July 2021

Coibion, Georgarakos, Gorodnichenko, Kenny, Weber, 31 July 2021

The former chair of the US Council of Economic Advisers, Christina Romer, observed that “uncertainty has almost surely contributed to a decline in spending,” while discussing the Great Recession. This column provides direct causal evidence from a randomised control trial implemented on a large sample of European households that the “almost surely” can be safely dropped. Higher uncertainty makes households spend less on average.

Angus, Atalay, Newton, Ubilava, 31 July 2021

The underrepresentation of some groups in academic economics is a source of concern, with most attention focused on the lack of racial and gender diversity. This column looks instead at geographic diversity of economics journals, and finds that editorial power is highly concentrated in the US, while the Far East is hugely underrepresented. Within economics, the diversity of journals varies across fields.

Ostry, 30 July 2021

Jonathan Ostry of the IMF has investigated a century of pandemics and discovered that not only do they make our societies less equal, but they lead to a K-shaped recovery. He tells Tim Phillips that, unlike other crises, pandemics open a permanent gap between winners and losers.

You can download the paper that Jonathan is discussing (Furceri, D, Loungani, P, Ostry, J and Pizzuto, P. 2021. 'Will COVID-19 Have Long-Lasting Effects on Inequality? Evidence from Past Pandemics'. London, Centre for Economic Policy Research.) free here

Koenig, Krautheim, Löhnert, Verdier, 30 July 2021

With economic globalisation facing a legitimacy crisis fuelled by various scandals associated with globalised value chains, advocacy NGOs and their campaigns are in the limelight. Still, little systematic knowledge has been generated on how global sourcing and exporting decisions of firms interact with the upsurge of this international social activism. This column uses a unique dataset on NGO campaigns against firms to show how the internationalisation and geographical structure of NGO campaigns are closely intertwined with patterns of global production and trade. 

Goodhart, 30 July 2021

A predominant example of moral hazard is the application of limited liability to the shareholders of publicly listed private-sector corporations. This column argues that changing the incentives for senior employees and majority shareholders for listed firms may be the most effective form of regulation. The author suggests that creating a system where managerial staff and other shareholders are incentivised to adhere to best practice to protect themselves, as well as the firm in question, is optimal.

Konradt, Weder di Mauro, 29 July 2021

Model-based studies on the effect of carbon taxation point to sizeable inflationary effects. This column uses evidence from Canada and Europe over the past three decades to show that carbon taxes changed relative prices but did not increase the overall price level. Instead, they were slightly deflationary. In the case of British Columbia, the driver may have been a fall in household income depressing the prices of non-energy goods, which more than offset rising energy prices. The income compression was most pronounced among the richest households, suggesting that the redistribution scheme achieved its intended aim of favouring low-income households.

Greenwald, Krainer, Paul, 29 July 2021

Aggregate US bank lending to firms tends to expand following adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening. Based on detailed loan-level supervisory data, this column shows that these responses are almost entirely explained by large firms drawing on their bank credit lines. However, funding stability for large firms may imply that smaller firms face tighter borrowing conditions. The authors show that such a crowding out effect was at play during the COVID-19 crisis and explore the implications of such spillovers within a structural model.

Franco, Galiani, Lavado, 29 July 2021

Historical institutions can have long-lasting effects on societies and economies. The Inca Road has been a linchpin of the colonial economy in the New World, but its impact on current development has not been studied in great depth. This column examines the impact of the road on today’s educational, development, and labour outcomes. Proximity to the Inca Road increased the average level of educational attainment and decreased stunting among children by 5%. It boosted average hourly wages by 20% and reduced informality by six percentage points. Moreover, these effects were around 40% greater among women.

Melitz, Redding, 28 July 2021

International trade is a key determinant of firm profitability and survival, so it is natural to expect it to influence both incentives to innovate and the rate of creative destruction. This column highlights four key mechanisms through which international trade affects endogenous innovation and growth: market size, competition, comparative advantage, and knowledge spillovers. Each of these mechanisms offers potential static and dynamic welfare gains. Discriminating between alternative mechanisms for these dynamic welfare gains and strengthening the evidence on their quantitative magnitude remain exciting areas of ongoing research.

Berlingieri, Marcolin, Ornelas, 28 July 2021

Trade in services is important but difficult to measure. This column introduces a new dataset that helps understand the contribution of services to global value chains and their role in the process of exporting goods. Firms with longer experience in exporting goods to a destination tend to source export-related service inputs from there rather than domestically, and do so within the boundaries of the business group rather than at arm’s length.

Lemoine, 28 July 2021

In order to limit global climate change, the world may eventually need to remove more carbon from the atmosphere than it puts in ('negative emissions'). Economists almost universally recommend pricing carbon emissions via a tax or cap, but this policy cannot achieve negative emissions unless paired with potentially massive government spending. This column argues that an alternate type of policy, called 'carbon shares', can limit emissions as efficiently as carbon taxes or caps while also properly incentivising negative emissions.

Barrero, Bloom, Davis, 27 July 2021

Employers in the US are grappling with whether and how to bring employees back to the office or other place of work. Using survey-based evidence, this column finds that four in ten Americans who currently work from home at least one day a week would seek another job if employers require a full return to business premises, and most workers would look favourably on a new job that offers the same pay with the option to work from home two or three days a week. High rates of quits and job openings in recent months appear to partly reflect a re-sorting of workers based on the scope for remote working.  

Bruno, Shin, 27 July 2021

The strength of the US dollar in currency markets has drawn the attention of researchers, policymakers, and businesses for decades. This column examines the effects of the dollar on international trade, with a particular focus on exports. A strong dollar dampens trade volumes through the financial channel, outweighing any improvement in trade competitiveness. Trade activity is strong when the dollar is weak, but global trade suffers when the dollar is strong.

Georgiadis, Le Mezo , Mehl, Tille, 26 July 2021

The US dollar has a dominant role in currency invoicing of global trade, covering around 40% of international transactions, followed by the euro and the renminbi. This column analyses the effects of economic fundamentals and government policies on currency invoicing patterns. Strategic complementarities and integration in global value chains are both important determinants of dollar and euro invoicing in trade with the US and the euro area, while the establishment of currency swap lines by the People’s Bank of China has been associated with increases in renminbi invoicing, with an adverse effect on dollar use. 

Trapanese, 26 July 2021

The policy framework developed so far on non-bank financial intermediation has been based mainly on microprudential tools, looking at individual institutions and activities. This column argues that the effectiveness of these tools could be strengthened if they are accompanied by a comprehensive framework to control systemic risk. This framework could be built around determining the correct pricing of backstops, resolving the trade-off between systemic risk and intermediation costs, mitigating the risk of runs on money market funds, resolving the agency problems in some non-bank financial intermediation transactions, and enhancing the stress test tools. 

Crumpton, Ilzetzki, 26 July 2021

Central banks across the world are starting to experiment with digital currencies. This column summarises the findings from a survey of a CfM of experts on the UK economy, who were nearly unanimous in agreeing that a Bank of England-issued digital currency would benefit the British economy. Half of the panel also believed that a digital currency would have limited impact on the UK banking system. 

Djourelova, Durante, Martin, 25 July 2021

Newspapers advertising revenues have declined steadily over the past decades due to competition from online platforms. But what are the implications of this trend for the organisation and content of newspapers and for information local readers are exposed to? To shed light on these questions this column looks at the staggered introduction of Craigslist – the world’s largest platform for classified ads – in the US. It finds that the entry of Craigslist in a market led to considerable staff cuts by local newspapers, a decline in news coverage of politics, and a drop in readership. These changes also had electoral consequences, favouring partisan voting and ideologically extreme candidates.

Corinth, Meyer, Wyse, 25 July 2021

Data on the US homeless population are sorely lacking, leaving key questions about their number, deprivation and mobility unanswered. This column introduces a new dataset that sheds new light on these questions by linking a census of the entire US homeless population with administrative tax and government programme data. One finding the data reveal is that while many homeless individuals work and the vast majority are connected to the social safety net, they nonetheless fail to see improvements in economic wellbeing over more than a decade. 

Chen, van Ours, 24 July 2021

Same-sex marriage was legalised in the Netherlands in 2001. This column shows that this legislation improved the mental health of both married and non-married sexual minorities. It is likely to have improved societal tolerance of same-sex partnerships, impacting the discrimination experienced by sexual minorities.

Ito, Koibuchi, Sato, Shimizu, Yoshimi, 23 July 2021

The currency a firm chooses to invoice in reveals lessons on the prominence of that currency in the international sphere. This column presents survey data from Japanese overseas subsidiaries, highlighting how the use of Asian currencies has been growing steadily. The authors show that among Asian local currencies, Chinese renminbi and Thai baht are the most used currencies by Japanese subsidiaries. If these countries become increasingly important destination markets for regional countries, local currencies will be used more as trade invoice currency in Asia.

Rasul, 23 July 2021

Imran Rasul tells Tim Phillips about new research that shows the fraction of published economics research devoted to the causes and consequences of racial inequality is much smaller than in political science or sociology - and that this inequality has been getting worse.

Read more here:

CEPR Discussion Paper, DP DP16115 Race-related Research in Economics and Other Social Sciences by Arun Advani, Elliott Ash, David Cai, and Imran Rasul.

VoxColumn: Economics and the study of race, Arun Advani, Elliott Ash, David Cai, and Imran Rasul.

Caselli, Falco, Mattera, 22 July 2021

Racism in football returned to the headlines recently following racial abuse of England players on social media after the final of the UEFA European Championship. How does the harassment of supporters affect discriminated athletes? Using the COVID-19 lockdown as a natural experiment, this column compares the performance of individual football players in the Italian Serie A with and without fans at the stadium. The evidence shows that players of African origin, who are most frequently targeted by racist abuse, perform better in the absence of supporters.

Campa, Muehlenbachs, 22 July 2021

Every year in the US around 5,000 cases are brought against defendants for violating federal environmental statutes, with defendants given the opportunity to volunteer ‘Supplemental Environmental Projects’ in lieu of a cash penalty. This column uses the history of US federal environmental cases between 1997 and 2017 to examine the implications of such in-kind settlements for firms and communities. The findings suggest that on economic grounds, the use of Supplemental Environmental Projects is beneficial and worth continuing and that, as recommended by the OECD, environmental agencies worldwide could fruitfully use in-kind settlements.

Judge, Kashyap, 21 July 2021

That a shock the size of the Covid-19 pandemic would trigger distress in financial markets is far from surprising. What is surprising is how much of the distress arose in domains that could have been identified posing a potential threat to stability well before the pandemic hit. This column explores how the US financial regulatory regime is falling short and proposes reforms to increase the likelihood that policymakers will identify and address threats to stability – before they harm the real economy. 

Zeltzer, Einav, Rashba, Balicer, 21 July 2021

The use of telemedicine rose sharply under the COVID-19 pandemic, and in the coming years we are likely to see more healthcare delivery that mixes in-person with remote care. But concerns remain over whether remote care might reduce care quality or increase costs. This column examines the effect of increased access to telemedicine on care cost and outcomes using data from Israel around the country’s first lockdown in March and April 2020. Access to telemedicine results in a slight increase in primary care use and no significant increase in overall costs. There is no evidence for decreased accuracy or increased likelihood of adverse events.

Esteves, Kenny, Lennard, 20 July 2021

There is little consensus on the macroeconomic impacts of sovereign debt crises, despite the regularity of such events. This column quantifies the aggregate costs of defaults using a narrative approach on a large panel of 50 sovereigns between 1870 and 2010. It estimates significant and persistent negative effects of debt crises starting at 1.6% of GDP and peaking at 3.3%, before reverting to trend five years later. In addition, underlying causes matter. Defaults driven by aggregate demand shocks result in short-term contractions, whereas aggregate supply shocks lead to larger, more persistent losses. 

Calderon, Fouka, Tabellini, 20 July 2021

More than 4 million African Americans moved from the South to the North of the United States during the Second Great Migration between 1940 and 1970. This column argues that the Great Migration and support for civil rights are causally linked. It finds that Black in-migration increased demand for racial equality and encouraged pro-civil rights activism in non-Southern counties. These effects were not only driven by Black voters, but also by progressive segments of the white population, who became aware of the brutal conditions prevailing in the South. Mirroring the changes in the electorate, non-Southern Congress members became more likely to promote civil rights legislation, but also grew increasingly polarised along party lines on racial issues.

Ayres, Neumeyer, Powell, 19 July 2021

The ‘right’ monetary policy response to COVID-19 has depended on any number of factors for central banks across the world. This column argues that some central banks in Latin American and Caribbean went beyond accommodating the increased demand for liquidity, inducing monetary injections that then returned through excess bank reserves and sterilisation liabilities for those central banks that fixed an interest rate, and through sales of international reserves for those that favoured stable exchange rates. The authors also outline some of the risks confronting central banks for the months ahead.

Ma, Shapira, de Walque, Do, Friedman, Levchenko, 19 July 2021

There has been ongoing debate over what type of lockdowns are warranted to counter Covid-19 and whether the benefits justify the accompanying economic contractions. This column uses a macro-susceptible-infected-recovered model to show that the impact of economic contractions on child mortality in poorer countries combined with their younger demographic composition, as well as the greater community-related transmission and lower healthcare capacity in these countries, mean that under certain circumstances, lockdowns could actually increase overall (COVID-19 plus non-COVID-19) mortality for the lowest-income countries.

Bonam, Smadu, 18 July 2021

How did past major pandemics affect inflation dynamics? This column estimates the long-run effects of pandemics on trend inflation in Europe using historical data since the 14th century. We find that, following a pandemic event, trend inflation falls steadily below its initial level for nearly a decade. This long-run depressing effect is also observed in major individual European countries – France, Germany, Italy, the Netherlands, and the UK. The authors conclude by discussing why the effects of the COVID-19 pandemic on inflation could play out differently this time around.

Bruno, Campos, Estrin, 17 July 2021

Do different economic integration arrangements vary in terms of their capacity to attract foreign direct investment? This column uses a structural gravity framework on annual bilateral FDI data for 142 countries between 1985 and 2018 to revisit this question. It finds that deep integration in the form of EU membership increases FDI by about 60% from outside the EU and by about 50% from within the EU. The effect of EU membership on FDI appears to be significantly larger than that from the less deep integration arrangements (EFTA, NAFTA, or MERCOSUR), with the Single Market the cornerstone of this differential impact. 

Ferrara, Mignon, 17 July 2021

Identifying the peaks and troughs of recessionary episodes helps economists to understand the conditions surrounding crises. But deciding when a recession starts or finishes is not straightforward, and several methods exist. This column presents the dating specification for the French Business Cycle Dating Committee, describing how the group identifies key phases in France’s economic performance based on a quantitative and a qualitative pillar. The committee has dated the peak of the recession linked to the recent Covid-19 pandemic to the last quarter of 2019, it is still too early to identify the exit date of this recession, which is unprecedented in its source and profile. 

Boeri, 16 July 2021

People everywhere sometimes pretend to be sick on a Friday because a day off work means a three-day weekend. In Italy, sick workers may now get a surprise home visit from the doctor. Tito Boeri tells Tim Phillips how effective this has been as a cure for "Friday morning fever".

The paper discussed is:
Boeri, T, Di Porto, E, Naticchioni, P and Scrutinio, V. 2021. 'Friday Morning Fever. Evidence from a Randomized Experiment on Sick Leave Monitoring in the Public Sector.'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16104

Barnes, Hillman, Wharf, MacDonald, 16 July 2021

As the economy locked down in March 2020, businesses across the UK struggled to operate. And yet, fewer firms declared bankruptcy during the pandemic than in preceding years. This column introduces a model designed to examine the economic impact of Covid-19. It determines that government assistance rescued previously profitable firms that might not have survived lockdowns, but also propped up weaker firms that would have failed in normal times. The difficulties in effectively targeting aid justifies the expansive support distributed during the crisis.

Angeloni, Gros, 16 July 2021

The outcome of the long-awaited second review of the ECB’s monetary policy strategy was communicated by the central bank on 8 July 2021. This column argues that the review constitutes a mixed bag. The asymmetry of the inflation target, a long standing source of ambiguity and potential policy mistakes, has been corrected by announcing a symmetric central target at 2%. But major ambiguities remain concerning the width of the tolerance band around 2%, the definition of the relevant price index, the interpretation of the inflation process, and the way monetary policy is prepared to team-up with fiscal authorities to preserve the euro’s stability going forward. All in all, the glass remains half-empty and the water it contains is somewhat muddy. 

Edmans, Gosling, Jenter, 15 July 2021

How CEO pay is set has been studied extensively, but most theoretical models do not capture whether real-world CEOs care about, for example, their reputation, fairness, or being appreciated by directors and investors. This column explores this using a survey of over 200 non-executive directors of FTSE All-Share companies and over 150 institutional investors in UK equities. While financial incentives are relevant to motivating CEOs, both CEOs and investors view a CEO’s intrinsic motivation and personal reputation as most important. Fairness matters – CEOs believe it is fair to be recognised for a job well done.

Kilian, Nomikos, Zhou, 15 July 2021

An essential feature of the globalisation of the economy since the 1990s has been the growing importance of sea-borne container trade for supply chains. This column develops a monthly index of North American container trade since 1997 and incorporates it into a model of the US economy. It shows that rising and falling frictions in container shipping markets help explain the US business cycle and recovery from the Covid-19 recession. The model suggests that the recovery since the start of the pandemic has been slower than raw data suggest and finds evidence of favourable foreign demand and container market shocks. 

He, Mau, Xu, 15 July 2021

Tariffs are often advertised as an effective tool to protect or even create jobs in specific industries. Empirical evidence suggests differently. Using data from a Chinese online job portal, this column documents how firms facing US tariff increases during the recent trade war posted fewer jobs and offered lower salaries, among other adjustments. Chinese retaliatory tariffs have not induced any systematic adjustments in firms’ vacancy postings. The winners of the trade war remain elusive while losers can be found on both sides.

Calvo, Lindenlaub, Reynoso, 14 July 2021

While progress in closing gender gaps has been made, women around the world still earn less than men in the labour market. At the same time, income inequality across households has increased in recent decades. This column finds that the interaction of the marriage market and the labour market crucially impacts inequality across gender and within/between households. Policies that affect who marries whom (such as tax policies) or home production choices (such as parental leave or universal childcare) can mitigate or amplify inequality, calling for a better understanding of these spillovers across markets.

Yashiv, 14 July 2021

What are the gains for workers from moving from a poor economy to a rich one? This column examines this question using the case of Palestinian workers who could decide to either work in the (poorer) local economy or commute to work in (richer) Israel. It finds productivity gains experienced by the migrants are largely offset by the low returns for the job tasks offered to these migrants in the richer economy.

Ha, Kose, Ohnsorge, 14 July 2021

Global inflation has rebounded from last year’s lows faster and sooner than after any previous global recession in the past five decades. This column presents model- and survey-based estimates which suggest that global inflation will rise by about 1-1.4 percentage points this year, pushing it above target in about half of inflation-targeting emerging market and developing economies. This may not be reason for concern provided the increase is temporary and inflation expectations remain well-anchored. However, even if temporary, higher global inflation may complicate the near-term policy choices of economies that still rely on expansionary support measures to ensure a durable recovery. 

Hiebert, 13 July 2021

Climate change will impact those parts of the financial system most exposed to its disruptive effects. This column analyses a new financial stability risk mapping for the EU financial system, linking financial exposures of thousands of banks, insurance companies, and investment funds to millions of firms subject to climate risk. It highlights a high level of risk concentration, both in European regions subject to climate hazards as well as economic sectors with diverse carbon emission intensities. Long-term scenario analyses suggest that the risks will be best addressed through proactive policies that directly contain global temperature rises. 

Hoogendoorn, Trinks, Bollen, 13 July 2021

Pricing carbon and placing a tax on industrial emissions could be a centrepiece of national climate policies going forward. This column uses simulations from a global trade model to show that the introduction of a substantial carbon tax for Dutch industry strongly reduces domestic emissions, while production losses remain modest. However, significant carbon leakage of up to around half of the emissions reduction achieved in the Netherlands occurs, mainly to non-European countries such as China and India.

Lim, Snyder, 13 July 2021

There are many ways to select and retain public officials in representative democracies. This column discusses the literature on selection and retention procedures for low-information public offices. The authors first overview the historical origins of the variation. Then, they discuss conceptual frameworks used to assess the functioning of direct elections and present empirical regularities.  Finally, the authors suggest avenues for future research aided by digitisation and improved textual analysis of media coverage and government data.

Spilimbergo, 13 July 2021

Many analysts expected Covid-19 to expose the contradictions of ‘populist’ politicians and cited various reasons for this, including short-sightedness, the lack of trust often associated with populist sentiments, unhelpful populist narratives, and a resistance to international cooperation. This column argues that there is no clear evidence that its handling of the pandemic has ‘killed’ populism. In fact, the pandemic crisis has spawned new political issues which, if left unaddressed by traditional parties, may rekindle the growth of the populist ideology once again. 

Cutler, Glaeser, 12 July 2021

Over 90,000 Americans died from opioids in the year ending November 2020, bringing the death total since 1999 to over 850,000. This column argues that rather than rising demand for opioids for relief from pain or despair, it is supply-side innovations in the legal and illegal drug markets that have been the main driver of the opioid epidemic. The opioid cycle is a cautionary tale about how technological innovation can go terribly awry, and calls for more collective scepticism about innovations that allegedly cleanse pleasure-inducing drugs of their addictive properties as well as stronger penalties for companies that mislead the public about the risks of their products.

Hoekman, Tu, 12 July 2021

Rising geopolitical and geoeconomic tensions among major trade powers are undermining the rules-based multilateral trade order. A new VoxEU eBook brings together teams of mostly Chinese and European experts who focus on key challenges confronting the multilateral trading system. Pursuit of issue-specific negotiations on an open plurilateral basis offers prospects for revitalizing the WTO but does not remove the need for balance in the choice of issues put forward for negotiation and for systemic WTO reform. Joint leadership by China and the EU to establish a balanced work programme that spans both old and new issues of interest to all WTO members is a necessary condition to reboot the rules-based trade order.

Alberola, Cantú, Cavallino, Mirkov, 12 July 2021

Textbook models predict that a monetary policy tightening should lift the exchange rate. Yet the empirical evidence for emerging market economies fails to support this prediction. This column uses data from Brazil to show that the exchange rate’s response to monetary policy shocks changes with the fiscal regime. A contractionary monetary surprise leads to an appreciation in normal times. By contrast, a depreciation results when fiscal fundamentals are deteriorating and markets worry about debt sustainability. 

Turner, Égert, Guillemette, Botev, 11 July 2021

Variants of the virus causing COVID-19 account for a large part of the resurgence of infections in many OECD countries since the latter part of 2020. By relating country-level daily reproduction numbers for OECD countries to several potential explanatory factors, this column shows that vaccination has been very effective at curbing COVID-19 infections and that a quick vaccine rollout can substitute for lockdown policies at much lower costs to the economy. However, policymakers should be aware that failure to vaccinate a sufficient share of the population could lead to a resurgence of the virus in the winter.

Fetzer, Souza, Vanden Eynde, Wright, 11 July 2021

Previous research in economics has focused on the causes of conflict, while the ending of military interventions has received less attention. This column examines the recent security transition from international troops to local forces in the ongoing civil conflict in Afghanistan using declassified data on conflict outcomes and perceptions of local security. It finds that a decline in violence during the initial phase of the security transfer was followed by an upsurge in violence once foreign troops physically withdrew, suggesting that the Taliban’s attacks have been highly strategic. 

Kakkad, Palmou, Britto, Browne, 10 July 2021

The Covid pandemic has helped to loosen the binds that previously tied a job to a specific geography and created a new class of work in the UK. ‘Anywhere jobs’ are non-routine service sector jobs that can be done from anywhere in the world, potentially for cheaper. This column shows that one in five workers in the UK are in an anywhere job and, in contrast to the past when the pressure was on semi-skilled workers, it is relatively highly skilled workers in non-routine roles that are now vulnerable to the pressures of technology and globalisation.

Djankov, Zhang, 09 July 2021

The economic shock triggered by Covid-19 shut down thousands of businesses and cost millions of workers their jobs. The goal of government response to this shock was simple: keep the lights on for as long as possible. This column describes how while some advanced economies have moved ahead with changes in their bankruptcy law to make it easier for distressed companies to keep running, developing countries have not reformed their procedures. A possible solution is to devise policies that reduce the share of the informal economy and put more pressure on reforming formal institutions.

Abeler, 09 July 2021

If some kids lie a little, and some lie a lot, is that just the way they are, or can we increase a child’s honesty in day-to-day life? Johannes Abeler tells Tim Phillips about how mentors can create lasting behaviour change.

The paper discussed is:
Abeler, J, Falk, A and Kosse, F. 2021. 'Malleability of preferences for honesty'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16164

Lemoine, 09 July 2021

If economists are going to be able to offer clear guidance about the appropriate ambition of climate change policy, we need firmer damage estimates. This column introduces a new model that prices farmers’ ex-post and ex-ante adaptations to weather changes and forecasts. When applied to US agriculture, the model shows a much more pessimistic outcome than currently expected, and encourages the consideration of substantial changes to agricultural policies.   

Saka, Eichengreen, Aksoy, 09 July 2021

Although epidemics are frequently cited as inducing changes in economic behaviour and accelerating technological and behavioural trends, there may be important differences across socioeconomic groups in ability to utilise such new technologies. This column studies these issues in the context of fintech adoption and finds strong evidence of epidemic-induced changes in economic and financial behaviour, of differences in the extent of such shifts by more and less economically advantaged individuals, and of a role for IT infrastructure in spreading or limiting the benefits of technological alternatives.  The results highlight both the behavioural response to epidemics and the digital divide.

Verwey, Licchetta, Zeana, 08 July 2021

COVID-19 caused a “recession like no other”, which triggered an unprecedented economic policy response in the EU. As the European Commission’s Summer 2021 Economic Forecast points to a quick return to the pre-pandemic output levels, attention shifts to the post-pandemic years. Will the recovery be short-lived, or will the COVID-19 crisis prove to be a transformative event for the EU? Much will depend on the course of economic policy in the years ahead. NextGenerationEU, with its centrepiece the Recovery and Resilience Facility, provides a unique possibility to turn the challenges of the crisis into opportunities. The first set of National Recovery and Resilience Plans give reason for optimism, but much will depend on their implementation by the member states.

Buti, Gaspar, 08 July 2021

Almost 30 years ago, the European Council in Maastricht agreed, on 10 December 1991, the draft Treaty on the European Union. In this column, the authors, who were both involved in preparing the summit, examine the arithmetic of the Maastricht reference values in relation to the macroeconomic facts as of today. Broader questions to do with fiscal architecture and institutional design will be addressed in a subsequent column.

Cecchetti, Schoenholtz, 08 July 2021

Central banks are thinking about whether they should substitute publicly issued digital currency for the bank-issued digital money that people use every day. How this plays out can profoundly reshape the financial system and make it less stable. This column argues that we don’t need CBDC to solve financial system problems, but with China already headed down the CBDC road, perhaps the best hope is that central banks will all proceed very slowly and stop well short of universal, elastically supplied, interest-bearing digital currency. 

Löyttyniemi, 08 July 2021

Financial stability is at the core of central banking. This column assesses the various risks to financial stability stemming from climate change, which arise from physical risks, transition risks, and the chosen transition path towards a net zero economy. Additional risks arise from the changes in government policies, risks in green investments, mispricing of assets, and potential changes in metrics. The channels for financial instability are, as usual, the sustainability of government debt, the vulnerability of banking, and the volatility and liquidity of securities markets. Awareness of these additional financial stability risks could increase financial stability.

Eppinger, Felbermayr, Krebs, Kukharskyy, 07 July 2021

The major disruptions to global value chains caused by the Covid-19 pandemic have prompted politicians to think about reducing the reliance on imported inputs by decoupling from global value chains. This column quantifies the welfare costs of decoupling as well as the potential gains from reduced exposure to foreign shocks. The bottom line is that decoupling does not pay off. 

Hvide, Johnsen, 07 July 2021

The mental health implications of the COVID-19 pandemic are less well documented than its physical effects. This column examines newly released data on doctor’s appointments in Norway and finds evidence of a psychological health pandemic that took hold during the autumn of 2020. Earlier that summer, the number of consultations related to mental health issues resembled that of previous years. But during the autumn of 2020 this number grew substantially, a trend that continued through the winter months and warrants the attention of policymakers.

Schmidt, 06 July 2021

Inflation shortfalls across the developed world have raised concerns about the possibility of low-inflation traps. This column presents a simple model of inflation to analyse the role of stabilisation policy in preventing them. It suggests that decisive countercyclical fiscal policy can protect economies from falling into a low-inflation trap by offsetting low inflation expectations. 

Lambert, Perotti, Rola-Janicka, 06 July 2021

Political considerations have become important in finance research, with significant implications for policymaking. This column summarises new research presented at the CEPR conference on the Political Economy of Finance, including work on opaque investments in political influence, electoral impact of credit and regulation, the role of institutional complexity in shaping reforms and incentives of central bankers. The conference kickstarted the PolEconFin initiative aimed at providing a meeting point for researchers in this topical area.

Vaitilingam, 06 July 2021

The G7 recently reached an agreement on the taxation of multinational corporations. The IGM Forum at Chicago Booth invited its panels of leading European and US economists to express their views on the challenges ahead. As this column reports, a strong majority (94% of the panelists) agrees that a global minimum corporate tax rate would limit the benefits of profit-shifting to low-tax jurisdictions without biasing where firms invest. But there is considerably more uncertainty among respondents about whether an international tax system with such a global minimum is achievable; and whether taxes based on where firms make their sales would be more efficient than taxes based on where their headquarters and production are located. 

Jamilov, Rey, Tahoun, 05 July 2021

Cyber risk poses serious threats for businesses around the world. This column develops a new text-based measure of cyber risk exposure by leveraging computational linguistics and quarterly earnings transcripts for 12,000+ firms from 85 countries over the past 20+ years. Cyber threats have tripled since 2013 and affected a lot more countries and industries. Cyber risks are priced into the stock market and are contagious. The authors conclude that cyber risk is a source of systemic risk for firms and markets.

Martin, Monnet, Ragot, Renault, Savatier, 05 July 2021

The pandemic has caused the ECB to push its tools to their extremes. Despite considerably expanding its balance sheet and maintaining negative interest rates, inflation in the euro area remains below target. This column argues that direct transfers by the ECB to individuals, or ‘helicopter money’, should be considered as a viable contingent policy. It estimates that a transfer of 1% of GDP would increase inflation by 0.5 percentage points. A well-communicated policy with a clear exit strategy would be consistent with the ECB’s inflation targeting objective and maintain a clear boundary with fiscal policy. 

Gathergood, Olafsson, 04 July 2021

Households’ tendency to hold liquid savings at low interest rates and, at the same time, revolving debt at high interest rates is a long-standing puzzle in household finance. This pattern of behaviour has been observed across many countries, on a variety of revolving credit products including credit cards and overdrafts. Using increasingly available transaction-level data sourced from financial services providers, this column shows that co-holding is often short-lived, and may be best explained by consumers keeping separate ‘savings’ and ‘debt’ accounts earmarked for different forms of expenditures, a form of mental accounting.

Ash, 03 July 2021

Faced with extreme old age and even dementia among its judges, some US states have imposed a mandatory retirement age. But this policy may remove experienced judges who are still productive in their jobs. This column examines the overall effect of mandatory retirement on court productivity in US states during 1947–1994 and finds that court productivity increased by more than 25% after the introduction of mandatory retirement. There may even be a team effect of ageing whereby the presence of older judges slows down the pace of work in the court.

Raute, Schӧnberg, 02 July 2021

Do cultural norms determine whether women go back to work after having a child? And if culture changes, does their behaviour change too? Anna Raute and Uta Schӧnberg tell Tim Phillips how the reunification of Germany provided unique data.

The paper discussed is:
Boelmann, B, Raute, A and Schӧnberg, U. 2021. 'Wind of Change? Cultural Determinants of Maternal Labor Supply'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16149

 

Ignaszak, Sedláček, 02 July 2021

To gauge the efficacy of policies aimed at spurring growth, we must first fully understand the sources of aggregate growth. This column argues that understanding the drivers of economic growth requires paying attention not only to productivity and R&D dynamics at the firm level, but also to changes in demand for firms’ products. The authors provide a new perspective on commonly used supply-side pro-growth policies and open the door to analysing demand-side policies such as public procurement or product market regulation, which have been present in the policy debate but have largely escaped academic circles.

Baumann, Rossi, Schomaker, 02 July 2021

The notion than an independent central bank reduces a country’s inflation has been embraced by academics, central bankers, and politicians all over the world. This is somehow puzzling, giving the ambiguity reported in empirical studies. This column argues that overall there is only a weak causal link from independence to inflation, if at all. Even a strong inflation-boosting impact from introducing central bank independence cannot be ruled out. These results are obtained from a statistical approach that has not yet been used in analyses of macroeconomic processes, although it exhibits properties well-suited to this end.

Djankov, Zhang, 02 July 2021

The advent of online technology in public services has made one ingredient of effective state building – easy taxes – possible to achieve in developing economies. This column describes how, fuelled by new technology, the time that it takes businesses to comply with tax requirements has fallen on average by 91 hours a year and the average number of payments was cut by 11 in the past 15 years. Accommodating policies for expanding the tax base are also needed, so everyone sees the upside from online tax services.

Cespa, Vives, 01 July 2021

Over the past two decades, governments and regulators have worked to foster competition among trading venues, leading to market fragmentation and contributing to a drastic reduction in the cost of trading. But this also led exchanges to heighten their reliance on revenue generating activities such as the sale of market data, co-location space, and fast connections to matching engines. This column argues that a connectivity fee or entry regulations could work well from a regulatory perspective, and highlights the important role of exchanges’ technological capacity decisions as a driver of liquidity.

Pasquali, Krishnan, Alford, 01 July 2021

Trade in South-South global value chains has increased significantly, driven by trade agreements among developing countries and the growth of Southern lead firms. This column uses data on Kenyan horticulture suppliers to explore whether suppliers from the Global South are benefitting from increased opportunities for economic upgrading as trade in these value chains grow. It finds that suppliers who develop multi-chain strategies across both the global North and South diversify production more and achieve higher economic returns than those who do not. 

Schmelz, Bowles, 01 July 2021

Policy interventions may affect beliefs and preferences in counterproductive ways. This column presents panel evidence on COVID-19 vaccination willingness in Germany which suggests that policies that foster trust in public institutions will promote vaccination acceptance. But a vaccine mandate can also crowd out initial willingness. The data suggest that policies affect beliefs and preferences through both framing and learning effects. Beyond the pandemic, the findings may also be applied to other societal challenges such as climate change, where an effective combination of mandatory policies and values-motivated lifestyle changes will contribute to reducing our carbon footprint. 

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