctuations in oil prices frequently gain widespread attention. This column explores the impact of the rising use of fracking on how oil markets are best conceived within modern macroeconomic theory. The author's model predicts that as fracking accounts for an increasingly sizeable fraction of the world oil supply, it may herald a new era of lower, more stable oil prices.

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