November 2021

Ferrara, Mignon, 30 November 2021

The Covid-19 recession that hit the French economy was completely non-standard, characterised by an unprecedented and sharp contraction of activity. This column discusses recent findings from the French business cycle dating committee, which show that the recession reached its trough in the second quarter of 2020. Since the third quarter of 2020, the economy has been in a recovery phase, with the majority of commercial sectors experiencing an increase in activity. Nevertheless, past experiences suggest caution about future growth, especially regarding the policy support for economic activity. 

Stöckl, Rode, 30 November 2021

Financial markets have shown contradictory reactions to the formation of populist administrations. This column, part of the Vox debate on populism, examines whether there is any systematic reason behind the radically different outcomes, using data for 331 elections in 41 EU and OECD countries. The immediate uncertainty introduced into financial markets by an increase in populist vote shares varies according to the populist host ideology. Markets are mostly suspicious of left-wing populism but view the electoral success of right-wing populist parties as unequivocally favourable, possibly because of the tendency for the political and economic elite to collude.

Bandiera, Bosio, Spagnolo, 30 November 2021

Covid-19 has served as a global case study for increased discretion in public procurement, with governments worldwide making rules more flexible to increase spending, reduce the damage, and save lives. A new CEPR eBook examines the tension between rules and discretion in public procurement and the steps that can be taken to improve procurement outcomes and mitigate the risk of corruption, collusion, abuse, and incompetence during crises. 

Ehrmann, Wabitsch, 29 November 2021

Monetary policy issues are discussed on social media by experts and also increasingly by non-experts, presenting a challenge to central banks using social media to communicate with their target audiences. This column analyses ECB-related tweets and finds that more subjective views and tweets expressed in stronger language are more likely to get retweeted, thereby shaping the tone of the virtual discussions. Both experts and non-experts are responsive to ECB communication – in most cases, information is simply relayed on Twitter, but there are also instances of controversial discussions being triggered. 

Gayer, Reuter, Morice, 29 November 2021

Uncertainty can have an important impact on economic activity, but it is not directly observable. This column presents the features of the European Commission’s new index for uncertainty in the economy, based on its EU-wide Programme of Business and Consumer Surveys, and its evolution in response to the COVID-19 pandemic and the stringency of the related restrictions. It also compares the indicator to survey-based indicators of economic confidence, as well as to other existing uncertainty gauges, and offers a glimpse of the rich set of geographical, sectoral, and sub-sectoral breakdowns of the new data.

Gómez-Pineda, Julio, Roa-Rozo, 28 November 2021

There is disagreement over whether the current inflation is here to stay. This column argues that sticky-price inflation, which focuses on components of the consumer price index with infrequent price changes, is particularly useful at the moment as it can help control for ongoing changes in the relative prices of goods and provides hints about future CPI inflation. In October 2021, monthly sticky-price inflation, partially corrected for base effects, was 5.3%. In turn, the CPI inflation forecast for October 2022 is 5.6% and highly uncertain.

Breckenfelder, Ivashina, 27 November 2021

The onset of COVID-19 led to heightened uncertainty and a ‘dash-for-cash’, particularly in the mutual fund sector which faced fire sale pressure. Typically, banks trading securities absorb such pressure and support market liquidity, but regulation may limit their ability to do so. This column analyses the role of bank leverage constraints as an amplifier of bond market illiquidity. It concludes that leverage ratio regulation can have negative side effects by increasing bond market illiquidity in times of economic distress, suggesting that the optimal leverage ratio is procyclical.

Fernández, Parsa, 26 November 2021

Two new papers pinpoint the election of 1992 as a turning point in the attitudes of Americans to same-sex relationships, and ask, what has caused this change? Raquel Fernandez and Sahar Parsa of NYU tell Tim Phillips about the complex relationship between political and social attitudes.

Download the free Discussion Paper:

Fernández, R and Parsa, S. 2021. 'Gay Politics Goes Mainstream: Democrats, Republicans, and Same-Sex Relationships'. CEPR

Stanisławska, Paloviita, 26 November 2021

The responsiveness of longer-term inflation expectations to shorter-term economic developments plays an important role in inflation dynamics. Using the new ECB Consumer Expectations Survey conducted in the middle of the Covid-19 pandemic, this column explores how consumers adjust their medium-term inflation views in response to changes in short-term inflation expectations and inflation perceptions. Covid-19 contributed to an increase in consumer inflation expectations, but greater trust in the ECB is associated with more muted responsiveness of inflation expectations.

Albert, Bustos, Ponticelli, 26 November 2021

There are still significant gaps in our understanding of how climate change affects economic outcomes. This column uses new data on extreme weather events in Brazil to study their impact on labour and capital reallocation across regions, sectors, and firms. Long periods of excess dryness lead to the reallocation of capital and labour away from affected regions. Excess dryness over the last two decades has also changed the structure of the economy – not only in directly affected areas, but also in regions that were integrated with them via labour and capital markets.

Chor, Li, 25 November 2021

Tariffs initiated by the Trump administration in 2018 raised duties on China’s exports to the US, sparking a ‘tariff war’. This column uses satellite readings of night-time luminosity to show that that locations within China that were more exposed to the US tariffs experienced a larger decrease in night light intensity, pointing to a contraction in local economic activity. By contrast, exposure to China’s retaliatory tariffs appeared to have no significant effect on grid-level night lights. 

Niepelt, 24 November 2021

Central bank digital currency has become a major preoccupation of central bankers. In a new CEPR eBook, academics and policymakers review what we know about the economic, legal, and political implications, discuss current projects, and look ahead. While consensus on the ‘right’ CBDC choices remains elusive, common perspectives emerge. First, money, banking and payments are ripe for upheaval, with or without CBDC. Second, the key risk of CBDC is unlikely to be bank disintermediation – privacy, politics, and information may be more critical. Third, the use case for CBDC must be clarified country by country, and may not exist. Fourth, parliaments and voters should have the final say.

Casanova, Cerutti, Pradhan, 24 November 2021

The global footprint of Chinese banks is substantial and growing, including during the COVID-19 pandemic. While they are similar to other banks from emerging countries in terms of their ownership and asset structure, their global footprint often resembles that of banks from advanced countries. Geographical distance acts as a barrier for Chinese banks’ lending, comparable to that for US or European banks. Also like their US peers, the lending of Chinese banks strongly correlates with trade. Some differences are present, such as an atypical negative correlation between bank lending and portfolio investment.

Simola, 24 November 2021

The collapse of global trade during the COVID-19 crisis was stunning in its magnitude, but was milder in relative terms than during the Global Crisis. Based on data from 40 different countries, this column suggests that the key lies in the composition of demand. The contributions of consumption and services sector demand to the import contraction were notably larger during the COVID-19 crisis. This may have led to a relatively milder import contraction, as consumption and services production are less import-intensive than investment and manufacturing production.

Altavilla, Ellul, Pagano, Polo, Vlassopoulos, 24 November 2021

Concerns have been raised over whether the massive public loan guarantee schemes introduced to provide emergency lending to firms soon after the onset of Covid-19 may end up benefiting banks more than firms hit by the pandemic shock. This column uses a novel credit register dataset to show that in the euro area, government guarantees contributed to the continued extension of credit to relatively creditworthy firms hit by the pandemic, but also benefited the balance sheets of banks to some extent. Some credit substitution occurred, and therefore some guarantees transferred pre-existing credit risk from banks to taxpayers.

Miroudot, Rigo, 23 November 2021

What is the impact of trade agreements on the activities of multinational enterprises? How does the accession of countries to regional trade agreements affect multinationals’ decision to set up affiliates and produce in global value chains? Using a novel database on multinational production, this column investigates the impact of preferential trade agreements on foreign affiliates’ production activities. The findings suggest that investment provisions increase multinational production by facilitating multinationals’ operations in foreign markets, especially for activities requiring the proximity of suppliers and consumers, and by helping multinationals joining global value chains.

Albuquerque, Koskinen, Santioni, 23 November 2021

How did the stock market crash caused by Covid-19 affect different asset classes and fund types? This column studies the trading behaviour of actively managed equity mutual funds in the US during the crisis and finds that funds with high environmental, social, and governance ratings helped to stabilise the market, but other funds also provided support for ESG stocks. All funds experiencing inflows increased their net purchases, but this behaviour was stronger for ESG funds. Non-ESG funds experiencing outflows increased their net sales, but this was limited to their holdings of non-ESG stocks.

Acemoğlu, 23 November 2021

Over the last decade, artificial intelligence has made great advances and influenced almost all industries. This column argues that the current AI technologies are more likely to generate various adverse social consequences, rather than the promised gains. It provides examples of the potential dangers for product markets, labour markets, and democratic institutions, and emphasises that the main problem is not AI itself, but the way leading firms are approaching data and their use. Policy should focus on redirecting technological change to create new capabilities and opportunities for workers and citizens.

Christofzik, Elstner, Feld, Schmidt, 22 November 2021

Despite massive digitisation efforts, the German economy has experienced a marked slowdown in productivity growth. This column shows that an important share of this trend reflects the combination of strong labour market performance with the structural shift towards services in the German economy. A large part of the productivity paradox can be resolved by the observation that the notable technological progress in the ICT-producing sector tends to stimulate aggregate employment growth in step with production growth, thereby consuming its effect on aggregate productivity. The results suggest that higher productivity growth should not be the sole policy objective.

Djankov, Zhang, 22 November 2021

Leaving human capital out of policy discussions might lead to incorrect inferences about which measures were most successful during the pandemic. Based on a sample of 45 mostly OECD economies, the authors of this column show that both high levels of human capital and, to a lesser extent, flexible labour regulation have allowed labour force participation to recover faster during the Covid crisis. Countries that prepare to fight the effects of globalisation and robotics have also managed to alleviate the effects of the shock on the labour market. 

Cosar, Demir, Ghose, Young, 21 November 2021

Paving dirt roads and building highway networks, unsurprisingly, have been shown to produce substantial economic gains, but what is the impact on domestic trade from improving existing road networks? Using spatially disaggregated data on major capacity upgrades of existing road networks and domestic transactions in Turkey, this column estimates a large positive impact of reduced travel times on trade and regional employment, and long-run aggregate real income gains of 2-3%. 

Anderberg, Rainer, Siuda, 20 November 2021

Concerns that domestic violence would intensify during the COVID-19 lockdowns were not borne out by early research. But that research relied on police records. This column suggests that studies based solely on police-recorded incidents of domestic violence provide a less accurate picture than sources less susceptible to changes in reporting behaviour. Based on internet search activity, the authors find a 40% increase in domestic violence incidents in London during the lockdowns – seven to eight times larger than estimates relying on police data alone.

Bachmann, Born, Goldfayn-Frank, Kocharkov, Luetticke, Weber, 20 November 2021

Unconventional fiscal policy acts as a potential stimulus because higher expected future prices should incentivise spending today. This column shows that the temporary reduction in Germany’s value added tax in the second half of 2020 led to a 36% increase in durable spending for individuals with a high perceived price pass-through, along with an increase in semi- and non-durable spending. In total, aggregate consumption spending rose by about €34 billion. Unlike unconventional monetary policy, which often relies on consumer sophistication, the stabilisation success of the temporary VAT cut was partly related to its simplicity.

Hatton, 19 November 2021

Less than half of all applicants for political asylum in Europe gain some form of recognition that allows them to stay. Since the early 2000s, the EU has developed a common asylum policy with the aims of protecting the rights of refugees and mitigating the ‘asylum lottery’.  This column shows that the implementation of EU Directives contributed modestly to an overall increase in average recognition rates but has not reduced the variation in rates across countries.

Campos-Mercade, Meier, Schneider, Meier, Pope, Wengström, 19 November 2021

To increase Covid-19 vaccination uptake, many governments have used, or are considering using, monetary incentives. This column uses an experiment conducted in Sweden to show that a modest incentive of €20 can increase vaccination rates substantially. Furthermore, incentives appear to help increase vaccination uptake in any group, including those socioeconomic groups that are less likely to get vaccinated. However, behavioural nudges, such as providing information or highlighting the social impact of vaccination, do not lead to a statistically significant increase in vaccination rates. 

Egorov, Mukhin, 19 November 2021

Recent evidence shows that most international prices are set in dollars, leading to highly asymmetric spillovers between the US and other economies. This column discusses the normative implications of this fact. The authors argue that inflation targeting is optimal in non-US economies, while the use of capital controls is not. A depreciation of the dollar is unlikely to cause a currency war, but US policy does not fully internalise global spillovers. The US benefits from the dominant status of its currency.      

Rossi, 19 November 2021

Do we have children to provide for us in our old age? Pauline Rossi tells Tim Phillips about the impact on the size of families in Namibia after the government granted a state pension – research that might have important implications for economic development in Africa.

Read more about the research behind this podcast and download the Discussion paper for free:

Godard, M and Rossi, P. 2021. 'The Old-Age Security Motive for Fertility: Evidence from the Extension of Social Pensions in Namibia'. CEPR

Picture credit: [email protected]

Buti, 18 November 2021

The global financial crisis was a particularly testing episode for the EU. Even more testing has been the impact of the Covid-19 pandemic that erupted in March 2020. In a new book, the Chief of Staff of the Commissioner for the economy and former Director General for Economic and Financial Affairs at the European Commission retraces the analytical underpinnings of the economic policy responses to the two crises. In this column, taken from the introduction to the book, he draws general lessons for the future of EU policymaking based on his personal involvement in crisis management and response.

Harasztosi, Maurin, Pál, Revoltella, van der Wielen, 18 November 2021

Massive policy support sheltered many European firms from the unprecedented Covid shock. However, a debate has emerged regarding the potential side effects of continued support for long-term growth hampering the creative destruction process. This column uses data from the EIB Investment Survey to analyse the impact of policy support in detail. It shows that support went primarily to the most affected firms and does not find evidence of misallocation to zombie firms. In addition, policy support enhanced firms’ capacity to rebound from the crisis, enabling recapitalisation and promoting investment in digitalisation. 

Georgiadis, Müller, Schumann, 17 November 2021

In times of heightened global risk, investors flock to the dollar as their capacity or willingness to bear risk declines. As a result, the dollar appreciates. This column examines the effects of global risk shocks and the dollar’s role in the international adjustment to such shocks, finding that appreciation of the dollar amplifies the adverse effect of global risk shocks considerably. Policies that stabilise the dollar in the face of global risk, such as the liquidity provision by the Federal Reserve in response to the COVID-19 pandemic, can help stabilise global economic activity.

Waldenström, 17 November 2021

Wealth inequality has attracted considerable attention in recent years. This column presents new historical evidence that revises earlier results and reveals long-term patterns. A key finding is that wealth has changed in nature over the past century: once held by the elite, it is now widely held in the form of housing and pension savings. These changes appear to account for the redistribution of wealth over the last century and the fact that its concentration has remained relatively low in more recent decades despite rapid increases in aggregate wealth.

Verwey, Dieckmann, Wozniak, 16 November 2021

The Covid-19 pandemic is not over, but due to increasing vaccination rates and an improving health situation, since spring many restrictions in the EU have been gradually eased and this ‘reopening’ has fuelled economic growth more than expected. Supported by monetary and fiscal policy, the foundations are in place for sustaining growth. However, headwinds come from supply-demand imbalances and higher energy prices. In its Autumn 2021 Forecast, the European Commission expects GDP in the EU and the euro area to grow in 2021 by 5%, in 2022 by 4¼%, and in 2023 by 2½%. The inflation forecast for all three years has been revised up with rates above 2% in 2021 and 2022, but with declines from early 2022 onwards.

Bottero, Minoiu, Peydró, Polo, Presbitero, Sette, 16 November 2021

Negative interest rates are a major innovation in monetary policy. This column uses data on bank-firm lending relationships and firms’ employment and investment decisions to show that after the introduction of negative interest rate policy by the ECB: (1) more exposed banks show a relatively higher increase in the supply of corporate loans; (2) this expansion of credit by more exposed banks is concentrated among low-capital banks, which rebalance their assets by increasing their share of loans to smaller and ex ante riskier firms; and (3) the increase in credit supply by more liquid banks is associated with sizeable firm-level real effects.

Bunn, Altig, Anayi, Barrero, Bloom, Davis, Meyer, Mihaylov, Mizen, Thwaites, 16 November 2021

The onset of the COVID-19 pandemic triggered a massive spike in uncertainty. This column uses data from panel surveys of US and UK business executives to document how uncertainty over own-firm sales growth rates over the year ahead roughly doubled in reaction to the shock. Firm-level uncertainty receded after spring 2020 but remains much higher than pre-COVID levels. The nature of this uncertainty has shifted greatly since the pandemic struck, from an enormous widening in perceived downside risk to a sharp increase in upside risk. Economic uncertainty associated with the pandemic has morphed from a tale of the lower tail into a tale about the upper tail.

Affinito, Santioni, 15 November 2021

Covid-19 had a substantial impact on financial markets around the world. This column uses granular worldwide data to assess mutual fund portfolio responses to the crisis. The authors find that mutual funds divested from assets considered in most trouble at the time – i.e. those issued in countries and by industries most affected by the pandemic – but with several dimensions of heterogeneity according to asset type, investment policy, and performance. The findings corroborate the existence of an unconventional monetary policy channel acting through mutual funds that could be used to stabilise the funds themselves.

Ravallion, Chen, 15 November 2021

China’s political leadership recently committed to expanding the proportion of middle-income groups to create a less polarised, and more ‘olive-shaped’, distribution of wealth. This column considers the potential trade-offs between reducing income polarisation and other goals, including poverty reduction. An obvious concern is how the process of economic growth impacts the extent of polarisation, but the country’s historical record does not point to any serious trade-offs going forward, including with economic growth, poverty reduction, and overall social welfare.  However, potential trade-offs would need to be considered further in the context of specific policy efforts, such as expanding social service coverage in rural areas.

Demmou, Franco, 14 November 2021

Loan guarantee programmes have played a key role in reducing Covid-related distortions to market selection, shielding many high-productivity firms and supporting zombie firms only to a limited extent. This column argues, however, that such schemes do not come without risks for future productivity, as sizeable programmes may favour the build-up of misallocation in the medium term. Engineering an effective exit strategy from these schemes – preserving their benefits while reducing their drawbacks – is critical to foster the recovery of the corporate sector.

Barthélemy, Mengus, Plantin, 13 November 2021

High levels of public debt may prevent central banks from fighting inflation. This column examines the conditions under which fiscal dominance – that is, the determination of the price level by the solvency of the government – may emerge. It argues that fiscal dominance prevails when the government has, wittingly or not, exhausted its fiscal capacity. The government may wittingly and optimally choose such a path if interest rates do not respond to fiscal expansions. In response, the central bank may find it desirable to engage into pre-emptive inflation.

Faccia, Parker, Stracca, 12 November 2021

Despite the increasing interest in climate change in the central bank community, we still know relatively little about the impact on medium-term inflationary pressure. This column discusses new evidence for a panel of advanced and emerging economies on the impact of very high temperatures on prices. It finds that extreme temperatures have noticeable effects on price developments even in the medium term, although more so in emerging than in advanced economies. On balance, the impact of high temperatures on prices appears to be on the upside in the short term, and on the downside in the medium term.

Giupponi, Landais, Lapeyre, 12 November 2021

While the US aggressively extended generosity of unemployment insurance in the face of the Covid-19 pandemic, Europe heavily subsidised reductions in hours worked and temporary layoffs through short-time work or similar schemes. This column presents a framework for determining the relative welfare costs and benefits of the two labour market policies during economic downturns. In countries with already generous unemployment insurance and/or strong employment protection, like those in Europe, strong cyclical short-time work programmes can be an extremely valuable complement to unemployment insurance to respond to recessions.

Englmaier, 12 November 2021

Tournaments are increasingly being used in business to solve non-routine problems. Florian Englmaier tells Tim Phillips about new research into what gives these teams the will to win. Do they respond to having a common sense of identity, do they want kudos and status from other people, or are they just looking for a cash prize?

Read more about the research presented and download the free discussion paper:
Englmaier, F, Grimm, S, Grothe, D, Schindler, D and Schudy, S. 2021. 'The Efficacy of Tournaments for Non-Routine Team Tasks'.CEPR

Alesina, Ferroni, Stantcheva, 12 November 2021

The proportion of Black Americans living below the poverty line is more than twice that of white Americans. Using large-scale survey and experimental data, this column investigates how Black and white Americans perceive racial inequities, why they believe those inequities persist, and what interventions they would support to correct them. A stark partisan gap emerges: white Democrats and Black respondents tend to attribute racial inequities to the history of slavery and discrimination – and favour redistributive policies – while white Republicans tend to attribute those inequities to individual decisions or insufficient effort and oppose interventions to reduce them.

Megalokonomou, Vidal-Fernandez, Yengin, 11 November 2021

Women are now more likely to pursue a university degree than men, but the proportion of women graduating in economics has decreased or remained stagnant over the past two decades. This column examines the representation of women in undergraduate economics degrees in 25 European countries during 2014–2018. The ratio of women to men in economics, controlling for gender differences in enrolment, has been around 0.6 on average and is stable or decreasing. Increased representation of women economists is important for more balanced policy recommendations, and the authors discuss how this might be achieved. 

Ilzetzki, 11 November 2021

The October 2021 Centre for Macroeconomics survey asked the members of its UK panel to evaluate the performance of UK fiscal rules to date and which rules would best serve the British economy going forward. This column reveals that the majority of the panel thinks the sequence of fiscal rules in place in the UK since 1997 have caused a material reduction in UK public debt. However, twice as many panellists thought these rules harmed the conduct of macroeconomic policy than those that thought they helped. Going forward, a majority of the panel believes that well-designed rules limiting public deficits or debts would best improve the conduct of macroeconomic policy, but nearly a third would scrap fiscal rules altogether.  

Borio, Disyatat, 10 November 2021

Monetary and fiscal policies, as deeply entwined functions of the state, face a looming dual long-term challenge. This column argues that they need to regain policy headroom to be able to effectively fulfil their macro-stabilisation role. And once these safety margins are restored, the policies need to remain firmly within a ‘corridor of stability’, in which neither can endanger the other or push it to the limit. In addition, navigating the path ahead will require a mix of ‘opportunistic normalisations’ and structural reforms to raise long-term growth. 

Persaud, 10 November 2021

John Williamson, one of the icons of international economics, passed away in April 2021. This column outlines some of his many and varied contributions to economic analysis and economic policymaking. In his work on exchange rates, the international monetary system and the challenges of economic crises, transition and development, he was the consummate problem-solver and understood any problem in the round of politics, economics and institutions. 

Thygesen, Beetsma, Bordignon, Debrun, Szczurek, Larch, Busse, Gabrijelcic, Jankovics, Malzubris, 10 November 2021

The policy responses to the Covid-19 pandemic underscored two interlinked issues in the EU fiscal surveillance framework: the failure or difficulty on the part of some member states to build fiscal buffers in good times, followed by the tendency to find new often improvised forms of flexibility in the implementation of the EU fiscal rules or through new elements of risk sharing when times turn bad. The latest European Fiscal Board annual report proposes a reform to the EU fiscal framework based on (1) a medium-term debt anchor; (2) an expenditure rule as the main policy instrument; and (3) a single escape clause applied on the basis of independent analysis.

Choi, Levchenko, 09 November 2021

Industrial policy is back on the agenda in high-income countries. This column examines the impact of firm-level industrial policy measures in the 1970s on the South Korean economy. The authors find that South Korea’s heavy and manufacturing industries are an example of where activist industrial policy appears to have succeeded, with the temporary subsidies having a large and statistically significant effect on firm sales as long as 30 years after they ended. However, today’s policymakers face the same challenge as those in the past: identifying conditions – such as dynamic productivity effects or externalities – under which activist industrial policy is welfare-improving. 

Canova, Pappa, 09 November 2021

In light of last year’s launch of the Next Generation EU funds, understanding the effectiveness of the EU’s use of structural funding has become even more important. This column examines the role of the European Regional Development Fund and the European Social Fund over time. While both have contributed to job creation and economic recovery, the former had a more short-term direct effect and the latter a more medium- to long-term indirect impact. There is significant regional heterogeneity in these impacts, driven by location, level of development, EU tenure, and euro area membership.

LaPoint, Sakabe, 08 November 2021

Growing spatial inequality has led policymakers to offer firms tax breaks to attract investment and jobs to economically peripheral regions. This column examines a place-based bonus depreciation scheme in Japan which granted high-tech manufacturers immediate cost deductions from their corporate income tax bill. The policy generated big gains in employment and investment in building construction and in machines at pre-existing production sites. This response was driven by firms which rely on costly but long-lived capital inputs like industrial machines. How firms react to spatially targeted tax incentives ultimately depends on their internal network and their composition of intermediate capital inputs. 

Besley, Burgess, Khan, Old, Xu, 08 November 2021

How does bureaucracy matter for development? Over the last years, an enormous interest in this question has created a large body of research, mostly focused around evidence from field experiments and micro-level administrative data. This column reviews this recent literature and embeds it in the broader discussion on how bureaucracies contribute to economic development. The authors argue that this recent evidence matters, but also encourage future research to study bureaucracies as systems, and to analyse their systemic relations to politics, citizens, firms, and NGOs.

Weder di Mauro, 08 November 2021

Submerged beneath the flood of information, initiatives, ideas, and pronouncements, it is hard to keep sight of what is needed for the goal of limiting global warming to 1.5°C.  This column introduces a new eBook that brings together 45 Vox columns on the economics of climate change with the aim of (1) providing an overview of some of the key issues from the economist’s perspective, (2) stimulating further research, and (3) demonstrating how CEPR is fully engaged with this central debate of our times and how the power of its network can promote excellent research and relevant policy.  

Campos, Coricelli, Franceschi, 07 November 2021

Economic integration has certainly deepened and, more recently, changed enormously. Until the late 1990s integration was mostly trade-centred, while it now can be better described as institutions-centred. This column introduces the notion of ‘institutional integration’, identifies its main features, and provides estimates of its net benefits. With one of the first applications of the synthetic difference-in-differences estimator and using data from the 1995 enlargement of the EU, the authors find that the failure to embrace institutional integration by Norway (compared to ‘only’ embracing deep integration) generates yearly productivity losses of about 0.6 percentage points.

Lim, 06 November 2021

Agricultural global value chains grew rapidly after WWII, transforming the nature of agri-food production worldwide. Still, little is known about how taking part in these chains changes the structure of an economy. This column constructs a panel dataset from 155 countries for the period from 1991 to 2015, examining the effect that participation had on each country’s structural transformation and uncovering evidence that runs counter to conventional wisdom: modern agrarian economies are leapfrogging the manufacturing sector to develop their agriculture and service sectors through participation in agricultural global value chains.

Irwin, 06 November 2021

Ronald Findlay, who passed away in October 2021, was one of the great trade theorists of his generation. As this column by one of his former students explains, he will be remembered for his brilliant intellect, his encyclopaedic knowledge of theory and history, and most of all for his modesty, warmth and supportive friendship.

Brunnermeier, 05 November 2021

Repeated environmental and economic crises in recent years are encouraging many people to ask, is this really the best way to run a planet? Markus Brunnermeier tells Tim Phillips how we can do a better job of coping with shocks.

Boer, Pescatori, Stuermer, Valckx, 05 November 2021

Low greenhouse gas technologies require more metals than their fossil fuel-based counterparts. This column estimates supply elasticities and pins down the price impact of the energy transition on the metals markets. The results show that prices for copper, nickel, cobalt, and lithium could reach historical peaks for an unprecedented, sustained period in a net zero emissions scenario. The total value of production could rise more than four-fold for the period 2021-2040, rivaling the total value of crude oil production.

Félix, Karmakar, Sedláček, 05 November 2021

Business dynamism has long been recognised as a key driver of aggregate outcomes, with startups and young firms playing a particularly important role. Using data from Portugal, this column shows that entrepreneurs themselves are key determinants of firm performance. Serial entrepreneurship is widespread, and businesses of serial entrepreneurs outperform all other firms along multiple dimensions. They have a disproportionate impact on the aggregate economy, including for our understanding and modelling of top income inequality.

Yonzan, Milanovic, Morelli, Gornick, 05 November 2021

Household survey data and tax data both suffer from measurement concerns at the top of the income distribution. This column analyses data from the US to investigate when and why the two data sources diverge. The authors conclude that the source of the divergence lies in the measurement of non-labour income as tax rules change over time.

Larch, Malzubris, Busse, 04 November 2021

In the history of the EU’s Stability and Growth Pact, some governments have used optimism over medium-term growth to postpone fiscal adjustment or justify expansions. In 2011, EU member states were invited to strengthen their medium-term fiscal planning, but EU surveillance is still very much centred on the year ahead. This column argues that multiannual expenditure paths would be a promising way to improve the medium-term orientation of fiscal policy and, by extension, fiscal performance. They deserve a thought or two in the ongoing review of EU economic governance.

Cusolito, Garcia Marin, Maloney, 04 November 2021

The impacts of rising competition on innovation remain unclear, and often depend on country context. This column analyses the impact of increased import competition from China on innovation by Chilean firms. It finds a negative overall impact of competition on innovation indicators. Low-productivity firms in particular see declines across all innovation measures, while the most productive firms experience improvements in product innovation and product quality. Raising the capabilities of firms and their access to resources may be an important complement to pro-competition policies.

Benincasa, Kabaș, Ongena, 03 November 2021

The stringency of climate policy varies from one country to the next. This column examines global syndicated loans to show that banks increase their cross-border lending in response to greater climate policy stringency in their home country, if the home country has more stringent climate policy than the borrowers' countries. Used in this way as a regulatory arbitrage tool, cross-border lending can reduce the effectiveness of climate policies if global coordination is not enforced.  

Kose, Ohnsorge, Reinhart, Rogoff, 03 November 2021

Global government debt soared in last year’s pandemic-induced global recession. It may now be tempting to rely on the post-pandemic growth and inflation rebound to reduce debt burdens. This column argues, however, that medium-term growth prospects are dimming and inflation helps reduce debt burdens only under particular circumstances. As a result, some developing economies may eventually need to resort to debt default to restore fiscal sustainability, with the associated heavy economic and political cost. The global community can help by coordinating prompt and efficient debt relief and restructuring. 

Freeman, Bettendorf, Adema, 03 November 2021

As in most other countries, the government in the Netherlands implemented generous support measures for firms during the Covid-19 crisis. This column shows that unlike in other countries, however, government support disrupted the creative destruction process in the Netherlands by saving a disproportionately high number of low-productivity firms. The authors suggest this might be because the support measures were more widely and easily available. The speed of the phasing out will play an important role in determining how many firms that have been propped up fail once the support is removed or even has to be paid back.

Persaud, 02 November 2021

To meet the Paris agreement, the world would have to eliminate 53.5 billion metric tonnes of carbon dioxide each year for the next 30 years. This column proposes a plan to meet the costs of this in an equitable way. Countries that contribute most to the stock of GHGs could issue an instrument that gives investors in projects anywhere in the world that reduce emissions the right to borrow from them at their overnight interest rates – which are currently near zero – and to roll over this borrowing for as long as the project delivers some minimum rate of reduction in emissions per dollar invested. Luckily, such an instrument already exists in the form of the IMF’s Special Drawing Rights.

van der Ploeg, Rezai, Tovar, 02 November 2021

Carbon pricing disproportionately hurts poorer households, but cash disbursals from the revenue it raises can compensate these households and lower income inequality. This column evaluates the effects of carbon taxes by employing utility-based measures of whether a household is better off. The transparency of such a policy increases political support if a substantial majority of the population benefit from the carbon tax plus cash disbursal. However, endogenous behaviour blunts the effectiveness of such transfers; for Germany, it diminishes political approval from 60% to 30%. Using revenue for lowering income taxes as well for dividends increases popular support back to above 50%.

Epaulard, Fize, Le Calvé, Martin, Paris, Parra Ramirez, Sraer, 02 November 2021

Governments around the world announced fiscal support measures to keep businesses afloat in response to the Covid-19 shock. This column uses bank account data from 100,000 French firms to examine the solvency and liquidity of companies across sectors. Firms in the accommodation and food services sector are doing surprising well, while many firms in the construction sector are struggling financially. The findings suggests fiscal support may not have worked as intended, and that policymakers should continue to monitor bankruptcies closely in the coming months.

Colantone, Ottaviano, Stanig, 01 November 2021

As populist parties have surged across advanced democracies so, it seems, has a ‘globalisation backlash’. This column provides descriptive evidence on the backlash, discusses its theoretical underpinnings within standard trade models, and reviews the evidence on its drivers. It appears that globalisation is at stake partly due to reasons that are not strictly related to trade. The political sustainability of globalisation – and arguably of the international liberal order – will depend on how successful societies are at managing in a more inclusive way the distributional consequences of structural change.

Brignone, Dieppe, Ricci, 01 November 2021

There are many uncertainties surrounding the inflation outlook in the US, particularly in light of the large fiscal stimulus. Using the ECB-Global model, this column estimates the impact on inflation of the fiscal stimulus to be limited. Three scenarios are undertaken to quantify the upside risks to inflation which could arise from considering a steeper Phillips curve, stronger fiscal multipliers, and rising inflation expectations. The results suggest that the impact on inflation from these sources of risk is likely to be moderate, unless all of the risks materialise simultaneously, and the Fed does not depart from the assumed monetary policy path. 

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