June 2021

Aksoy, Cabrales, Dolls, Durante, Windsteiger, 12 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.

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.

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. 

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. 

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.

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.

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.

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

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.

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. 

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.

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.

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. 

CEPR Policy Research