May 2021

Leino-Sandberg, Vihriälä, 31 May 2021

The EU’s response to the COVID-19-induced economic crisis has been aggressive, but not without criticism. This column, part of the Vox debate on euro area reform, summarises some of the shortcomings of the way in which the EU’s Next Generation programme may play out, and suggests short- and longer-term considerations that need to be made in order to ensure that the programme strengthens the Union in the long run.

Goldin, Koutroumpis, Lafond, Winkler, 31 May 2021

Labour productivity is a key determinant in improving living standards. But in recent years, productivity has stagnated, if not declined, in many countries around the world. This column re-evaluates the various reasons as to why this might be, applying three criteria to the existing explanations for the slowdown. It finds that the slowdown in productivity can be attributed to numerous factors, ranging from mismeasurement to changes in trade patterns.

Ferracane, van der Marel, 30 May 2021

The global economy relies on trade in digital services and cross-border data flows. However, digital trade rules across most countries have not been measured or classified. This column categorises the approach to data regulation in 116 countries and examines the implications of data regulation for trade in digital services. It suggests that proximity in data regulation frameworks may affect the cost and volume of digital trade between countries.

Crucini, O’Flaherty, 29 May 2021

Throughout much of 2020, the Trump administration deferred decision making regarding stay-at-home orders to the state and local level. The data-driven analysis in this column suggests that a national stay-at-home order at the onset of the pandemic, when the virus was spreading primarily in a small group of cities, may have imposed earlier and deeper economic costs on states with relatively low case numbers without any corresponding reduction in infection rates in such states. But as the virus spread more uniformly across the country in the last several months of 2020, a nationwide order seemed more appropriate. The findings demonstrate the value of public policy discretion at the state and local level when it comes to implementing stay-at-home orders with the simultaneous and competing goals of minimising community spread and business dislocation. 

Artz, Blanchflower, Bryson, 28 May 2021

The US labour market is producing too few jobs and those it is producing are often low paid and of poor quality. This is exacerbated by the fact that workers do not have the means to fix their problems at work because of a precipitous decline in union membership over the last half century, particularly in the private sector. Using panel data from the National Longitudinal Survey of Youth 1979 and 1997 cohorts and from the Bureau of Labor Statistics, this column shows that union density is now on the rise and that union workers are now more satisfied than non-union workers. Unions’ ability to help workers avoid underemployment suggests that what seems to have changed is the value attached to the insurance component of the union good.

Estefania Flores, Furceri, Kothari, Ostry, 28 May 2021

Public debt ratios have increased significantly in 2020 from already elevated levels. Current projections envisage a quick stabilisation and subsequent decline in debt ratios. This column assesses the likelihood of this projection by looking at past evidence on forecast accuracy, based on a new comprehensive dataset of medium-term debt forecasts. It finds that forecasts have systematically understated the actual evolution of debt. If the past is a guide to the future, rather than declining, debt ratios could be some 7% of GDP higher five years from now than they are today in emerging and developing countries.

Zhuravskaya, 28 May 2021

Every day we can see harrowing mobile phone footage from conflict zones, shot by civilians, on the TV news. Ekaterina Zhuravskaya tells Tim Phillips that data from the Israel-Palestine conflict suggests social media has changed the tone of what traditional media reports. 

Hartmann, Borgioli, Kempf, Molitor, Mongelli, 28 May 2021

The coronavirus health crisis also had a strong impact on financial systems. This column discusses its effects on euro area financial integration and financial structure. It illustrates how decisive monetary, fiscal and prudential policy responses first contained and then reversed the initial sharp fragmentation in asset prices across member countries. Overall cross-border asset holdings, however, still have to recover. The emerging alignment between common monetary and fiscal measures through the adoption of the three European safety nets and the Next Generation EU recovery programme seem to have been a game-changer in this regard. The resilience of financial re-integration to potential future shocks to the Economic and Monetary Union, however, should be monitored going forward. The different phases of the pandemic also went along with sizeable shifts between different corporate financing tools and different financial intermediaries. 

Xing, 27 May 2021

Factoryless goods producers are a fruitful consequence of the evolution of global value chains. This column shows that the trade value of their output may be largely underestimated. The true export value to producers like Apple and Nike to countries like China – where many of these companies’ products are assembled – is far higher than the value of the tangible good itself, when embedded intangible assets and IP are taken into account. Yet this is not reflected in the measurement of bilateral trade flows. If it were, it would paint a very different picture of US exports and the trade deficit.

Nekoei, Sinn, 27 May 2021

The international differences in women's status are striking. When and where did those differences first emerge? Is women's status improving everywhere today so that we expect global gender equality eventually? This column uses data from the Human Biological Record to explore women's status over the last 5,000 years. The records show no long-run trend in women's share in recorded history. Historically, women's power has been a side-effect of nepotism: the more important family connections, the higher the women's share. But self-made women began to rise among the writers in the 17th century before a broader take-off in the 19th century. Exploring these captivating and yet unanswered questions teaches us about the future of women and other emancipation movements.

Cahuc, Kramarz, Nevoux, 26 May 2021

The Covid-19 crisis transformed short-time work into the first choice of policymakers across Europe. But this newfound enthusiasm should not obscure the dearth of studies addressing short-time work’s long-term consequences. Using detailed data covering the universe of French firms during the 2008-2009 Great Recession, this column finds that short-time work saved jobs in firms hit by powerful negative revenue shocks, but not in firms hit less severely. Still, short-time work remains a more cost-efficient way than wage subsidies to save jobs. 

Edmans, 26 May 2021

In 2020, the European Commission tasked EY to study directors’ duties and sustainable corporate governance, to identify why companies focus on “short-term shareholder value maximisation rather than the long-term interest of the company”. Leading academics and practitioners have questioned the study recommendations and issued a Call for Reflection. This column highlights some of the concerns raised. “Short-term shareholder value” is an oxymoron because shareholder value is an inherently long-term concept. If short-termism is the problem, the remedy is greater focus on (long-term) shareholder value rather than less. 

Martin, Pisani-Ferry, Ragot, 26 May 2021

The temporary suspension of the European fiscal rules to enable member states to take emergency measures against the Covid crisis offers an opportunity for an ambitious reform of a now clearly outdated fiscal framework. This column, part of the Vox debate on euro area reform, argues that the reactivation of the rules, now foreseen in 2023, should be made contingent on a political agreement on reforming the fiscal framework, and proposes a comprehensive reform in which the new European fiscal framework would prioritise externalities arising from debt sustainability risks and demand spillovers. Fiscal targets should be differentiated depending on country vulnerabilities and implemented in a more decentralised way. 

Advani, Ash, Cai, Rasul, 25 May 2021

In the wake of last summer’s Black Lives Matter protests, many have asked themselves what they are doing to tackle racial injustice. For economists, one central question is the extent to which the profession has examined the causes and consequences of racial inequality. This column reports evidence that race-related research in economic journals constitutes a far lower share than in comparable publications in sociology and political science. What’s more, economists over-estimate the extent of race-related research done by the profession. Understanding why economists produce so little race-related research is essential if the discipline is going to be able to reform.

Bolton, Hong, Kacperczyk, Vives, 25 May 2021

The Covid-19 pandemic and recession have reinforced the need to evaluate the economic and financial impact of natural disasters, providing a pointer to the damaging effects that climate change may induce. This column introduces the third report in the Future of Banking series from the IESE Business School and CEPR, which explores the ways in which natural disaster risks are different from more familiar forms of financial risk – and how banks, asset managers andcentral banks are beginning to grapple with these risks. The authors call for a combination of public interventions and private sector mitigation strategies to reduce the long-term implications of climate-related events.

Vives, 25 May 2021

The latest Barcelona Report from the CEPR discusses how central banks and asset managers should manage climate and natural disaster risks. Xavier Vives tells Tim Phillips what the report has to say about mandates, hedging and resilience.

Ca' Zorzi, Dedola, Georgiadis, Jarociński, Stracca, Strasser, 25 May 2021

There is growing need to understand the international dimension of monetary policy. This column argues that ECB and Federal Reserve monetary policy decisions spill over to other countries asymmetrically. At the bilateral level, the Fed’s impact on the euro area is material to firms’ financial conditions and economic activity. Conversely, the impact of the ECB’s actions on the US economy is minimal. On a global scale, both central banks’ monetary policies matter for other countries, but the Fed’s monetary policy has a more sizeable impact, particularly on foreign financial variables, such as corporate bond spreads.

Djankov, Goldberg, 24 May 2021

Despite the significant barriers to economic inclusion that many women face, there is a long history of scepticism regarding the relevance of laws that discriminate on the basis of gender. This column analyses global data on legal gender equality and shows that greater legal equality between men and women is associated with a narrower gender gap in opportunities and outcomes, fewer female workers in positions of vulnerable employment, and greater political representation for women. Country attributes that are significant predictors of legal gender equality (including religion, legal origin, and geography) evolve slowly, if at all. Nonetheless, considerable progress in legal gender equality took place in some parts of the world over the past five decades.

Revoltella, Strauch, 24 May 2021

Jump-starting investment after Covid-19 is a crucial challenge for the sustainability of the recovery. This column highlights that incentives to re-launch investment remain crucial. Viable and new firms need to have access to additional new financing as we emerge from the crisis. Debt finance cannot be the only option. Incentives for recapitalisation of companies and access to equity or equity-type finance become increasingly important. The legacies of the pandemic in the financial sector need to be worked out quickly. European and government support complementing post-pandemic bank and capital market financing will be critical to a strong and sustained recovery. 

Esposito, Rotesi, Saia, Thoenig, 23 May 2021

To secure peace in the aftermath of violent civil conflict requires working through legacies of difference, even hate. But narratives forged for the purpose of peacebuilding often present a distorted retelling of events. Using as its example the cultural impact of a film released decades after the end of the American Civil War, this column illustrates how a version of the past that promotes unity or agreement at the expense of truth may foster new divisions, hindering the reconciliation process over the long term.

Amberg, Jansson, Klein, Rogantini Picco, 23 May 2021

Fully understanding the distributional consequences of monetary policy requires looking at its impact over the entire income distribution and not simply at summary inequality measures like the Gini coefficient. Using uncensored administrative income data for Sweden, this column shows that while a monetary policy loosening substantially affects incomes across the entire income distribution, it does so relatively more in the tails, providing a U-shaped response pattern. The effects in the bottom are primarily driven by changes in labour income, whereas the effects in the top are mainly due to disparities in capital income.

Hoffmann, Stewen, Stiefel, 22 May 2021

Germany’s current account surplus and corporate savings have both been increasing in the last decade. This column shows that German private investment has been low because it has been crowded out by local public bank lending to municipalities. Banks' statutory public lending requirements and the debt brake have both played a role in this, exacerbating the contractionary effect of fiscal consolidation.

Vaitilingam, 22 May 2021

There is much debate about whether the patents on Covid-19 vaccines should be waived to allow low-income countries to produce doses for themselves. The IGM Forum at Chicago Booth invited its panels of leading European and US economists to express their views on this issue and the broader challenges of vaccinating the world. As this column reports, a strong majority (87% of the panellists) agrees that rather than waiving intellectual property protection, the rich countries should pay the pharmaceutical companies to manufacture and distribute the vaccines (or to license production and support licensees). A similarly strong majority (89%) considers that the benefits to the rich countries of paying for 12 billion doses and providing them to the rest of the world exceed the costs.

Baker, Bloom, Davis, Sammon, 21 May 2021

When the stock market moves in a big way, journalists try to explain why. This column uses next-day newspaper accounts to characterise the drivers of more than 6,000 big daily moves (‘jumps’) across 16 national stock markets. Policy-driven jumps account for a greater share of upward than downward jumps in all countries. Jumps attributed to monetary policy foreshadow much lower levels of future stock market volatility than other jumps. In another striking pattern, US-related news drives one-third of national stock market jumps in other countries, emphasising the role of the US in the international monetary and financial system.

Altunbaş, Marques-Ibanez, Reghezza, Rodriguez d'Acri, Spaggiari, 21 May 2021

The Paris Agreement explicitly recognises the need to “make finance flows compatible with a pathway toward low greenhouse gas emissions and climate-resilient development”. This column looks at the impact of the agreement on bank lending and finds that following the agreement, European banks reallocated credit away from polluting firms. In the aftermath of President Trump’s 2017 announcement of a US withdrawal from the agreement, lending by European banks to polluting firms in the US decreased even further. The findings suggest that the announcement of green policy initiatives can have a significant impact combating climate change via the banking sector. 

Angelucci, Cagé, Sinkinson, 21 May 2021

Local journalism is disappearing in the US, with a quarter of all newspapers shut down in the past 15 years. Using the case of television expansion in the mid-20th century US, this column investigates how a more competitive national news market affects local news provision and, in turn, voting behaviour. After the entry of television, circulation for local newspapers and the total number of original local news stories published decreased. Because of television’s more national focus, this points to a strong shift towards more national news diets. Crowding out of local information led to less split-ticket voting, implying the nationalisation of local politics.

Gehrig, 21 May 2021

ESG – Environmental, Social and Governance – measures of bank performance are getting a lot of attention from shareholders and policymakers. But might more investment in ESG make banks less resilient? Thomas Gehrig tells Tim Phillips what the first research on this topic reveals.

Read More here: CEPR Discussion Paper, DP15816 Social Responsibility and Bank Resiliency by Thomas Gehrig, Maria Chiara Iannino, Stephan Unger

Bayer, Born, Luetticke, 20 May 2021

Debt-financed fiscal expansions have been a critical feature in many countries’ policy response to Covid-19. This column revisits the role of public debt in stimulating economic recovery. The authors identify both short-run and long-run effects, highlighting that higher public debt has small effects on the capital stock but leads to a sizable decline of the liquidity premium, which increases the fiscal burden of debt. Further, the revenue-maximising level of public debt is positive and has increased to 60% of GDP post-2010.

Fareed, Overvest, 20 May 2021

The COVID-19 crisis may affect future productivity through its impact on business dynamics. This column argues that business dynamics – in particular business entries, exits, and bankruptcies – are slowing down, which can have adverse effects on long-term productivity. Over the course of 2020, fewer new businesses were established than in any ‘normal’ year and fewer closed down than during the Global Crisis in 2009. Most new entrants are self-employed and online businesses, especially in the wholesale and retail trade sector.

De Neve, Imbert, Spinnewijn, Tsankova, Luts, 20 May 2021

Tax compliance lies at the heart of well-functioning societies, but the US and Europe spend vast sums annually to enforce it. This column discusses the results of population-wide experiments run in collaboration with the Belgium tax authority beginning in 2014. It finds that simplifying communication from tax administrators can improve tax compliance, nudge taxpayers to pay on time, and make late filers comply more swiftly. Communication – an inherent part of any tax administration – merits more attention from the policy community.

Larch, Malzubris, Santacroce, 19 May 2021

In 2020, EU member states launched massive fiscal measures to mitigate the economic and social fallout of the Covid pandemic. The activation of the severe economic downturn clause of the Stability and Growth Pact, coupled with a decisive intervention of the ECB, offered member states the flexibility to stage their fiscal response. As this column reveals, however, a closer look through the lens of an expenditure benchmark highlights important cross-country differences reflecting deeper issues. Countries with very high debt and/or high sustainability risks are bound by their meagre growth prospects. If unaddressed, future reviews of the EU fiscal rules may buy time, but not solve the underlying issues. 

Mitchener, O'Rourke, Wandschneider, 19 May 2021

The Trump administration’s pursuit of protectionist trade policies was predicated to some extent on the belief that America was too lucrative a market to face retaliation. Using the most detailed data set of bilateral trade flows constructed to date for the interwar period, this column shows that in fact the US faced substantial and widespread retaliation from trade partners in response to protectionist measures employed in the wake of the Great Depression. Exports to retaliating countries fell by as much as 33%.

Felbermayr, Kirilakha, Syropoulos, Yalcin, Yotov, 18 May 2021

While the world experienced a golden age of international economic integration in the 1990s and the 2000s, in the more recent past there has been an emergence of interstate political conflicts, political polarisation, and extensive use of coercive sanctions intended to limit the international movement of goods, assets, and people. This column presents findings from the newly updated Global Sanctions Data Base, which now includes the years of the Trump presidency and provides a more comprehensive coverage of 1,101 sanction cases in the years from 1950 to 2019.

Ahir, Bloom, Furceri, 18 May 2021

The latest update of the World Uncertainty Index indicates that global uncertainty has fallen back to its long-run average after reaching a historical high in 2020. This column describes how this is driven by a significant decline in two key drivers of global uncertainty over the last few years: US–China trade tensions and Brexit negotiations. A sub-index of the World Uncertainty Index, the World Pandemic Uncertainty Index, reveals that uncertainty related to COVID-19 is also starting to subside, especially in developed countries where vaccines rollout has started to pick up. Given this, and because US–China trade and Brexit tensions impacted developed countries more, the authors observe a more salient decline in uncertainty in developed countries than in developing ones.

Della Corte, Sarno, Schmeling, Wagner, 17 May 2021

In fixed exchange rate systems, default risks tend to have devastating effects on currencies, usually leading to sharp devaluations. However, little is known about the relationship between default expectations and exchange rates in floating rate regimes. This column uses data from a broad set of currencies to uncover a strong link between exchange rate movements and sovereign risk across all exchange rate regimes. This relationship is largely caused by countries’ exposure to global sovereign risk factors and shown to be driven by changes in default expectations. 

Ciminelli, Schwellnus, 16 May 2021

Despite progress in recent decades, women in Europe still earn roughly 15% less per hour than similarly qualified men. This column uses individual-level data to analyse the drivers of gender wage gaps and finds that in Northern and Western Europe the gap is largely a consequence of childbirth (a ‘glass ceiling’), while in Central and Eastern Europe it is due more to social norms, gender stereotyping, and discrimination (or ‘sticky floors’). Closing gender wage gaps will thus require policies tailored to the circumstances of individual countries. 

Amuedo-Dorantes, Romiti, 15 May 2021

Attracting international students is critical for public universities in the UK increasingly facing funding cuts and a diminishing domestic youth population. This column discusses how Brexit may have affected students’ willingness to study in the UK and the factors likely driving the students’ choices. Brexit significantly lowered applications from EU students, especially for science, technology, engineering and mathematics subjects and for more selective institutions. International student enrolments also dropped, substantiating concerns regarding the ability to attract international talent.

Haaland, Wooton, 14 May 2021

The changes in the UK’s trading relationship with the EU are likely to have widespread effects, many of which are yet to be understood in full. This column introduces the issue of compliance with rules of origin requirements within free trade agreements. The authors argue that complying with these rules can present firms with additional production costs that would not have been present had the UK remained a part of the EU.

Bai, Bernstein, Dev, Lerner, 14 May 2021

Government funding to boost innovation has seen an uplift since the unfolding of the COVID crisis. Using extensive global data, this column examines how government funding programmes focused on early-stage companies interact with private capital markets, and finds a positive relationship between government funding at this business stage and private capital allocation. Increased reliance on private capital markets enabled governments to mitigate investment frictions, improve capital allocation, and thereby increase local innovation.

Cavapozzi, Francesconi, Nicoletti, 13 May 2021

Despite a significant reduction in gender differences in the labour market over the last 40 years, they are still present in most advanced economies and do not appear likely to vanish soon. This column analyses the impact of culture, defined by women’s gender role attitudes, on maternal labour market decisions. It finds that social pressure is at least as strong as social learning in influencing labour market behaviour. Once these channels are accounted for, there is no direct effect of peers’ gender identity norms on labour force participation. Disseminating detailed statistics on female labour market outcomes and work attitudes may prove to be a cost-effective way to promote labour market participation, especially among less-educated mothers.

Proto, Rustichini, Sofianos, 13 May 2021

A large part of social interaction occurs among very different individuals. Characteristics such as trust, altruism, and intelligence can have important effects on strategic behaviour. This column studies how interactions between groups with different cognitive skill levels affect cooperation. Using an indefinitely repeated Prisoner’s Dilemma game, it finds that integrating players with different abilities leads to higher cooperation rates and higher aggregate payoffs than when they play separately. This is related to the strategy implementation of high-skill players, who are shown to be less lenient in integrated groups. 

Hartmann, Schepens, 12 May 2021

The 2020 ECB Forum on Central Banking addressed some key issues from the ongoing monetary policy strategy review and embedded them in discussions of major structural changes in advanced economies and the post-COVID recovery. In this column, two of the organisers highlight some of the main points from the papers and debates, including whether globalisation is reversing, implications of climate change, options for formulating the ECB's inflation aim, challenges with informal monetary policy communication, relationships between financial stability and monetary policy, how to make a monetary policy framework robust to deflation or inflation traps and the role of fiscal policy for the recovery from the pandemic.

Hwang, Lustenberger, Rossi, 12 May 2021

Central bank communication has become an important policy tool over the past 20 years. This column uses survey data to show that business executives tend to associate a greater volume of speeches from the central bank with the central bank having less of an impact on the economy. Importantly, this effect stems not from speeches given by governors, but by other board members.

Levy Yeyati, Filippini, 12 May 2021

The long-term social and economic consequences of Covid-19 are uncertain. This column provides a preliminary assessment of the variation in costs across countries and regions, and suggests that developing economies will suffer the most lasting damage. The pandemic has exposed the differential capacity of governments to mitigate health and economic crises and to allocate scarce resources efficiently, while some labour market structures have inhibited government efforts to attenuate the pandemic’s impact – impediments that will also shape comparative recoveries. 

Ó Gráda, O'Rourke, 11 May 2021

Depending on the period, Ireland’s economy has served as a model to be followed or a sobering lesson in failure. This column reviews the performance of the Irish economy from a long-run perspective and suggests that contrary to the common discourse, Ireland’s growth trajectory since independence has been far from exceptional. Rather, it should be seen as volatile. 

Petrongolo, Azmat, Galbiati, Monacelli, Schularick, 10 May 2021

Recent campaigns such as Black Lives Matter and #MeToo highlight the urgent need for a deeper understanding of persistent economic differences across different social groups. In an increasingly diverse society, insight into what underpins gaps along lines of race, ethnicity and gender, and the role of perceptions in driving conduct, is imperative. Similarly, the assessment of policies designed to tackle these issues is essential. With the aim of informing this discussion, the Managing Editors of Economic Policy are opening a call for papers for a special issue on “Stereotypes, Attitudes and Discrimination” to bring together the best ideas to inform the debate and provide high-impact policy advice.

Daniele, Giommoni, 10 May 2021

Austerity measures have been widely adopted around the world with mixed results in terms of public debt reduction and adverse political effects. This column examines the effect of fiscal austerity policies on corruption in Italian municipalities. The budget rules have led to a decrease in both recorded corruption rates and corruption charges per euro spent, without a clear effect on local public service provision. The drop in corruption emerges mostly in pre-electoral years for mayors eligible for reelection. Budget constraints might induce local governments to curb expenditures while dampening exposure to corruption.

Koster, Tabuchi, Thisse, 09 May 2021

Modern transportation infrastructure can help foster cheaper travel and a better-connected economy. This column shows that improvements in transportation can affect the location choices of firms in ways that are often beneficial to large regions, but may be detrimental to small intermediate regions through job losses. Using data from Japan’s high speed rail network, the authors confirm that ‘in-between’ municipalities that are connected to the network witness a sizeable decrease in employment.

Howell, Rathje, Van Reenen, Wong, 08 May 2021

In recent decades, US defence R&D seems to have lost its lustre. To combat the declining innovation, in 2018 the US Air Force reformed its contracting procedures to allow applicants more freedom to suggest projects with potential military benefits. This column uses data on applications and winners from such competitions to assess the effects of the reform. It finds that the ‘open’ programme attracts new and younger firms, increases future venture capital investment, and increases patenting. Government R&D could thus benefit from more bottom-up, decentralised approaches to promote innovation in the public sector. 

von Bismarck-Osten, Borusyak, Schӧnberg, 08 May 2021

Deciding whether to close schools to contain the spread of Covid-19 requires balancing the harm such closures inflict on families against their effectiveness in stopping the spread of disease. This column provides evidence from Germany that school closures did not contain infections among young people or adults in the summer of 2020 – when infection rates were low – or during the pandemic’s autumn resurgence. Thus, the benefits of school closures may not outweigh their costs to children and parents, particularly mothers. 

Hvide, 07 May 2021

As more of us wait to have children, more of us also worry if that's best for the health of our babies. Empirical evidence has been inconclusive so far but, based on new evidence, Hans Hvide tells Tim Phillips that this might be a problem with the way the research has been done.

Ball, Gopinath, Leigh, Mishra, Spilimbergo, 07 May 2021

How high is the ongoing US fiscal expansion likely to push inflation? This column presents new evidence that underlying (weighted median) CPI inflation has so far steadily declined since the start of the COVID-19 crisis, broadly as predicted by its historical Phillips curve relation. If the ongoing fiscal expansion reduces unemployment to 1.5-3.5%, as some predict, underlying inflation could rise to about 2.5-3% by 2023. If the fiscal expansion is temporary and monetary policy remains clearly communicated and decisive, there is little risk of a 1960s-type inflationary spiral.

Bloom, Kuhn, Prettner, 06 May 2021

In addition to the devastating human toll, the economic upheaval wrought by the COVID-19 pandemic illustrates the inextricable relationship between physical and economic health. This column presents an overview of the macroeconomic effects of the infectious disease epidemics of the 20th and early 21st centuries through the lens of recent COVID-19 research and explores the epidemic–economics nexus. It concludes that preventive policies, containment strategies, and early responses are more efficient, cost-effective, and manageable than combatting a full-scale infectious pandemic outbreak.

Schmidt, Fratzscher, Fuchs-Schündeln, Fuest, Gollier, Martin, Mejean, Ragot, Schubert, Weder di Mauro, 06 May 2021

The EU has announced reaching carbon neutrality by 2050 as the key target of its Green Deal strategy. The best coordination signal in this endeavour would be a uniform and encompassing price on carbon. To ascertain that all goods consumed in the EU face the same carbon price, it would be sensible to credibly prepare the implementation of border carbon adjustments  applied to imported goods. This column argues, however, that the EU should refrain from exempting exports from carbon pricing, and should consider a border carbon adjustment mechanism only after having established a credible uniform carbon-pricing mechanism within its jurisdiction. This could provide incentives to other countries to join a far-reaching international alliance for carbon pricing.

Ayyar, Bolt, French, Hentall MacCuish, O’Dea, 05 May 2021

The children of rich families tend to go to better quality schools, have higher cognitive skills, and complete more years of schooling. This column exploits unique data from the National Child Development study to determine these early childhood factors go on to have long-run impacts on an individual’s lifetime earnings, perpetuating a cycle of wealth. These results suggest that policies that equalise investments, such as improving school quality, could promote income mobility.

Andor, Huguenot-Noël, 05 May 2021

In the midst of a third wave of the Covid-19 pandemic affecting the European continent, the European Commission released the Social Pillar Action Plan, setting concrete targets on employment, skills, and poverty reduction to be reached by 2030. This new ‘social rulebook’ represents a welcome initiative from the EU to set itself long-term development goals. Yet setting new ambitions without the necessary means may risk backfiring. This column argues that to act as a game-changer, the Action Plan should place a greater emphasis on tapping Europe’s job growth potential where it lies, moving beyond a supply-side approach on employment promotion, and committing to greater ambitions in poverty reduction. 

Chaigneau, Edmans, Gottlieb, 04 May 2021

Executive pay is increasingly based on performance measures other than stock price – from financial metrics such as earnings and sales, to sustainability metrics such as emissions and safety. The use of performance-based vesting may seem like common sense, but it is often introduced in an ad hoc manner that does not allow for rigorous analysis or accountability. This column questions whether and under what conditions performance-based vesting is appropriate, and provides a framework for understanding how to incorporate performance conditions into CEO contracts.

Conte, Desmet, Nagy, Rossi-Hansberg, 04 May 2021

Trade restrictions are often invoked as a way to stem climate change. Although international transportation is an important source of carbon emissions, this view is incomplete. Using a dynamic spatial growth model, this column argues that trade can be a powerful mechanism to adapt to rising temperatures. The interaction of climate change, productivity, and migration decisions gives rise to significant global changes in populations and sectoral specialisations. On aggregate, rising temperatures are predicted to lower real GDP per capita by 6% and welfare by 15% by the year 2200. 

O'Hagan, 04 May 2021

The presence of prize-winning young economists among faculty can be seen as a marker of a university’s status in the field of economics, particularly when awards are given on the basis of researchers being published in ‘top’ journals. This column examines where recent young economist prize winners studied for their doctorates and identifies a clear pattern of dominance, with the US – particularly Boston – the clear frontrunner.

Bartram, Hou, Kim, 03 May 2021

How effective are climate change policies, and what are the important considerations to ensure they are effective? This column shows that firms respond to climate change policies with regulatory arbitrage so that localised policies aimed at mitigating climate risk can have unintended consequences. Studying the impact of the California cap-and-trade programme, it shows that firms without financial constraints do not reduce their emissions in response to the policy. In contrast, financially constrained firms shift emissions and output from California to other states. In fact, contrary to the policy objective, these firms increase their total emissions after the cap-and-trade rule.

Fatás, 03 May 2021

There is growing interest by central banks on the launch of digital currencies accessible to everyone. The main goal is to produce a more resilient, efficient and inclusive payment system. This column argues that central bank digital currency alone will not achieve those goals unless central banks are willing to engage in all the steps of the payment system or complement their digital currency with a broad set of regulatory changes to ensure competition and interoperability of payments.

Kotz, Mischke, Smit, 03 May 2021

The future of productivity and economic growth in the US and Europe is uncertain. This column reviews evidence from eight economic sectors to lay out the key conditions for sustained recovery from the Covid-19 crisis. It suggests that the weak productivity growth that followed the Global Crisis can be averted if private and public sectors act together to strengthen demand and diffuse supply-side restructuring to all firms. 

Darracq Pariès, Kok, Rottner, 02 May 2021

The prolonged period of negative interest rates in advanced economies has raised concerns that further monetary policy accommodation could produce contractionary effects. Using a non-linear macroeconomic model fitted to the euro area economy, this column demonstrates that the risk of hitting the ‘reversal interest rate’ depends on the capitalisation of the banking sector. Consequently, the possibility of the reversal rate creates a novel motive for macroprudential policy, such as a countercyclical capital buffer. The new motive emphasises the strategic complementarities between monetary and macroprudential policy.

Hungerland, Wolf, 02 May 2021

The history of globalisation is usually told in two parts, separated not only by two world wars but also by changes in technology, institutions, and economic logic. This column reconsiders that narrative. Using detailed new evidence on Germany’s foreign trading practices from 1800 to 1913 (the ‘first’ globalisation), it finds that most growth took place along the extensive margin, while 25–30% of trade was intra-industry. If the first globalisation saw substantial heterogeneity within countries and industries, it may be time to re-think the ‘classical’ versus ‘new’ trade paradigm. 

Frankel, 02 May 2021

Richard Cooper, Robert Mundell, and John Williamson made important contributions on a variety of topics in international economics throughout their careers, particularly in terms of how we think about currency arrangements. This column reviews the work of all three, tracing their ideas and drawing lessons for policymakers today.

Patnaik, Lamorgese, Linarello, Schivardi, 01 May 2021

In response to COVID-19, firms had to adapt to nationwide lockdowns and social distancing measures with little to no prior experience. This column examines the role of management in firms’ responses to the pandemic in Italy, the first western country to be badly hit by the outbreak, and finds that firms with structured management practices experienced lower declines in performance during the post-lockdown period. These firms were more likely to adopt labour-related strategies in response to the lockdown, including transitions to remote work.

Monnet, Riva, Ungaro, 01 May 2021

One of the concerns in the debate on central bank digital currency is whether the ability for depositors to hold an account at the central bank could trigger a run on the banking system. This column looks back to the French Great Depression of 1930-1931, when savers had a safe alternative to banks in the form of government-backed savings institutions, and shows that the existence of safe deposits other than banks can play a substantial role in triggering bank runs. The study also provides insights into two elements of the current discussion: ceilings on safe deposits and interest rates.

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