December 2021

Weder di Mauro, 24 December 2021

In her Christmas message, CEPR's President picks out some highlights from 2021 as well as some challenges and disappointments for the network.

Baldwin, 24 December 2021

Vox is taking its annual holiday from 24 December 2021 to 3 January 2021. The next post will be on 4 January. 

Nath, 24 December 2021

Global warming is expected to dramatically reduce agricultural productivity in hotter parts of the world. This column considers ways to accommodate that change. Hot, poor countries would benefit by shifting away from agriculture into less vulnerable, non-agricultural sectors as temperatures rise, but such a reallocation of resources is unlikely without a major increase in global trade integration. As long as poor countries import little of their food, they are likely to continue specialising in agriculture to meet domestic subsistence needs, even as their farms become increasingly vulnerable to climate change.

Dodin, Findeisen, Henkel, Sachs, Schüle, 24 December 2021

According to the OECD, social mobility in Germany is lower than in most other developed economies, reigniting a debate on equality of opportunity and shortcomings of the education system. This column discusses how census data can be used to obtain high quality mobility statistics for Germany. Using the Abitur educational qualification as a measure of opportunity, it suggests that relative mobility has remained constant for recent birth cohorts but points to substantial geographic variation in mobility measures across regions in the country.

Andre, Haaland, Roth, Wohlfart, 23 December 2021

Inflation has recently surged in both the US and the EU. This column uses responses from surveys of a representative sample of the US population as well as academic economists and US firm managers to show that households and managers are more likely than experts to think that the current surge in inflation will be persistent. Since the narratives individuals use to explain movements in inflation appear central to whether inflation expectations remain anchored, communication strategies by policymakers could put emphasis on specific narratives that highlight that inflationary pressures are unlikely to persist.

Auerbach, Gorodnichenko, McCrory, Murphy, 23 December 2021

The Covid-19 pandemic prompted an unprecedented fiscal stimulus by many governments to counter the economic recession. This column uses high-frequency data on government spending, lockdown restrictions, and economic indicators in the US to assess the effectiveness of fiscal policy. It shows that government spending increased employment, but only in cities not subject to strict stay-at-home restrictions. It also shows that consumer spending shifted strongly toward durable goods during the pandemic. Well-targeted fiscal measures will be crucial in the case of another recessionary outbreak, especially transfers to firms on the brink of exit. 

Criscuolo, Gal, Leidecker, Nicoletti, 23 December 2021

Rising dispersion in productivity across firms has focused attention on the drivers of superior performances of a minority of firms at the ‘productivity frontier’ and disappointing performances of the remaining ‘productivity laggards’. This column brings together data from ten countries to explore how differences in productivity outcomes of frontier and laggard firms depend on the composition, diversity, and competencies of their managers and their workers. Overall, this ‘human side’ explains about a third of the observed differences in productivity across firms, more than is accounted for by differences in capital intensity.

McMahon, Reichlin, Ricco, 22 December 2021

The Federal Reserve has recently changed monetary stance and signalled a faster than anticipated pace of monetary tightening, while the ECB is more dovish. This column applies a statistical model to recent data on oil prices, inflation, expectations, labour markets and output, and finds that the model’s forecasts support the difference in stance of the two central banks. Based on an assessment of cyclical inflation being mostly driven by transitory energy price disturbances and a very small Phillips curve contribution in both jurisdictions, it predicts that in a year from now euro area HICP inflation will still be below the 2% target, at 1.75%, while in the US CPI inflation will be above, at 2.75%. 

Ferrara, Masciandaro, Moschella, Romelli, 22 December 2021

What are central banks held accountable for by elected officials? This column employs structural topic models on a new dataset of the Monetary Dialogues between the Members of the European Parliament and the President of the ECB to reveal differences in how MEPs keep the ECB accountable for its primary objective of price stability. It also shows that unemployment is a key explanatory variable for the political voice articulated by individual MEPs in accountability settings. These findings reveal the existence of a ‘political’ Phillips curve reaction function.

Macdonald, Patrinos, 22 December 2021

Carbon pricing is increasingly used by governments to reduce emissions. Using data from 21 European countries, this column considers how education quality interacts with the effect of carbon pricing on emissions, output, and wage inequality. Cognitive skills are associated with lower emissions per output and faster reductions in emissions per output across time. The association is primarily with the cognitive skills of professional and managerial occupations, which would be most involved in innovation and adoption.

Todo, Kashiwagi, 21 December 2021

Natural disasters can bring out the best in people, even between those who mistrusted one another before calamity struck. This column investigates how a natural disaster affected residents’ perceptions of each other in a region long divided by religious conflict. Using household survey data from Central Sulawesi, Indonesia, before and after the 2018 Sulawesi earthquake, it finds that victims expressed higher expectations for support from other religious groups going forward, suggesting that the experience of intergroup cooperation during the 2018 disaster raised expectations for cooperation during future emergencies. 

Lichter, Löffler, Isphording, Nguyen, Poege, Siegloch, 21 December 2021

Studies have shown that targeted R&D tax incentives – such as tax credits for R&D spending – induce firms to conduct more R&D. However, little is known about the effects of general profit taxes on firm-level R&D spending and innovation output. This column presents evidence from Germany that points to sizeable negative effects of increasing profit taxes on firms’ R&D spending and patents. However, slashing business tax rates may not be the most efficient policy instrument to spur innovation altogether.

Forbes, Gagnon, Collins, 21 December 2021

COVID-19 and the corresponding policy responses have generated uncertainty over inflation around the world. This column shows that when output exceeds potential, the upward pressure on prices (from reductions in slack) is far greater than any equivalent downward pressure (from increases in slack) when output is below potential. This nonlinearity in the Phillips curve, combined with the impact of global factors such as global commodity prices, global slack, exchange rates, and producer price competition, have played an important role in driving the sharp swings in inflation rates during COVID.

Goldfajn, Levy Yeyati, 20 December 2021

The impact of the Covid-19 pandemic in Latin America highlighted the challenge of long-standing fiscal and social deficits in a context of overstretched public sector resources. And it deepened a growing discontent with the economic status quo and the political system. A new CEPR eBook collects a series of conversations with distinguished Latin American researchers and policymakers aimed at trying to map a possible future for Latin America, with a focus on avoiding the next crisis, policies for sustainable growth, social challenges, and the future of democracy.  

Crozet, Demir, Javorcik, 20 December 2021

Global trade fell sharply during the first few months of the Covid-19 pandemic. This column analyses the use of letters of credit to insure trade flows during the crisis. Using product-specific data on reliance on trade insurance, it demonstrates that trade flows insured by letters of credit were more resilient than other flows. In general, the impact of letters of credit are stronger for exports to countries with a high number of Covid-19 cases. The significant effects of trade insurance thus suggest that uncertainty played an important role in driving the trade collapse in 2020.

Burlina, Rodríguez-Pose, 19 December 2021

Western countries are facing an ‘epidemic of solitude’. Though its impact on mental health has attracted considerable attention, little is known about its economic effects. This column distinguishes between two forms of solitude – loneliness and living alone – and studies their influence on the economic performance of European regions at the local level. Greater shares of people living alone drive economic growth, whereas an increase in loneliness has damaging economic consequences. Though the relationship is complex and non-linear, a region with more lonely people will experience lower aggregate economic growth.

Facchini, Hatton, Steinhardt, 18 December 2021

The 1965 Immigration Act represented a radical shift in US policy, dramatically expanding the volume and changing the composition of immigration. Its approval has often been described as the result of political machinations negotiated within Congress, without regard to public opinion. This column shows instead that congressional voting was consistent with public opinion on abolishing the country-of-origin quotas but not with the desire to limit the volume of immigration.   

Hatton, 17 December 2021

Refugees from conflicts in Yemen, Syria, Iraq, and many other countries travel thousands of miles seeking a new life in Europe. But how likely are these refugees to be recognised as asylum seekers, and does it matter in which country they apply? Tim Hatton tells Tim Phillips that, despite efforts to standardise the process of granting asylum, there are still big differences in recognition rates across Europe.

Download the free DP:
Hatton, T. 2021. 'Asylum Recognition Rates in Europe: Persecution, Policies and Performance'. CEPR

Beraja, Kao, Yang, Yuchtman, 17 December 2021

The growth of artificial intelligence technology brings the potential of a ‘fourth industrial revolution’, but also poses challenges for democratic institutions. This column analyses the mutually reinforcing relationship between AI innovation and the political control objectives of autocrats. In the context of facial recognition AI in China, it shows that episodes of local political unrest lead to higher public procurement of AI technologies. Furthermore, these technologies are shown to mitigate the potential for exogenous shocks to trigger unrest, while also boosting broader software innovation in affected regions. 

Ortiz, 17 December 2021

Just-in-time production has contributed to the decline in inventory holdings over the last several decades. Using US firm-level data, this column argues that just-in-time production creates a trade-off between firm profitability and vulnerability to large unexpected shocks. The theoretical analysis indicates that just-in-time production raises firm value by 1.3%. At the same time, amid a widespread supply disruption, a leaner economy experiences a deeper output contraction.

Wang, Rodríguez-Pose, 16 December 2021

Variation in the incidence of pandemics among cities has often been attributed to luck, rather than to institutional factors. This column examines how the Black Death – the deadliest of pandemics – differently impacted European cities in the 14th century. City autonomy, which allowed the independent introduction of counter-measures, reduced the plague’s death toll, on average, by almost 10%. Being a capital city, hosting a parliament, or having a bishop or an archbishop did not produce similar benefits. Improving the quality of local institutions can be an efficient mechanism to fight pandemics, even today. 

Deb, Furceri, Jiménez, Kothari, Ostry, Tawk, 16 December 2021

The effectiveness of vaccines in reducing Covid-19 transmission is well established, but less is known about the effect of vaccine rollouts on economic activity. This column quantifies the economic effects using data on vaccines administered, containment measures, and indicators of economic activity. An increase in vaccination rates per capita has significant economic effects, as measured by increases in daily nitrogen dioxide emissions. Country-specific conditions affect the economic impact of vaccines, with lower economic gains in case of a severe outbreak or if containment measures are in place. Finally, the authors find evidence of significant spillovers from increases in COVID-19 cases or COVID-19 vaccines across countries with strong economic linkages. 

Poiares Maduro, Martin, Piris, Pisani-Ferry, Reichlin, Steinbach, Weder di Mauro, 16 December 2021

The stability and adequacy of the European monetary and fiscal frameworks are increasingly challenged by enduring changes in the economic environment. This column summarises the findings of a group of economists and lawyers specialised in EU matters who undertook a comprehensive assessment of the economic requirements and legal conditions of a well-functioning macroeconomic policy system for the EU and the euro area. They propose reforms of economic framework in line with economic necessities along three dimensions (coordination of fiscal and monetary policies, fiscal rules, and fiscal capacity at EU level) and assess their legal feasibility. They conclude that meaningful reforms that would bring legal clarity and improve economic performance are feasible within the confines of existing primary law.

Van der Ghote, 15 December 2021

Short-term interest rates, particularly the natural rate, have been in steady decline in the euro area and the US. This column argues that in economies with low natural rates, such as the euro area today, macroprudential policy can have benefits for the effectiveness of conventional monetary policy, in addition to safeguarding financial stability. Notably, macroprudential policies that curb leverage of financial intermediaries during upturns can also help stimulate aggregate demand during downturns, by containing systemic risk in financial markets.

Algan, Cohen, Davoine, Foucault, Stantcheva, 15 December 2021

During the Covid-19 pandemic, social compliance with non-pharmaceutical interventions has varied within and across nations, and has generally decreased over time. This column uses data from 12 countries between March and December 2020 to show that trust in scientists plays a key role in compliance with and support for non-pharmaceutical interventions and willingness to get vaccinated, while trust in government has a more limited effect. However, when people associate scientists and scientific bodies with government action and political decision-making, it erodes their trust in these scientific institutions.

Fonseca, Matray, 14 December 2021

Access to finance is a crucial component of economic development. This column studies the effects of Brazil’s ‘Banks for All’ programme, which targeted underbanked cities not served by government-owned banks. It finds a strong positive effect of the policy on the number of bank branches and on the overall amount of credit and deposits, particularly for cities located in banking ‘deserts’. Additionally, treated cities experienced increases in the number of firms, higher demand for labour, and higher wages, confirming the link between financial and economic development. 

Sasaki, Saito, Ohtake, 13 December 2021

Vaccination promotion is crucial to ending the Covid-19 pandemic. This column reports on an experiment in Japan examining whether people altered their vaccination intentions based on information about how their decision could affect vaccine uptake by others. Hearing that getting vaccinated could encourage uptake by others around them increased the proportion of older adults who would receive the vaccine if offered for free, while hearing that not getting vaccinated may discourage uptake by others strengthened the intention to get vaccinated among older adults who had already indicated their willingness to be vaccinated. Finally, hearing how likely others of a similar age were to get vaccinated also strengthened existing intentions – whether pro- or anti-vaccination. The ‘nudges’ did not appear to have an effect on younger adults. 

Deb, Furceri, Jiménez, Kothari, Ostry, Tawk, 13 December 2021

Cross-country health spillovers from vaccine rollouts mean the pandemic will not be over anywhere until it is over everywhere. This column argues that the success of a country’s vaccine deployment in the first half of 2021 was driven by five primary factors: the severity of its pandemic waves in 2020, its procurement strategies, the quantity of locally produced vaccines, the quality of health infrastructure, and vaccine acceptance. Swift and broad administration of vaccines provides a significant boost to health outcomes, particularly in the midst of major outbreaks and accompanied by containment measures. 

List, Pernaudet, Suskind, 12 December 2021

Rising educational and income inequalities have been documented in nearly every corner of the earth, with associated disparities in parental investments in children. This column reports the results of two field experiments that reveal how shifting parents’ beliefs about the role of parental inputs in child development can lead to higher parental investments and be a pathway to reducing socioeconomic gaps in children’s skills.

Causa, Cavalleri, Abendschein, Luu, 11 December 2021

The capacity of workers to move regions in response to local economic shocks is a key dimension of labour market dynamism that could contribute to recovery from the COVID-19 crisis and support the green transition. This column presents new empirical evidence on how policies can shape the responsiveness of inter-regional migration to regional economic conditions, with a particular focus on housing markets, social policies, and business regulations. It highlights the need for articulating place-based policies to help prospective movers as well as stayers.

Mc Morrow , Blondeau, D’Auria, Döhring, Hristov, Maier, Thum-Thysen, 10 December 2021

Strong policy actions have dampened the impact of Covid-19 on workers and businesses. Amid a rapid recovery, dents to potential output are set to remain limited and transitory. But many uncertainties persist and some economic scarring from the pandemic may only emerge over the coming years. This column summarises the insights from a recent conference on the implications of the Covid-19 recession for the EU’s growth potential. 

Findeisen, Schüle, 10 December 2021

New research uses German census data to track the association between success for a child and the earnings of the parent at a much higher level of detail than was previously possible. Sebastian Findeisen and Paul Schüle tell Tim Phillips about the impact of investment in education, intended to improve social mobility.

Read more about the research behind this and download the free discussion paper:

Dodin, M, Findeisen, S, Henkel, L, Sachs, D and Schuele, P. 2021. 'Social Mobility in Germany'. CEPR

Eça, Ferreira, Prado, Rizzo, 09 December 2021

The rapid growth of FinTech platforms creates challenges and opportunities for financial markets. This column uses a new dataset from a Portuguese FinTech platform to study the determinants of lending demand and the consequences of FinTech loans for small and medium-sized enterprises. It finds that FinTech lending caters mainly to larger SMEs, with higher profitability and a lower credit risk. Additionally, it shows that firms increase assets, employment, and sales following an approved FinTech loan. Finally, FinTech lending allows firms to diversify their pool of lenders and reduce exposure to shocks in the banking system. 

Crumpton, Ilzetzki, 09 December 2021

Many commentators have understood the UK government’s proposed ‘high-wage, high-productivity’ model as suggesting that wage increases will themselves lead to innovation and higher productivity. In the November 2021 CfM survey, the panel of UK experts is nearly unanimous that that wage increases generally do not increase productivity in the long run; the consensus is that productivity drives wage increases. A minority thinks that government intervention in wages could lead to higher productivity, but even this minority argues that such policies should be complemented with investments in skills and other productivity-enhancing measures.

Dasgupta, Huynh, Xia, 08 December 2021

Whether socially responsible investors have any impact on the environmental, social, and governance policies of portfolio firms has become a much-debated issue. This column shows that firms reduce emissions at their local plants following enforcement actions by the US Environmental Protection Agency against nearby plants of firms operating in the same market, and that the emissions reduction is twice as large if a nearby ‘socially responsible’ mutual fund owns shares of the parent firm of the peer plants. The threat of exit by these funds appears to have real consequences for how the local plants respond to the enforcement action.

Chang, Jacobson, Shah, Pramanik, Shah, 08 December 2021

In the race to protect health and economies from COVID-19, governments must convince vaccine-hesitant populations to get jabbed. This column reports on a study in which unvaccinated members of a Medicaid-managed healthcare plan in the US were offered either financial incentives, different public health messages, or a simple vaccination appointment scheduler. None of the schemes increased overall vaccination rates in this vaccine-hesitant population. Improving take-up may likely require stronger policy levers, from employer rules to government mandates.

Chakraborty, Mitra, Sundaram, 07 December 2021

The global market size of outsourcing doubled between 2000 and 2019. While most studies look at foreign outsourcing, this column uses new data on Indian firms to analyse the effects of increased competition from Chinese imports on the domestic outsourcing of manufacturing jobs. It finds that greater import competition is associated with a significant increase in domestic outsourcing. Additionally, it shows that this effect is only present in Indian states with pro-worker labour regulations. Thus, it highlights the important role of domestic institutions in how firms adapt to globalisation. 

Hermes, Lergetporer, Peter, Wiederhold, 07 December 2021

In many countries, children from families with lower socioeconomic status are less likely than those from higher socioeconomic status families to attend early childcare programmes. This column presents findings from a field experiment in Germany demonstrating that disadvantaged families have difficulties navigating the complex childcare application process, and providing information and personal assistance for applications can substantially reduce the socioeconomic gap in early childcare enrolment. To promote educational equality, policymakers should alleviate behavioural barriers to childcare and other formally non-selective social programmes.

Hooley, Saito, 06 December 2021

During the COVID-19 pandemic, the debate on monetary financing has been reignited and several economists have called for governments to borrow from their central banks to finance larger deficits. This column looks to sub-Saharan Africa, a region where ‘fiscal dominance’ has long been widespread, for useful insights into this debate. It finds that central bank financing of government does have an inflationary impact through the exchange rate channel. Numerical legal limits on central bank financing can be an effective way to mitigate the risks, even if they are not always binding.  

Keller, Shiue, 05 December 2021

There is little consensus about the impact that the Western colonialism had on China’s economy. This column revisits a period that saw China end centuries of relative isolation and open dozens of ‘treaty ports’ to Western traders, which shifted the focus of capital markets from inland areas to the coast. Western influence also increased the number of banks, firm investment, as well as the adoption of steam engines and industrial machinery, and significantly lowered local interest rates.

Beyene, Delis, de Greiff, Ongena, 04 December 2021

One of the concerns in the debate on climate change is whether financial flows contribute to the reduction of emissions. This column looks at the role bond market-based and bank-based debt plays in the allocation of resources to fossil fuel in the context of the risk of stranded assets. The authors show that banks continue to provide financing to fossil fuel firms that the bond market would not finance as long as they do not price the risk of stranded assets. In this setting, stranded assets risks may have shifted to large banks.

Pischke, 03 December 2021

Josh Angrist, David Card, and Guido Imbens shared the Nobel in 2021 for their pioneering work on natural experiments that, in the words of the committee, "revolutionised empirical research". Steve Pischke tells Tim Phillips about the history of natural experiments, and the impact of the methods pioneered by this year's Laureates

Revoltella, Delanote, Bending, 03 December 2021

The European economic policy response to the COVID-19 pandemic has ensured business continuity and shielded investment, but digital and green transitions are now ever more urgent. This column uses data on 12,000 European firms from the European Investment Bank Investment Survey to show that the pandemic spurred many firms to start accelerating transformation efforts. Policy should seek to support this momentum amid post-pandemic economic recovery.

Shapiro, 02 December 2021

Half a century has passed since the US enacted a slate of environmental legislation in the 1970s, including the Clean Air Act, Clean Water Act, and Safe Drinking Water Act. This column reviews the literature and shows that air and water pollution are declining but greenhouse gas emissions are not because CO2 has been targeted less by environmental policy. These trends appear to provide large net benefits to US society and using cost-effective market-based policies does not appear to have systematic implications for the equality of environmental outcomes.

Hjort, Iyer, de Rochambeau, 02 December 2021

Access to large buyers is increasingly believed to facilitate firm growth and job creation. This column uses an experiment with small and medium-sized firms in Liberia to analyse whether purely informational barriers exclude firms from accessing growth-conducive value chains. Exposing firms to a week-long ‘sellership’ programme helped them win more and better contracts, and the treatment had long-term effects. As the informational constraint is shown to bind for a quartile of firms, reducing informational barriers can help level the playing field and may also improve overall allocative efficiency.

Palladino, Roulet, Stabile, 01 December 2021

What drives gender wage gaps – and how best to close them – remains a contested topic of economic research. Using data from matched employer-employee registers in France from 1995 to 2015, this column finds that discrepancies in pay are driven largely by men and women working in different firms rather than similar men and women being paid differently at the same firm. Understanding why the share of the gender gap ascribed to firms persists over time and across cohorts remains an essential policy puzzle for further reducing wage disparities. 

Giroud, Lenzu, Maingi, Mueller, 01 December 2021

It is widely believed that the productivity gains from place-based policies are geographically highly localised. This column argues instead that productivity spillovers from local place-based policies may propagate far beyond the initial target region to the entire economy, through the plant-level networks of multi-region firms. But while these productivity spillovers amplify the aggregate welfare gains from local place-based policies, they widen economic disparities between individual workers and regions in the economy. 

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