June 2021

Acemoğlu, Ozdaglar, Siderius, 30 June 2021

Misinformation spreads rapidly on social media platforms. This column uses a model of online content-sharing to show that a social media platform that wishes to maximise content engagement will propagate extreme articles amongst its most extremist users. ‘Filter bubbles’ prevent the content from spreading beyond its extremist demographic, creating ‘echo chambers’ in which misinformation circulates. The threat of censorship and a corresponding loss in engagement could pressure platforms to fact-check themselves, while regulating their algorithms could mitigate the consequences of filter bubbles. 

Bottone, Conflitti, Riggi, Tagliabracci, 30 June 2021

How has the Covid-19 shock affected firms’ pricing choices and inflation expectations? Using a rich survey of Italian firms, this column documents that planned price changes and inflation expectations appear to have been driven by the expected duration of the downturn and by the strength of competitive pressures. It finds no effects of liquidity and financial conditions, which were major drivers of corporate pricing policies during the Great Recession and the sovereign debt crisis, on pricing strategies during the pandemic.

Ehrmann, Tietz, Visser, 29 June 2021

Most of the Reserve Bank presidents of the Federal Open Market Committee of the US Federal Reserve System have rotating voting rights. This column discusses new evidence that having the right to vote makes them more involved, which affects their meeting interventions and their inter-meeting speeches. This matters for financial markets – asset prices react less to speeches delivered by presidents when they have the right to vote. The authors argue that this is consistent with changes in the speeches’ information content.

Costa-i-Font, 29 June 2021

Covid-19 vaccines exert large positive spillover effects beyond their protective effects for individuals, and thus their value far exceeds their costs. But these benefits are only realised if enough people receive both doses, so policymakers need to ensure appropriate incentives are in place to mitigate vaccine hesitancy. This column explores the potential of different incentives, arguing that creating a narrative of social esteem around being vaccinated may be the most effective way to ensure widespread uptake.

Chen, Huang, Ouyang, Xiong, 28 June 2021

Online consumers tend to say they care about privacy but at same time choose to share their personal data either for free or for little reward. This column examines this ‘data privacy paradox’ using data from a survey of Alipay users. It finds no relationship between users’ self-stated privacy concerns and the number of third-party mini-programs on the site they agree to share their data with, and argues that this may be explained by users with stronger privacy concerns tending to benefit more from using these mini-programs. Rather than having innate data privacy concerns, consumers appear to develop concerns as a by-product of the process of using digital applications.

Acciari, Bratta, Santomartino, 28 June 2021

G7 finance ministers recently committed to a global minimum tax rate for multinational enterprises. A key objective is to reduce profit shifting by large enterprises. This column uses new microdata to show how the profit-shifting response to tax rate changes depends on tax rate differentials. Profit shifting is significantly more sensitive to tax rate changes in countries with tax rates lower than the world average, and less sensitive in countries close to the average. As a result, policies aimed at guaranteeing a minimum level of taxation may be effective and efficient in curbing profit shifting by reducing tax rate differentials. 

Burlig, Sudarshan, Schlauch, 27 June 2021

At the outset of the Covid-19 pandemic, the developing world took many of the same policy steps as developed nations to contain the spread, including lockdowns. This column uses evidence from India, where the government implemented one of the most stringent lockdowns, to show that domestic travel bans may actually have increased Covid-19 cases in developing countries with large urban-rural migrant populations. While a travel ban is in place, the spread of the disease in migrants’ rural home districts is indeed temporarily stopped. But when travel is finally permitted, migrants return home possibly carrying many more infections than if they had been allowed to leave early.

Rosa, Tentori, 26 June 2021

Digital currencies are becoming increasingly present on both research and policy agendas, including for central banks. This column explores the geopolitical role of central bank digital currencies, with a particular focus on China. It argues that such currencies could be useful as a means for central banks to record transactions in an increasingly cashless economy and could help improve central banks’ monetary transmission. Nonetheless, the risk of cyber-attacks should not be overlooked.

Ercolani, Guglielminetti, Rondinelli, 26 June 2021

The Covid-19 pandemic has seen a surge in household savings across the world. This column exploits information from the Bank of Italy’s Special Survey of Italian Households to break down recent saving patterns in Italy. It finds an increase in precautionary savings associated with factors such as higher job uncertainty and fears of a protracted pandemic. Additionally, it suggests that a lasting precautionary attitude could slow the decumulation of piled up savings, even as the pandemic slows down.

Portes, 25 June 2021

The tide on public sentiment towards immigration in the UK – and economists’ views on Brexit’s economic impact – may be turning. This column discusses the UK’s post-Brexit migration system introduced in January 2021. It argues that the new system, while ending free movement with the EU and hence being far more restrictive for EU citizens moving to the UK for work, is considerably less restrictive.

Bonfiglioli, De Pace, 25 June 2021

The rise in income inequality and, more prominently, in the wage gap between men and women has been one of the major concerns among policymakers and the public in recent years. This column presents new evidence from Germany on the impact of exports on the gender wage gap which shows that an increase in a plant’s exports significantly reduces the wage gap between male and female co-workers in white-collar occupations, but widens it for employees in blue-collar occupations. The findings suggest that designing policies that support women taking part in trade, especially in positions in which they would benefit from their comparative advantage, is crucial to maximise the potential benefits from globalisation.    

Nano, Panizza, Viarengo, 25 June 2021

Over the last 40 years, Italy has produced a large number of influential economists. This is somewhat surprising because economics is more likely to require technical training than other social sciences and, until the 1980s, Italy did not have any formal doctoral programme. This column examines how a large scholarship program contributed to the formation of a generation of Italian economists with a focus on gender and socioeconomic status, and on their interaction with social mobility.  

Crafts, 25 June 2021

John Maynard Keynes famously predicted that no one would need to work for more than three hours a day by 2030. How did he get it so wrong? Nick Crafts tells Tim Phillips that, in one way, Keynes has underestimated the change in our work-life balance.

Antimiani, Cernat, 24 June 2021

Many believe that the global trading system could offer little more to least developed countries beyond the various unilateral preferential schemes currently in place. This column argues that there is room for new multilateral initiatives to strengthen the participation of these countries in global value chains. It advocates for a new ‘GVCs for LDCs’ global preferential scheme based on least developed countries’ value added, thereby covering exports by these countries along the entire supply chain. Estimates suggest that such a scheme would increase global trade, improve least developed countries’ value added, and promote further value chain integration between these and other developing countries.

Ravallion, 24 June 2021

Surveys are an often unreliable method for measuring top incomes, due largely to low compliance rates among rich households. This column proposes a way to correct for selective compliance. Using the geographic distribution of survey-response rates to calculate how the household-level probability of agreeing to be interviewed varies with own-income and other covariates, the method improves on ad hoc approaches to reweighting survey data. A behavioural micro model of compliance can more accurately reveal top income recipients, thereby updating tax records and refining redistributive policies.

Vollaard, van Ours, 24 June 2021

Many expert product reviews are non-blind and influenced by cosy relationships between reviewers and producers that consumers are not aware of. The downside of biased reviews is largely unknown because of a lack of data and small sample sizes. Based on unique data for a long-running expert product review in the food-service industry, this column finds that a conflict of interests for reviewers led to a sizeable bias in ratings. This casts doubt on the value of non-blind expert product reviews that are not bound by very strict rules.

Elmalt, Igan, Kirti, 23 June 2021

Sustainable investment incorporating environmental, social, and governance concerns is increasingly used as an emissions-reducing policy. However, little is known about its effectiveness. This column examines the relationship between ESG metrics and emission growth across 20 countries and finds little evidence to suggest that higher ESG metrics are associated with reduced emission growth.

Fernandes, Rocha, Ruta, 23 June 2021

While multilateral trade negotiations have stagnated and tensions between major players have surged, bilateral and regional agreements seem to have run away with the trade agenda. There are over 300 agreements today, up from 50 in 1990. Most importantly, many of these agreements have extended their reach well beyond tariffs, aiming to achieve integration beyond trade, or ‘deep’ integration. This column introduces a new eBook from CEPR and the World Bank that focuses on the determinants of deep trade agreements, how they affect trade and non-trade outcomes, and how they might shape trade relations in a post-COVID-19 world.

Fetzer, Highfill, Hossiso, Howells III, Strassner, Young, 23 June 2021

Research has shown that multinational enterprises located in the US account for roughly 90% of US exports of goods and for over 90% of exports of selected services. While these estimates show that multinationals clearly dominate trading activity of gross exports, they overstate the role of multinationals in US exports since non-multinationals are an important part of the production supply chain and make significant contributions to the value embodied in these exports. This column uses experimental Trade in Value Added statistics estimated from extended supply-use tables for the US for 2005 and 2012 to show that both multinational and non-multinational firms contribute significant amounts of content embodied in US exports.

Puy, Rawdanowicz, 22 June 2021

The Covid-19 crisis has had a largely negative effect on firms, harming corporate profitability and leverage around the world. This column presents findings from the recent OECD Economic Outlook, highlighting how these negative effects have in fact varied across firms. In maintaining the buffer against corporate bankruptcies, the authors identify three clear policy challenges: debt overhang, financial instability, and the rise of ‘zombie’ firms.

Amiti, Heise, 22 June 2021

A number of studies have documented that market concentration among US firms has increased over the last decades, as large firms have grown more dominant. This column examines whether this means that large US firms have more market power in the manufacturing sector. It shows that tougher import competition contributed to the rise in the dominance of large US firms over the last few decades, but also reduced US firms’ market share (as a share of all sales inclusive of foreign firms) in the US market. These findings suggest that US firms’ market power in manufacturing industries has in fact declined as foreign firms’ market share has grown.

Honohan, Ó Gráda, 22 June 2021

Peter Neary, former president of both the European Economic Association and the Royal Economic Society, passed away on 16 June 2021. This column pays tribute to one of the profession’s European leaders, both in terms of the depth and range of his research and his role as a wizard of organisational development. 

Bonardi, Gallea, Kalanoski, Lalive, Madhok, Noack, Rohner, Sonno, 21 June 2021

A belief that the environment rebounded during Covid-19 lockdowns is widespread. This column uncovers a more complex reality. Though domestic and international lockdowns prompted a 35–45% reduction in pollution, air quality effects across the world were unequal. When restrictions were placed on some economic activities (transport and industry), people shifted to others (domestic energy). Reductions in economic activities degrade the environment in countries where domestic energy is the largest source of pollution, and policies aimed at combatting climate change must account for such diverse outcomes.

Djankov, Zhang, 21 June 2021

In much of the world, property sales are highly regulated and expensive. Using World Bank data, this column shows that while regulators and administrators still pose barriers to transferring property, countries have actually seen tremendous progress in reducing compliance costs in the area of registering property over the past 15 years. In the wake of the Covid-19 pandemic, moving public services online has provided opportunity to reduce compliance costs further by holding the level of regulation constant and easing the way in which it is administered. 

Goldin, 20 June 2021

Despite the tragic deaths, suffering and sadness that it has caused, the pandemic could go down in history as the event that rescued humanity. This column argues that the pandemic has created a hinge moment of change, in which governments and citizens have demonstrated their ability to undertake reforms which would have been impossible before the pandemic. Sustaining and building on this momentum for reform is vital if we are to address the critical challenges facing humanity, stop future pandemics and build a more inclusive world of shared prosperity. 

Harju, Jäger, Schoefer, 19 June 2021

Many continental European countries give workers a formal right to voice via board-level or shop-floor elected representation, but evidence on the effects of these arrangements is scarce. This column examines reforms in Finland that introduced or expanded workers’ rights to voice institutions. Overall, the reforms had non-existent or small positive effects on turnover, job quality, firm survival, productivity, and capital intensity. It may be that Finnish worker voice institutions operate through information sharing and cooperation, which do not substantially improve worker outcomes but also do not harm firm performance.

Besley, Dann, Persson, 18 June 2021

The determinants of economic development have been debated for many years. However, some of these determinants have been hard to measure internationally. This column reviews evidence from 25 years of data to argue that countries form persistent ‘development clusters’ according to their levels of internal peace and state capacity.

Ahammer, Grübl, Winter-Ebmer, 18 June 2021

COVID-19 and the policies enacted to tackle virus transmission have led to a wave of unemployment in Europe and the US. This column uses data from Austria to examine the impact of downsizing by a firm on the health of people who remain at the firm. It finds a significant increase in drug prescriptions and hospitalisations following mass layoffs, driven primarily by mental and cardiovascular conditions. The authors argue that stress due to fear of job loss, rather than increased workloads, is the more likely explanation.

Cortina Lorente, Didier, Schmukler, 18 June 2021

The recent expansion in global corporate debt has occurred not only in one but in several debt markets, notably bonds and syndicated loans. This column argues that firms obtain financing in several debt markets and this more diversified corporate debt composition might help them mitigate the impact of supply-side shocks. Contrary to common beliefs, debt financing did not necessarily halt during crises because firms from advanced and emerging economies shifted their capital raising activity between bonds and syndicated loans as well as between domestic and international markets. These market switches, conducted mostly by large firms, impacted the amount of debt borrowed, the borrowing maturity, and the debt currency denomination, within firms and at the aggregate level. Overall, debt markets need to be analysed jointly to obtain a more complete picture of who is borrowing at different points in time and how overall corporate debt is evolving.

Cespa, Gargano, Riddiough, Sarno, 17 June 2021

The extent that trade volume can reveal asymmetric information among foreign exchange market participants is the subject of debate among economists, as are the questions surrounding how the dispersion of information can affect currency returns. This column presents new evidence that foreign exchange volume reveals insights into both issues. The authors find that a high level of information asymmetry exists across foreign exchange market participants, and that this asymmetry is independent of currencies’ average level of liquidity, volatility and volume.

Lundborg, Rooth, 17 June 2021

School meal policies differ significantly between countries. Sweden and Finland serve healthy school lunches free of charge to all students, for instance, while children in neighbouring Norway and Denmark bring their own packed lunches from home. This column looks at a programme that introduced free nutritious school lunches for all pupils in Swedish primary schools between 1959 and 1969, and finds that children who participated during their entire primary school period went on to have higher lifetime incomes.

Garicano, 16 June 2021

As with Bretton Woods and with the Beveridge Report during WWII, the crisis generated by the Covid pandemic creates an opportunity to rethink our economic system. This column introduces a new book, “Capitalism after COVID: Conversations with 21 Economists”, which offers the thoughts of 21 top economists representing most of the different fields of economics on the key challenges the world faces after the pandemic.

Garicano, 16 June 2021

What's the future of capitalism? Luis Garicano asked this question to 21 of his fellow economists, and this week the interviews are published as a CEPR ebook. He tells Tim Phillips that Covid-19 may inspire us "to rethink everything we are doing".

You can download the new eBook 'Capitalism after Covid: Conversations with 21 economists' here

Kohler, Müller, Wellmann, 16 June 2021

Labour mobility is a key criterion for assessing optimum currency areas. To smooth country-specific shocks or business cycles in currency unions, it is key that people migrate across the countries or regions of the union. This column argues that the ongoing discussion about risk sharing in the euro area neglects the issue of labour mobility. Relative to the US, migration rates in the euro area are significantly lower and migration contributes less to overall risk sharing. It calls for a renewed focus on the principle of labour mobility in order to enhance risk sharing in the euro area. 

Thygesen, Beetsma, Bordignon, Debrun, Szczurek, Larch, Busse, Gabrijelcic, Jankovics, Malzubris, 16 June 2021

In its latest assessment of the euro area fiscal stance, the European Fiscal Board concludes that national policy plans for 2022 amount to an appropriate fiscal stance for the euro area as a whole. This column discusses how, against the backdrop of a strong economic rebound this year and next and the unwinding of emergency measures, the underlying fiscal deficit of the euro area should halve between 2021 and 2022, while nevertheless remaining well above pre-crisis levels. With significant fiscal support still in the pipeline, more targeted measures should avoid excess economic scarring and encourage sustainable growth while facilitating the green and digital transitions. 

Redonda, von Haldenwang, 16 June 2021

Tax expenditures – such as tax incentives for firms, tax deductions for households, and lower tax rates for specific goods and services – are both widespread and costly, but are generally not subject to the same level of scrutiny in the budget process as direct spending. This column introduces the Global Tax Expenditures Database, which aims to improve reporting and enhance scrutiny. As governments worldwide face growing funding needs to respond to the pandemic, they cannot afford to lose revenues to ill-designed tax breaks. Comprehensively assessing tax expenditures is crucial, and estimating and reporting their fiscal cost is a vital first step.

Bloom, Mizen, Taneja, 15 June 2021

The COVID-19 pandemic prompted a collective shift to working from home. This column argues that though the shift was surprisingly easy, returning to the office will be hard. New evidence from a survey of 2,500 employees in the UK shows a preference in favour of home working 2-3 days a week, with lingering concerns of overcrowded transport and offices. But allowing workers to choose when to work from home will leave empty offices Monday and Friday, and many tasks such as large group meetings are more effective in person than online. Hybrid working will be the solution.

Bohn, Brakman, Dietzenbacher, 15 June 2021

Global value chain analyses to examine the income gains from trade are particularly complicated by ownership relations between headquarters and subsidiaries. The consequence is that the value added generated within one country may well result in income in another country. This column presents the income perspective as a framework to deal with this complication. Trade deficits become smaller for wealthy countries and larger for developing countries. Discussions on ‘unfair’ trade should take the income perspective on board.

Degryse, Kokas, Minetti, 14 June 2021

The debate surrounding the drafting and implementation of the new Basel III accord has reignited the debate on the role of bank business models and lending technologies in banking activities, and the way these should be accounted for by regulators. This column explores how banks’ credit market experiences affect their decisions and moral hazards in lending. Banks' prior experience with borrowing firms and co-lenders reinforces their monitoring incentives allowing for a smaller lead share in the lending syndicate. Banks' sectoral experience, in contrast, appears to dilute monitoring incentives, calling for a larger lead share in the lending syndicate. 

Facchini, da Silva, Willmann, 14 June 2021

The creation of new preferential trade agreements remains a key driver in trade liberalisation, at least bilaterally. This column examines the creation of new agreements, highlighting the effects of pre-agreement bilateral imbalance and within-country income inequality on the likelihood of a preferential trade agreement being formed. The authors suggest that while the creation of preferential trade agreements continues to be an important avenue to liberalise trade, there are significant political constraints to be considered.

Aksoy, Cabrales, Dolls, Durante, Windsteiger, 13 June 2021

The evolution of altruism is an intensely studied phenomena in both the natural and social sciences. This column presents novel evidence from a large-scale survey conducted in August 2020 across nine European countries measuring how trust, reciprocity, and altruism are affected by economic interests, shared values, and a major health crisis. It finds that while altruism is enhanced by shared identities or crises, interpersonal trust is not. Common economic interests have little impact on altruism or reciprocity, suggesting that economic concerns alone cannot build social cohesion.

Hvide, Johnsen, Salvanes, 12 June 2021

Although increased parental age has been a suspected risk factor for adverse offspring outcomes, the findings from the existing medical and epidemiological literature are mixed. The existing literature compares children with parents of different age across families, which is problematic because both parental age and birth defects may correlate with genetic variables and socioeconomic background. This column argues that when using a more appropriate methodology, comparing children within families – i.e. between siblings – there are strong and negative effects of parental ageing on offspring outcomes, with implications for public policy.

Spilimbergo, 11 June 2021

Latin America has a long history of populist government. New research by Antonio Spilimbergo quantifies the consequences of populism for the region's institutions and economies. 

Ampudia, Beck, Popov, 11 June 2021

The trade-off between stability and growth has long been a subject of policy debate and informs views on the extent to which the supervision of banks should be centralised. This column presents analysis of the ECB’s Single Supervisory Mechanism, using the announcement of the mechanism and its implementation as a quasi-natural experiment. It finds that centralised bank supervision is associated with a decline in lending to firms, which is accompanied by a shift away from intangible investment and towards more cash holdings and higher investment in easily collateralisable physical assets.

Autor, Figlio, Karbownik, Roth, Wasserman, 11 June 2021

Modest gender gaps emerge in primary school, with girls tending to perform better than boys in reading tests, for example, and less likely to experience disciplinary incidents that result in suspension. This column uses data from the US state of Florida to examine why these modest gaps translate into large gender differences in later educational attainment, such as completing secondary education and enrolling in and graduating from tertiary education. It finds that early childhood family environment has differential effects on boys, and particularly those at the lower tails of the academic test score and attendance distributions.

Gulan, Haavio, Kilponen, 10 June 2021

In December 1990, the Soviet Union withdrew from its bilateral trade agreement with Finland. This was followed by a dramatic collapse in Finnish-Soviet trade and a deep economic crisis in Finland. This column re-assesses the role of the trade collapse in causing the Finnish Great Depression in the early 1990s. The trade shock had a strong negative effect on the Finnish economy but explains less than one-third of the cumulative GDP loss. Domestic factors, including a financial boom and bust, exerted a much larger negative effect. 

Mamonov, Pestova, Ongena, 10 June 2021

Financial sanctions against Russia’s state-owned and controlled banks were imposed consecutively between 2014 and 2019, allowing banks that would potentially be targeted in the future to adjust their international and domestic exposures. This column explores the informational effects of financial sanctions, showing that compared to similar private banks, ‘not yet sanctioned’ financial institutions immediately reduced their foreign assets while, rather unexpectedly, expanding their foreign liabilities. These informational effects crucially depend on geography, with targeted banks located further from Moscow decreasing their foreign assets by more and raising foreign liabilities by less than those located near the Kremlin. 

Ilzetzki, 10 June 2021

Fiscal rules were enshrined in the founding documents of the European Monetary Union. This column presents the latest CfM-CEPR survey, in which the panel of experts on the European economy were nearly unanimous in agreeing that the existing EU fiscal rules require revision. Most panel members would opt for some combination of fiscal councils; more flexible, countercyclical, or expenditure-based rules; and increased fiscal capacity at the EU level. A smaller share of panelists would scrap fiscal rules altogether, leave fiscal policy to national authorities, and provide greater clarity that the EU would not bail out countries facing debt problems. A single panel member called for stricter rules with greater enforcement.

Kok, Müller, Ongena, Pancaro, 09 June 2021

Since the financial crisis, stress tests have become an important supervisory and financial stability tool. Relying on confidential data available at the ECB, this column presents novel evidence that supervisory scrutiny associated with stress testing has a disciplining effect on bank risk. Banks that participated in the 2016 EU-wide stress test subsequently reduced their credit risk relative to banks that were not part of this exercise. Relying on new metrics for supervisory scrutiny, it also shows that the disciplining effect is stronger for banks subject to more intrusive supervisory scrutiny during the stress test.

Liu, Ornelas, Shi, 09 June 2021

Worldwide merchandise trade flows decreased significantly in 2020, as Covid-19 disrupted economic activity across the globe. This column analyses how various pandemic-related factors shaped international trade flows. Specifically, it estimates how Covid-19 incidence and lockdown restrictions affected the monthly year-over-year growth of imports from China for all destinations to which China exported goods in 2019–2020. It finds that government measures to curb economic activities had a larger impact on a country’s imports than the direct health and behavioural effects of the pandemic itself.

Crawford, Caffarra, 08 June 2021

The CEPR's Research Policy Network on competition policy launches this week. In the first of two special podcasts on the topic, Greg Crawford and Cristina Caffarra tell Tim Phillips why it is so important to have this debate now, and how academics can use the RPN to connect their research to real-world policy.

You can find out more about and register for the event on June 17th 2021 here: Privacy & Antitrust: "Integration", not just "Intersection"

Christelis, Georgarakos, Jappelli, Kenny, 08 June 2021

The coronavirus pandemic has generated a complex economic shock that has affected households across the euro area very differently. This column uses survey data from around 10,000 households across Europe to reveal substantial divergences in the pandemic-induced financial concerns of households across population subgroups and countries. Financial concerns are significantly greater for younger, female, and low-income individuals in countries where the first wave of Covid-19 was more severe.

Andersen, Jensen, Johannesen, Kreiner, Leth-Petersen, Sheridan, 08 June 2021

To what extent do households self-insure to avoid cutting back on consumption following income losses, and which self-insurance channels are most important? This column reviews evidence on household responses to job loss using comprehensive high-frequency data from multiple sources in Denmark. Over the two years following job loss, 30% of the decline in disposable income is accounted for by a drop in household spending, leaving a gap of 70% that reflects the effects of self-insurance. This gap is filled by lower accumulation of liquid assets (~50%), increases in private transfers and other inflows (~10%), higher spousal labour supply (~5%), and lower net debt repayments (~5%). Mortgage borrowing and refinancing play only a small role.

Engbom, Gonzaga, Moser, Olivieri, 07 June 2021

Relatively little is known about the patterns of inequality in developing countries, despite their importance for designing social and economic policies. This column analyses administrative and household data to describe the trends in earnings inequality and dynamics in Brazil since late 1980s. The findings suggest that the observed fall in earnings inequality and volatility may have been driven by the process of formalisation and other changes within the informal sector. 

Bailey, Sun, Timpe, 06 June 2021

Preschool attendance in the US is largely funded by parents, which means that the children of more affluent and educated parents are more likely to attend.  This column looks at the impact of Head Star, a large-scale preschool programme that serves roughly 1 million children annually in the US. The results show that children age-eligible for Head Start went on to achieve substantially higher levels of education. Head Start also led to improvements in adult economic self-sufficiency. Overall, the findings suggest that a large-scale preschool programme – even one with less per-child expenditures than model preschools – can deliver long-run benefits to students.

Bogmans, Pescatori, Prifti, 05 June 2021

Global food security is being threatened by the COVID-19 pandemic and the restrictive measures to control it. Jammed food supply chains, falling incomes for some population segments, and rising food prices are placing food out of reach for millions of individuals. This column discusses the short-run relationship between food (in)security and income and food prices, and the implications of the current economic crisis for global hunger. The pandemic’s economic fallout risks setting us back a full decade on eliminating undernourishment, especially in low-income countries. Governments should strengthen social safety nets for the most vulnerable to keep inequality in check.

Betz, De Santis, Zaghini, 04 June 2021

Monetary policy can stimulate credit provision – and as a result, economic activity – through the purchases of corporate bonds. This column assesses euro area financing conditions and shows they have improved since the announcement of the ECB Corporate Sector Purchase Programme on 10 March 2016, with corporate bond spreads tightening and bond issuance increasing. Moreover, the unconventional monetary policy triggered a shift in bank loan supply in favour of firms that do not have access to bond-based financing. 

Casanova, Scheubel, Stracca, 04 June 2021

Since the Global Crisis, the channels of capital flows have changed significantly. This column analyses key trends and underlying drivers of capital flows since the Global Crisis, including the policy trade-offs. It documents the increasing importance of market-based funding, a growing reliance on domestic currency liabilities, and a less stable foreign direct investment environment, particularly for emerging market economies. Although these changes create risks which should be managed, capital flows also present clear benefits for stimulating economic performance and efficiency. 

Siegloch, Wehrhöfer, Etzel, 04 June 2021

Increasing regional inequality has become a major concern for policymakers both in the US and Europe. This column investigates the effects of a large place-based investment subsidy targeted at manufacturing firms in East Germany. It shows that a decrease in the subsidy rate leads to a decrease in manufacturing employment, highlighting spillovers to untreated sectors in treated counties and untreated counties connected via trade and local taxes. It also finds that the place-based policy is at least as efficient as cash transfers for the unemployed but is more effective in curbing regional inequality overall.

English, Ubide, 04 June 2021

How well has monetary policy coped with the challenge of Covid-19?Central banks get good grades in a new VoxEU ebook. But Bill English and Angel Ubide warn Tim Phillips that success today may lead to problems in future.

Download the new eBook here: Monetary Policy and Central Banking in the Covid Era

Furceri, Loungani, Ostry, Pizzuto, 03 June 2021

In the aftermath of past pandemics, fiscal policy played an important role in reducing or amplifying income inequality. This column predicts the likely distributional effects of Covid-19 by analysing evidence from five previous outbreaks (SARS, H1N1, MERS, Ebola, and Zika). It finds that severe austerity measures were associated with inequality increases three times greater than expansive fiscal policy following a pandemic. Premature austerity is self-defeating from both a macro and an equity standpoint.

Evenett, Fritz, 03 June 2021

Properly guided, foreign direct investment has transformed the prospects of certain firms, sectors, regions, and even economies. This column introduces the 27th Global Trade Alert report, which looks back over the past quarter of a century to put current FDI dynamics in perspective, assesses the degree to which governments continue to favour FDI, and points the spotlight on the limited contribution of FDI to advancing sustainable development in emerging markets.

English, Forbes, Ubide, 03 June 2021

As Covid-19 spread in early 2020, many central banks were still struggling to boost inflation. The abruptness and speed of the economic deterioration, the sharp increase in market volatility, and the blinding uncertainty over the impact of the pandemic motivated a central bank reaction that was unprecedented in terms of size, speed and scope. A new CEPR eBook summarises the responses by sixteen central banks from both advanced and emerging economies – with chapters written by senior central bank officials and economists in each of the countries to explain the actions taken. While responses varied across countries, there are several common threads: the size, speed and breadth of the responses; the reliance on a more multidimensional set of tools; and the ability of emerging markets to behave more like advanced economies.

Mishra, Prabhala, Rajan, 02 June 2021

India only introduced credit scoring technology in 2007. This column studies its adoption by the two main types of banks in the country: new private banks and state-owned public sector banks. While both types of banks check nearly all scores for new borrowers, public sector banks are very slow to adopt scoring for their prior relationship borrowers even though scores are reliable predictors of delinquency. Government ownership does not explain this slow adoption, as older privatebanks also exhibit similar adoption patterns. The findings suggest that practices from the past, when adapted to different regulatory and economic environments, are slow to change and can hold back better practices today.

Freeman, Lewis, 02 June 2021

Better communications, enhanced transport links, integration agreements between governments, and other factors have all helped increase global economic interconnectedness over the past few decades. This column compares a state-of-the-art gravity model for trade versus migration to reveal that there are in fact important differences in the evolution of globalisation over time on flows of goods versus people. For trade, the boost from free trade agreements declines the farther apart signatories are, but for migration the boost increases with distance between signatories. Further, while both border and distance frictions have declined for trade over time, this is not the case for migration flows.

Fell, Peltonen, Portes, 02 June 2021

At the end of 2019 the European Systemic Risk Board General Board mandated a Task Force on Low Interest Rates to revisit the ESRB’s 2016 report on “Macroprudential policy issues arising from low interest rates and structural changes in the EU financial system”, assess subsequent developments, compare these to the risks identified in the report, and assess whether new sources of systemic risk have emerged. Furthermore, the Task Force was mandated to review progress in relation to the policy proposals in the earlier report, as well as propose possible new policy actions aimed at mitigating potential systemic risks. As this column discusses, the new report finds that the low interest rate environment continues to pose risks for financial stability. For instance, since 2016, search-for-yield behaviour has intensified in the banking and investment fund sectors, and some business models are proving unsustainable. To address these sources of risk and vulnerabilities, the report puts forward a wide range of policy options.

Cecchetti, Tucker, 01 June 2021

Since the Global Crisis, the size of central bank balance sheets has grown significantly. Traditional goals of price and financial stability are insufficient for assessing the success of modern central banking operations. This column introduces a new framework for categorising and understanding central bank balance sheet operations. Monetary policy decisions are separated from facilities for lender of last resort, market maker of last resort, providing selective credit, and ensuring emergency government financing. To maintain legitimacy and accountability, central banks should formally distinguish these operations by clearly setting out their purposes, objectives, and constraints. 

Blanchard-Rohner, Caprettini, Rohner, Voth, 01 June 2021

As COVID-19 vaccination programmes accelerate across the industrialised world, vaccination hesitancy is rapidly emerging as a key challenge. This column explores the relationship between pre-pandemic intensive care unit capacity and attitudes towards the COVID-19 vaccine in the UK. Despite widespread pre-pandemic scepticism about vaccines in general, willingness to become vaccinated against COVID-19 overall was strikingly high, even amongst those who rejected vaccines before the pandemic. The results point to a surprising synergy: where the emergency care systems of public healthcare providers were less strained during the early days of the COVID-19 epidemic, vaccination hesitancy is systematically less today. 

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