May 2021

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. 

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.

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. 

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.

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.

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.

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