September 2021

Arezki, Liu, 30 September 2021

Covid-19 has further exposed the growing interdependence between advanced economies and emerging markets. Most of the existing research on cross-border spillovers has focused on the spillover effects from advanced economies to emerging markets. This column shows that spillovers from emerging markets to advanced economies over the past 25 years are about a fifth of those running in the opposite direction, and have increased significantly over time because of the evolving interdependence between these blocks. 

Andrews, Bahar, Hambur, 30 September 2021

Job retention schemes during the pandemic prioritised preservation over reallocation, but evidence on their allocative and productivity consequences is scarce. Using tax data for Australia, this column shows that job reallocation and firm exit remained connected to firm productivity over the course of the pandemic. Australia’s job retention scheme, JobKeeper, initially shielded productive and financially fragile firms, contributing positively to aggregate productivity. But as the economy recovered, the scheme grew more distortive, justifying its timely withdrawal – on productivity grounds at least.

Albrizio, Kataryniuk, Molina Sánchez, Schaefer, 29 September 2021

Swap and repo lines have become an integral part of the ECB’s toolkit. During the Global Crisis and the Covid-19 pandemic, the ECB announced more than 28 agreements to provide euro liquidity to foreign exchange markets, mainly within Europe. This column shows that the mere announcement instilled confidence in foreign exchange markets, reducing the premium paid by recipient country agents to borrow euros. Moreover, these lines not only prevent negative spillbacks to the euro area, but also push domestic bank equity prices in euro area countries highly exposed via banking linkages to targeted countries.

Beck, 29 September 2021

The World Bank permanently suspended its Doing Business project earlier this month. This column argues that the suspension puts an end to a very useful data-collection exercise that went astray by focusing on rankings and political publicity. Beyond specific conflicts of interest within the World Bank, the demise of Doing Business reaffirms Goodhart’s Law that when an index becomes a policy target, it ceases to be a good measure.

Albuquerque, 28 September 2021

Corporate debt has increased substantially in many parts of the world during the pandemic, raising concerns about the effects on investment in the aftermath of the COVID-19 shock. This column uses data for a large panel of US firms to investigate the implications of firm-specific debt booms for investment. It finds that debt booms lead financially constrained firms to decrease capital expenditures and intangibles, underscoring the importance of dealing with debt overhang for managing the US recovery.

Hattori, Komura, Unayama, 28 September 2021

During the rapid spread of COVID-19 in Japan, the Japanese government decided to provide a Special Cash Payment of 100,000 yen per person to all residents as a part of its “Emergency Economic Measures to Cope with COVID-19”. This column uses publicly available survey data to estimate the marginal propensity to consume from the cash transfer in order to assess the impact of the policy. It finds that the payments increased non-negligible consumption mainly due to their size, but the marginal propensity to consume, at around 10 %, is no different from non-pandemic periods. 

Kpodar, Mlachila, Quayyum, Gammadigbe, 27 September 2021

Despite early predictions of a large collapse, remittance flows to developing countries have been surprisingly resilient during the COVID-19 pandemic. This column describes how migrants appear to have responded positively to rising COVID-19 infection rates in their home countries despite economic challenges in host countries. Fiscal stimulus in host countries played a role in keeping remittances buoyant. Travel restrictions, on the other hand, seem to have positively affected official remittance flows, suggesting such restrictions led migrants to use formal channels to send remittances instead of informal channels. 

Degryse, Goncharenko, Theunisz, Vadasz, 25 September 2021

The transition to a carbon-neutral economy requires firms and banks to have environmental consciousness, raising the question of how bank financing can contribute to global climate objectives. This column examines whether and how the environmental consciousness (or ‘greenness’) of firms and banks is reflected in the pricing of bank credit. The evidence suggests that firms are indeed rewarded for being green: green firms can get cheaper loans – although only when borrowing from green banks and only since the 2015 ratification of the Paris Agreement.

Ma, 24 September 2021

If you want your startup to be funded, everybody knows you have to dial up the energy and enthusiasm when you meet investors to the maximum. But is this really good advice for startups, and is a passionate pitch really a reliable signal for an investor? Song Ma of Yale School of Management used machine learning to evaluate thousands of pitches. He tells Tim Phillips whether passionate entrepreneurs make better startups

Weale, Wieladek, 24 September 2021

Quantitative easing is often criticised due to side effects on asset price valuation and risk taking. This column compares the financial side effects of conventional monetary policy to those of quantitative easing, based on the amount of inflation generated by each policy. A systematic comparison of multiple measures of financial side effects for the euro area, the UK, and the US suggests that the side effects of quantitative easing and conventional monetary policy are roughly the same.   

Caselli, Faralli, Manasse, Panizza, 24 September 2021

Do countries benefit from servicing their debts during times of sovereign defaults? Colombia is typically regarded as the only large Latin American country that did not default in the 1980s, but this column argues that the case of Colombia is more complex than commonly assumed. Although it had to re-profile its debts, high-level political support from the US allowed Colombia to do so outside of the standard framework of an IMF programme. In the short to medium run, Colombia benefited from avoiding an explicit default, but this strategy did not lead to long-term reputational gains.

Toews, Vézina, 23 September 2021

‘Enemies of the people’ were the millions of artists, engineers, managers, or professors who were thought to be a threat to the Soviet regime solely for being the educated elite. Along with millions of non-political prisoners, they were forcedly resettled to the Gulag, the system of labour camps across the Soviet Union. This column looks at the long-run consequences of this dark resettlement episode. It shows that areas around camps with a larger share of enemies of the people among camp prisoners are more prosperous today, as captured by firms’ wages and profits, as well as night lights per capita. 

Stolpe, 23 September 2021

To win the critical race between vaccines and mutations, the worldwide Covid-19 vaccination campaign must mobilise economies of scale. The most effective way to do so, this column argues, is to convert the existing Covid-19 Vaccines Global Access initiative into a more generously endowed global fund. Instead of merely obtaining the surplus vaccines of rich countries, and relying on unpredictable donations, the initiative should acquire the most promising vaccine patents and offer free production licenses to every qualified vaccine and generic drug manufacturer in the global South.

Andrews, Charlton, Moore, 22 September 2021

Covid-19 has been characterised as a reallocation shock, but the debate has so far lacked a clear link with productivity. This column uses real-time data to show that job reallocation remained connected to firm productivity even while labour turnover fell in response to the pandemic. High (low) productivity firms were more likely to expand (contract), although the strength of this effect varied across countries, consistent with differences in job retention schemes. While policy partly hindered creative destruction, the nature of the pandemic shock favoured high-productivity and tech-savvy firms, resulting in a reallocation of labour to these firms. 

Rogoff, 21 September 2021

The Chinese economy was able to sharply rebound from the Covid pandemic, helping to sustain a housing boom. The country faces a multitude of challenges over the medium term, however, on top of the much more virulent Delta variant. This column argues that the footprint of China’s real estate sector has become so large – with an impact of real estate production and property services on GDP of 29% – that absorbing a significant housing slowdown would significantly impact overall growth, even absent a financial crisis.

Aussilloux, Bricongne, Delpeuch, Lopez Forero, 21 September 2021

French multinational enterprises have been expanding their activity abroad, including for profit-shifting purposes. These tax planning activities may alter the measurement and our understanding of their real activity. This column uses French micro-data from 1997 to 2015 to show that firm-measured productivity declines in the years following multinationals’ establishment of tax havens. Had these new presences in tax havens not been established, the annual growth of French aggregate labour productivity would have been 0.06% higher, which is tantamount to 9.7% of the observed annual aggregate labour productivity growth. 

Bartholomew, Diggle, 21 September 2021

As the global economy recovers from the immediate economic impact of the Covid crisis, attention is increasingly turning to the long-run impact of the shock on productivity. This column identifies several channels – including labour market hysteresis, impaired skill acquisition, belief scarring, an increase in zombie companies, and policy errors – through which the lasting harm will outweigh any positive supply shocks caused by the pandemic. The authors estimate long-term output losses in the order of 3% of global GDP. Scarring will be greater in some economies than others, pointing to the importance of policy in mediating and offsetting these channels. 

Bhattacharya, Chakraborty, Chatterjee, 20 September 2021

It has long been recognised that innovation and technology adoption contribute significantly to rising income inequality. This column uses a change in the patent regime in India as a quasi-natural experiment to estimate the impact on wage inequality between managerial and non-managerial workers in a firm. The authors find that stronger intellectual property protection has a sharper impact on the demand for managerial skill for technologically advanced firms, highlighting both within and between firm inequality.

Magistretti, Tabellini, 20 September 2021

Can democracy be exported? This column uses a large cross-country dataset from 1960 to 2015 to show that, while the ‘top-down’ imposition of political institutions is not desirable and rarely successful, democracy can indeed be ‘exported’ – from more democratic to less democratic countries – through repeated trade interactions. The finding suggests that economic integration might be advantageous to less democratic countries not only directly by fostering GDP growth, but also indirectly by favouring the transition to democracy and the socioeconomic and political benefits associated with it.

Asoni, Gilli, Gilli, Sanandaji, 19 September 2021

There is a common perception that the US military predominantly recruits individuals from the most disadvantaged socioeconomic backgrounds with limited other career options. This column argues that this is no longer the case. Skill-biased technological change has led the US military to recruit more higher-skilled personnel since the 1990s, and while in 1979 the probability of joining the military was clearly higher for those with lower-than-average family income, for the 1997 cohort the probability was much more evenly distributed.

Shangguan, DeVaro, Owan, 18 September 2021

It has been argued that when workers are already working long weeks, adding more hours can reduce productivity. This column tests this argument using evidence from Japan. The authors find that long working hours of key team members harm team productivity. In contrast, shorter hours cause the opposite effect, perhaps because workers recover from fatigue and arrive for work with increased energy and focus.

Judge, Kashyap, 17 September 2021

In March 2020 we all assumed there would be some reaction to Covid-19 on Wall Street but, when markets did the opposite of what most people expected, the Fed had to step in to stabilise the economy. Anil Kashyap and Kathryn Judge tell Tim Phillips what happened, why, and how to stop it happening again.

Read more about the research behind this: VoxColumn: Reforming the macroprudential regulatory architecture in the US, Kathryn Judge, Anil Kashyap

Chen, Novy, 17 September 2021

Many countries try to bring down trade costs by striking free trade agreements, forming currency unions or joining the WTO. But when trade costs fall, how much does trade increase? This column finds that the impact depends on how intensively countries trade. Falling trade costs boost trade between countries with initially ‘thin’ trading relationships where the scope for growth is largest. But they have a much weaker impact for country pairs that are already trading heavily.

Beck, Park, 16 September 2021

The recent wave of financial innovation related to digitalisation has the potential to change the landscape of financial service providers quite dramatically, creating the need for a flexible regulatory framework that can accommodate these changes while safeguarding stability. This column introduces a new eBook that takes stock of financial digitalisation over the past decade and applies global lessons to the regulatory debates in Korea.

Cheng, Ishikawa, 16 September 2021

As a result of global warming, carbon taxes and emissions trading policies are in the spotlight. However, lack of cross-country coordination can cause carbon leakage and increases in emissions. This column analyses the effectiveness of carbon taxes and border tax adjustment policies in reducing emissions and shaping firms’ decisions on abatement investment and firm location. It shows that a higher carbon tax can sometimes lead to higher global emissions and discourage investment in clean technology. Likewise, border tax adjustments should be designed carefully to ensure lower emissions and compatibility with WTO rules. 

Acemoğlu, Ajzenman, Aksoy, Fiszbein, Molina, 15 September 2021

Concerns about the viability of democracy have deepened in recent decades amid growing discontent between and among voters, the rapid spread of misinformation, and the rise of extremist and populist parties across the West. Using large-scale survey data covering more than 110 countries, this column shows that individuals with longer exposure to successful democracies tend to exhibit stronger support for democratic institutions. Democracies breed their own support – but only when they can successfully deliver on promises of economic growth, peace, political stability, and the provision of essential public goods.

Garcia-Appendini, Ongena, 14 September 2021

Firms may face bottlenecks forcing them to cut activity and adjust prices when monetary tightening financially constrains their business partners. This column focuses on firms producing intermediate goods in the US to show how monetary policy can have ‘ripple effects’ along supply chains through input-output linkages involving financially constrained firms. These transmission channels of monetary policy may be especially relevant in the post-Covid context of higher corporate leverage, significant supply chain disruptions, and inflationary pressures.

Lerner, Seru, 14 September 2021

Financial innovation is intensely controversial, yet we know little about where or by whom these new products and services are developed. This column looks at over 24,000 financial US patents applied for between 2000 and 2018 to analyse the nature of financial patents. A surge in financial patenting was driven by IT firms and firms in industries outside of finance. Financial regulatory actions seem to have adversely affected innovation by financial firms, while regions with the highest technological opportunities attracted financial innovation by IT and non-financial firms.

Duca, Muellbauer, Murphy, 13 September 2021

Research on house price cycles and their interactions with the economy has burgeoned since the Global Financial Crisis. This column draws five lessons from a recent comprehensive survey. It argues that conventional theories of house price dynamics are misleading. Shifts in credit conditions, together with differences in housing supply response across cities, regions and countries, account for much of the heterogeneity of house price outcomes. Finally, increased demand for space and unprecedented policy interventions together explain the very different house price experience in the pandemic compared with the Global Financial Crisis.

Zhang, 13 September 2021

COVID-19 has had large impacts on global production and international trade. The column uses quarterly aggregate-level data on foreign affiliates of Japanese multinational corporations to show that multinational production and supply chains were negatively affected by the COVID-19 pandemic, especially in the 2nd quarter of 2020. The sales of Japanese manufacturing affiliates almost recovered in the 4th quarter of 2020, indicating the resilience of global production and multinationals’ supply chains. But there are large variations in recovery across countries.

Moench, Stein, 12 September 2021

The US equity market follows a V-shaped pattern around recessions, with sharply negative returns heading into recessions and a strong recovery as the recession unfolds. In addition, recessions are usually preceded by an inverted yield curve. This column shows that the term spread is a robust predictor of recessions, and that model-implied recession probability forecasts do a good job of predicting the equity premium out-of-sample. An investment strategy based on the recession probability model could be used to time the equity market and lead to higher and less volatile profits over time.

den Haan, Freund, Rendahl, 11 September 2021

It has been argued that increased uncertainty can worsen unemployment if employers prefer to wait and postpone job creation. However, under the dominant theory of unemployment – the search-and-matching model – the value of waiting plays no role. This column proposes an amended model which relaxes some of the theoretical assumptions, and shows that an increase in perceived uncertainty does indeed increase the value of waiting, thus reducing job creation.

Adams-Prassl, Honohan, Javorcik, Mrázová, Portes, 10 September 2021

Earlier in 2021 Peter Neary passed away. This special episode pays tribute to his work and examines why Peter was held in such affection by his colleagues. With contributions from Patrick Honohan, Richard Portes, Monika Mrázová, Beata Javorcik, and Abi Adams-Prassl.

Koll, Watt, 10 September 2021

Inflation in the euro area has been well below the ECB’s target since 2013. This column proposes institutionalising nominal wage setting within the economic governance of the euro area to bring inflation on target. Such a policy would also address the built-in tendency for divergences in internal demand dynamics and competitiveness within the euro area. 

Ikeuchi, Fukao, Perugini, 09 September 2021

In contrast to other comparable developed countries, wage inequality in Japan has remained stable in recent decades. However, this trend belies the substantial variation in wage gaps at the firm level. This column uses detailed worker and firm microdata to study how firm characteristics affect the evolution and variability of Japan’s college wage gap. It finds that larger establishments and those with a larger share of regular workers exhibit higher college wage premiums. These traits likely signify more productive environments with greater capacity to attract and keep highly educated employees with better unobservable characteristics. 

Benetton, Gavazza, Surico, 09 September 2021

In the aftermath of the 2007–09 financial crisis, central banks have sought to stimulate the economy through new policies aimed at revamping credit and housing markets. This column examines the effects of the Bank of England’s Funding for Lending Scheme, which offers cheap medium-term loans to UK lenders. Mortgage lenders actively price-discriminate across borrowers using two-part tariffs which split the origination fee from the interest rate. This increased after the introduction of the scheme, implying a stronger transmission of monetary policy to credit markets and the real economy.

Cœuré, 08 September 2021

In March 2020, the French parliament tasked an independent committee with monitoring the financial support available to companies during the Covid-19 crisis. A rich firm-level database – matching receipt of government money with balance-sheet records, tracing payroll and turnover trajectories for the first two waves of the pandemic – was the result. This column mines that database to evaluate the incentives for accepting government aid; the impact of support measures; and heterogeneity across industries, firms, and locations. The authors judge French fiscal support during the crisis a tentative success.

Cardani, Croitorov, Di Dio, Frattarolo, Giovannini, Hohberger, Pfeiffer, Ratto, Vogel, 08 September 2021

The COVID-19 recession differs strongly from past crises in recent history. This column summarises the integration of key economic features of the pandemic into the European Commission’s estimated DSGE model. Shock decompositions highlight the dominant role of ‘lockdown shocks’ (‘forced savings’, labour hoarding) for explaining the quarterly pattern of real GDP growth in 2020, complemented by negative contributions from foreign and investment demand notably in 2020q2 and a negative impact of persistently higher (precautionary) savings. The inflation response has been modest given the severity of the recession.

Furceri, Ganslmeier, Ostry, 07 September 2021

The call for stricter climate change policies is gaining momentum in many countries. But despite rising public awareness, there could be political obstacles to adopting the measures needed to combat climate change. This column argues that policy design and timing are critical to overcoming political costs to climate mitigation policies, as is the need to provide effective social insurance policies. An implication is that political realities may often dictate the need to sacrifice some efficiency in climate mitigation policies in order to secure political buy-in. 

Andre, Falk, 07 September 2021

Research shapes policy. But what we choose to study is subjective. This column uses a global survey of almost 10,000 academic economists to find their opinions on what economic research should look like. Many economists think that economic research should become more policy-relevant, multidisciplinary, and disruptive, and should pursue more diverse research topics. 

Chun, Fukao, Kwon, Park, 06 September 2021

In many developed countries, real wage growth has lagged behind labour productivity growth in recent decades. This column uses data from Japan and Korea to study the relationship between labour productivity growth, real wage growth, and labour’s terms of trade, defined as the ratio of the consumer price index to the GDP deflator. It shows that the main reason for the real wage-labour productivity growth gap is a large decline in labour’s terms of trade. Raising real wages in the future will require policies to support the business environment and develop high value-added sectors. 

Taylor, 05 September 2021

The late 19th-century decline in British agricultural prices shrank the incomes of aristocrats and of land-owning ‘commoners’ as well. To carry on the tradition of raising money through auspicious marriages, British aristocrats looked across the Atlantic – to US heiresses with large dowries but no pedigrees, even by the standards of their own country. This column examines the social and economic forces that steered the daughters of US business magnates into marriages with British aristocrats. 

Guardado, 04 September 2021

The 2021 victory of Pedro Castillo as president of Peru is commonly attributed to the support of poor, rural, and indigenous groups. However, profound historical factors also played a role. In particular, areas where colonial rule was more ruthless in the 18th century – as measured by the expected returns to office, the tax burden, and the intensity of anti-colonial rebellions – exhibited higher support for Castillo in 2021. Interestingly, this support is not visible for other leftist and Marxist parties in the elections of 1980 and 1985.

Fleurbaey, Kanbur, Snower, 03 September 2021

There has been a spate of critiques of mainstream, neoclassical economics in the last few years. This column argues that this is partly the result of a core general model that is too narrow. Instead, the authors propose a base model that includes not just the economy but also the socioeconomic system. The model encompasses many specific themes in the literature such as the interplay between economic inequality and efficiency, but it also takes us well beyond the conventional economic resource allocation-based perspective on inequality. 

Andaloussi, 02 September 2021

How many lives could be saved if rich countries shared their vaccines? Less than 2% of people in low-income countries have received even one dose. Mehdi Benatiya Andaloussi tells Tim Phillips about his calculation of how many lives would be saved by the end of 2021 if vaccines were shared more fairly - and how many have been lost because this hasn't happened so far.

Read more about the research discussed and download the free discussion paper:
Benatiya Andaloussi, M and Spilimbergo, A. 2021. 'How many lives could be saved through the early sharing of vaccines globally?' CEPR

Hansen, Mano, 02 September 2021

The emergence of new Covid-19 variants and a highly uneven vaccine rollout have put mask mandates back on the policy agenda. This column presents new evidence that state-level mask mandates reduced new weekly COVID-19 cases, hospital admissions, and deaths significantly in the US. The results imply that 87,000 lives were saved up until 19 December 2020, while an additional 58,000 lives could have been saved if all states had put in place a mandate starting in April 2020. Mask mandates had a greater effect in counties more positively inclined towards mask wearing.

Bossavie, Garrote Sanchez, Makovec, Özden, 01 September 2021

The COVID-19 shock exerted pressure on labour markets around the world. This column explores how the prevalence of immigration in the labour market affected different types of workers’ exposure to virus-related risks in 15 destination countries in Western Europe. It finds that not only were immigrant workers more vulnerable to the economic and health shocks of the pandemic; they also served as a protective shield for native workers. By undertaking higher-risk occupations, immigrants enabled native workers to move into work with fewer face-to-face interactions or jobs that could be carried out from the safety of home. 

Reichlin, Adam, McKibbin, McMahon, Reis, Ricco, Weder di Mauro, 01 September 2021

The ECB signalled an historic shift in its 2020 strategy review. This column introduces a new CEPR report which argues that the review has moved the ECB in the right direction but leaves some key issues unaddressed. The report focuses on the definition of the ECB’s inflation target, its operational framework, fiscal and monetary policy interactions, and the implications for monetary policy of climate change and related mitigation initiatives. The authors identify topics to be addressed in future strategic reviews and provide a framework as a basis for this ongoing analysis.

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