January 2022

Arvai, Mann, 21 January 2022

When considering the effect of digitalisation on inequality, researchers usually focus on income inequality. This column compares the consumption baskets of US households to study the effect of digitalisation on consumption inequality. High-income households have a higher share of ITC-intensive products in their consumption, and thus benefit more from price declines in these goods due to digitalisation. The price channel accounts for 22.5% of the increase in consumption inequality between 1960 and 2017.

Kaestner, Malamud, 21 January 2022

The persistence of the gender wage gap suggests it may have roots extending back into childhood. Using data from a US longitudinal survey, this column examines how gender differences in adult earnings correspond to various childhood behaviours. Results indicate that women (but not men) who exhibited headstrong behaviour as children incurred significant earnings penalties as adults, while men (but not women) who exhibited more dependent behaviour as children were penalised. Whether these patterns are the result of nonconformity to gender norms and stereotypes warrants further attention and study. 

Agostinelli, Doepke, Sorrenti, Zilibotti, 21 January 2022

How have school closures during the Covid-19 pandemic affected children's education? This column argues that channels operating through schools, peer effects, and parental investments have all contributed to massively growing educational inequality during the pandemic. Among 9th graders, children from low-income neighbourhoods in the US are predicted to suffer a learning loss equivalent to almost half a point on the four-point GPA scale, whereas children from high-income neighbourhoods remain unscathed.

Aghion, Cherif, Hasanov, 20 January 2022

Rising inequality and firms’ market power pose challenges to the aims of inclusive growth and shared prosperity. Nevertheless, growth and equity need not be mutually exclusive. This column argues that economic dynamism is crucial for achieving sustained growth and more equal market outcomes. It shows that countries that experienced faster growth over the last four decades have lower market inequality in the 2010s. Policy should be aimed at supporting sophisticated export industries, fostering innovation and creative destruction, and promoting competition. 

Cahuc, Carry, Malherbet, Martins, 20 January 2022

In 2009, Portugal restricted the use of fixed-term contracts by firms with over 750 employees. This column finds that while the reform was successful in reducing the number of fixed-term jobs, it did not increase the number of permanent contracts and it decreased employment in large firms. Despite positive spillovers on small firms, the reform reduced total employment and had negative effects on the welfare of employees and unemployed workers.

Dolado, Lalé, Turon, 20 January 2022

Zero-hours contracts are the subject of heated debate in the UK. While some point to the benefits of flexible contracts under fluctuating demand, others have raised concerns about potential exploitation. This column uses a structural model to examine their equilibrium and welfare effects. The findings suggest that zero-hours contracts should be restricted to job matches where workers opt for such a contract when offered a choice; access to zero-hours contracts should be prioritised for workers employed in small rather than large firms; and the way flexibility over hours is shared between workers and firms should be regulated.

Beck, Cecchetti, Grothe, Kemp, Pelizzon, Sánchez Serrano, 19 January 2022

New technologies are changing how banks produce and provide financial services. These changes have implications for traditional banks, creating novel sources of systemic risk which could in turn pose regulatory and policy challenges. This column introduces a new report by the Advisory Scientific Committee of the European Systemic Risk Board that discusses the impact that digitalisation may have on the structure of the European banking system. Based on three scenarios for the future development of European banking, the authors derive an array of macroprudential policy recommendations.

Hartwig, Meinerding, Schüler, 19 January 2022

In the aftermath of the global financial crisis, a consensus rapidly emerged that systemic risk – a central concept in financial stability – needed to be contained going forward. However, to this day experts cannot agree on how to measure systemic risk in the first place, with researchers having proposed a plethora of indicators. This column proposes an analytical approach designed to lend structure to this universe of indicators for measuring systemic risk.

Jones, 19 January 2022

Around the world, populism has weaponised anxieties over globalisation and other forms of social change. This column argues that populist trade policies have damaged the global trading system through protectionist policies themselves and by undermining the rules and norms of the WTO. The author suggests that the Trump administration’s national security tariffs and Brexit have inflicted the greatest populist damage on trade rules and trade integration so far and that economic and institutional reforms will be necessary to break the populist influence on trade policy.

Baarsma, Beetsma, 18 January 2022

An important vulnerability of the EU economy is high public debt levels. This column proposes revisions to the EU fiscal rules to stimulate debt reduction, which would create budgetary room for stabilisation and growth-promoting spending and also support growth convergence among member states. Climate investment should not interfere with the fiscal rules but be financed through an EU fund, in line with the idea of subsidiarity. It should co-exist with uniform pricing of all greenhouse gas emissions.

Axioglou, Wozniak, 18 January 2022

Shortages in material and equipment weighed heavily on activity and sentiment in the European economy in 2021. This column uses cross-country and cross-sector data from the European Commission’s Business and Consumer Surveys and finds a strong negative relationship between shortages and industrial output. Shortages appear to have detracted some 5 percentage points from the EU manufacturing output growth between January and October 2021. Output losses are heavily concentrated in Germany (around half of the impact) and in a handful of sectors, with the EU-wide motor vehicle and machinery and equipment sectors accounting for a third of the impact. 

Bergeaud, Eymeoud, Garcia, Henricot, 18 January 2022

As employers and employees established ways of working remotely to limit physical interaction during outbreaks of Covid-19, teleworking became increasingly routine. This column examines how corporate real-estate market participants adjusted to the growth of teleworking in France, and finds that it has already made a noticeable difference in office markets. In départements more exposed to telework, the pandemic prompted higher vacancy rates, less construction, and lower prices. Forward-looking indicators suggest that market participants believe the shift to teleworking will endure.

Ehrmann, Holton, Kedan, Phelan, 17 January 2022

Central bank communication, like monetary policy itself, has evolved significantly since the global financial crisis. This column reports on a survey among former ECB policymakers on the ECB’s monetary policy communication, which provides broad support for recent innovations in communication practices and suggests that communication with expert audiences is generally adequate. Nevertheless, it highlights some room for improvement along several dimensions, in particular related to communication with the wider public.

Agresti, Calvino, Criscuolo, Manaresi, Verlhac, 17 January 2022

Business dynamism is key for creative destruction and to foster resource reallocation – both crucial elements of long-run economic growth. This column uses a new data visualisation tool to reveal large sector- and country-level heterogeneity in the impact on business dynamism of the COVID-19 crisis in 2020 and in recovery. Initially, firm entry fell sharply in all countries, but the pace of recovery varied across countries. Bankruptcies fell and remained below pre-crisis levels well into 2021. The tool allows users to monitor the evolution of key indicators over the recovery period, keeping track of sector-specific patterns.

Itskhoki, Mukhin, 17 January 2022

The Mussa puzzle refers to the existence of a large and sudden jump in the volatility of the real exchange rate after the adoption of a floating exchange rate regime in 1973. It is a central piece of evidence in favour of monetary non-neutrality. In contrast to conventional wisdom, this column argues that the puzzle cannot be explained with sticky prices, and instead provides strong evidence in favour of monetary transmission via the financial market. This has important consequences for the design of optimal monetary and exchange rate policy.

Prati, Chanel, Raux, 16 January 2022

Each year, the ‘international job market for economists’ involves over 1,000 junior candidates and several hundred recruiters from all over the world meeting for short pre-screening interviews at annual congresses in Europe and in the US, thus generating a momentous and avoidable global hypermobility. This column argues it is time to reassess this unsustainable recruitment system and estimates the carbon footprint of alternative systems.

Gaynor, Sacarny, Sadun, Syverson, Venkatesh, 16 January 2022

Despite the current wave of US hospital mergers, it is unclear how they change behaviour and performance. This column ‘opens the black box’ of hospital practices by analysing a mega-merger between two for-profit chains. Benchmarking the merger’s actual effects against the acquirer’s stated aims, its shows that while the merger achieved some goals – harmonising electronic medical records and sending managers to target hospitals – it produced few gains in overall performance. Further research is needed into the impact of mergers on the healthcare industry specifically and the economy more broadly.

D'Amico, Giavazzi, Guerrieri, Lorenzoni, Weymuller, 15 January 2022

In January 2023, the escape clause triggered to suspend the rules of the Stability and Growth Pact will expire, possibly forcing painful fiscal adjustments in countries that are already struggling with the impact of the pandemic. In this second column in a two-part series, the authors focus on the debt management aspect of their proposal to strengthen the European fiscal framework. They argue for moving a portion of national debts under the umbrella of a European Debt Management Agency, with the aim of reducing debt costs for the whole Union and helping the operations of the ECB in debt markets.

Stanton, Thomas, 15 January 2022

The gig economy and online labour platforms often trade off increased flexibility for lower employment security. This column uses a structural model and data from an online platform to study the effects of counterfactual policies on worker and employer surplus. It finds evidence of significant bid tailoring by workers depending on their application order and shows that employers are highly sensitive to wage bids received on past job postings. Ultimately, it shows that traditional labour market regulations, such as minimum wages or payroll taxes, are likely to harm both the demand and supply side in the online gig economy.

D'Amico, Giavazzi, Guerrieri, Lorenzoni, Weymuller, 14 January 2022

Over the last few years, there has been a growing consensus that the current rules of the Stability and Growth Pact are outdated, too complicated, and not countercyclical enough. The authors of this column present a proposal to strengthen the European fiscal framework based on two elements: a revision of the fiscal rules, and a plan to create a European Debt Agency to absorb the debt accumulated during the pandemic. This first of two parts focuses on the fiscal rules and proposes setting a ceiling on the growth rate of primary spending, to be revised over three-year intervals, targeting debt reduction over a ten-year horizon.

Yuchtman, 14 January 2022

The Chinese government isn't just a world leader in the use of AI for facial recognition, its orders are funding innovation in its domestic industry too. But what's good news for entrepreneurs may be bad news for political protest, Noam Yuchtman tells Tim Phillips.

Read more about the research behind this podcast and download the free DP:
Beraja, M, Kao, A, Yang, D and Yuchtman, N. 2021. 'AI-tocracy'. CEPR

Kumhof, Tideman, Hudson, Goodhart, 14 January 2022

Land’s share in economies’ nonfinancial assets equals between 40% and 60%, and in the US currently equals over 50%. This constitutes a very large base for a non-distortionary tax. This column suggests that a 5-percentage point or larger increase in the tax rate on the value of US land, excluding buildings and equipment situated on the land, balanced by decreases in the tax rates on incomes from labour and from buildings and equipment (and in the limit by their complete elimination), would increase output by 15% to 25%.

Garicano, 14 January 2022

The EU’s current fiscal framework has failed to fully deliver on both its goals: ensuring long-term discipline and facilitating a countercyclical fiscal stance. This column argues that the political difficulties of agreeing on a comprehensive Stability and Growth Pact reform can be side-stepped by allowing the Pact to remain in place while attracting countries into a parallel system. The author proposes the establishment of a new European Climate Investment Facility to provide grants and loans to fight climate change until 2050, when the Union must reach net zero emissions, and an independent European Fiscal Agency to assess the good standing of member states to access this new facility.

König, Song, Storesletten, Zilibotti, 14 January 2022

China is aiming to become a technological innovation powerhouse by 2050, with Premier Li Keqiang recently announcing an increase in R&D investments by 7% for the next five years. But greater R&D investment is no guarantee of success. This column examines the effects of R&D investments by Chinese firms on aggregate productivity and growth. The authors find that while innovation plays an important role in China’s growth process, the productivity of innovation could be substantially enhanced by reducing distortions in the economy, and further stimulating R&D expenditure is neither necessary nor sufficient to sustain growth.

Danielsson, Valenzuela, Zer, 13 January 2022

The relationship between financial risk and economic growth is complex. This column finds that perceptions of high risk unambiguously harm growth, while perceived low risk has an initial positive impact, which eventually turns negative. Global risk has a stronger effect on growth than local risk, via its impact on capital flows, investment, and debt-issuer quality, challenging monetary policy independence.

Eberly, Haskel, Mizen, 13 January 2022

The impact of an economic shock depends both on its severity and the resilience of the response. The COVID-19 pandemic caused a widespread decline in recorded GDP, but this was buffered by an unprecedented and spontaneous deployment of ‘potential capital’ – the dwelling/residential capital and connective technologies used while working from home. This column estimates that together, potential capital and labour working from home provided additional output margins and capacity which roughly halved the decline in GDP in the US and revises downwards the estimated total productivity gains in the business sector during the pandemic.

Grossman, Oberfield, 13 January 2022

After a century of stability, the labour share of national income began to decline around 2000 in the US and many other countries. This column reviews the growing literature examining the potential reasons for the decline of the labour share, which include (1) capital-biased technical change, (2) globalisation and the rise of China, (3) increasing industry concentration and market power, (4) unionisation, and (5) population growth. The column also discusses pitfalls associated with common empirical strategies in the literature and suggests that more work is needed to understand fundamental, rather than proximate, causes of the decline. 

Davies, Hallward-Driemeier, Nayyar, 12 January 2022

Conventional wisdom is pessimistic about the prospects for services-led development, leading to worries about premature deindustrialisation. This column argues that the services sector deserves more credit for helping drive economic transformation than it generally receives. Using firm-level data from 20 developing economies, the authors find that while services establishments are smaller than manufacturing establishments, this matters less for their productivity. Services firms can scale up without sizing up through investments in human and other more intangible forms of capital can leverage the diffusion of digital technologies. 

Freeman, Larch, Theodorakopoulos, Yotov, 12 January 2022

Most economists rely on the structural gravity model to analyse the impact of trade policies on bilateral trade flows. However, while the gravity model is well suited to examine the impact of bilateral trade costs, it is poorly equipped to estimate the impact of country-specific policies. This is problematic, as in practice many policy-relevant trade costs are country-specific. This column proposes a solution to this problem and discusses new methods to identify the full impact of country-specific characteristics within the structural gravity framework. A useful by-product of the methods is that they deliver disaggregate trade elasticity estimates without the need for price/tariff data.

Gorodnichenko, Sergeyev, 11 January 2022

Inflation expectations affect the decisions of households, firms, and policymakers. Expectations of negative inflation can be particularly harmful and lead to deflationary spirals when nominal interest rates are near zero. This column uses survey evidence to show that households and firms almost never expect deflation, even when it is a clear possibility. This apparent zero lower bound on inflation expectations has important implications for macroeconomic dynamics and the effectiveness of monetary policy. Unconventional policies, such as forward guidance, which aim to increase inflation expectations may be less effective when expectations are stuck at the zero lower bound. 

Bryson, Blanchflower, 11 January 2022

Pulse rates have been overlooked as a potentially valuable way of capturing individuals’ wellbeing. The value of pulse rate as a wellbeing metric is that, unlike subjective wellbeing metrics, it is recorded on an objective cardinal scale. This column uses empirical analyses of the English and Scottish Health Surveys and the 1958 National Child Development Study to show pulse is highly correlated with subjective wellbeing, that pulse equations look very similar to those for subjective wellbeing, and that pulse is predictive of subjective wellbeing and labour market outcomes later in life.

Giorcelli, Li, 10 January 2022

Understanding which industrial policies work is important to promote the development of poorer countries. This column examines the effects of technology and knowledge transfers on early industrial development, using evidence from the Sino-Soviet Alliance in the 1950s. The authors find that simultaneously receiving technologically advanced capital goods and know-how transfer had large, persistent effects on plant performance, while the effects of receiving capital only were short-lived. The know-how component was essential to generate horizontal and vertical spillovers and production reallocation from state-owned to privately owned companies since the late 1990s.

Affeldt, Duso, Gugler, Piechucka, 10 January 2022

The majority of large horizontal mergers are unconditionally cleared by antitrust authorities. Since most horizontal mergers generate incentives to increase prices and/or reduce output, the presumption seems to be that the resulting efficiencies must be sizeable to make them good for consumers. This column uses a novel database covering over 1,000 mergers scrutinised by the European Commission and shows that, under certain assumptions, compensating efficiencies appear too large to be achievable for a large part of the mergers in the sample. The Commission's view on required efficiencies might have been too optimistic and it appears to have been too lax in enforcing its merger policy.

Aksoy, Carpenter, De Haas, Dolls, Windsteiger, 09 January 2022

Progress in rights for homosexual and bisexual individuals has varied substantially across the world. This column uses an information treatment experiment to examine the determinants of support for sexual minorities in three countries with some of the lowest rates of social acceptance in Europe – Serbia, Turkey, and Ukraine. It finds that when informed about the economic costs of discrimination, individuals in countries with strong views about the immorality of homosexuality can still voice support for non-discrimination policies. In addition, views about the acceptability of homosexuality itself can be modestly affected by the provision of basic information, particularly when framed in the context of institutions that people trust.

Cuevas Rumin, Cuevas Rumin, Desmet, Ortuño-Ortin, 08 January 2022

Are preference differences between men and women attenuated or accentuated in more gender-equal societies? Using information on the shares of male and female Facebook users that are interested in over 45,000 different topics, this column finds that differences are larger in gender-equal societies for interests that are systematically biased towards the same gender across the globe (such as football, war, or children), while the opposite is true for interests that do not show a gender bias (such as fitness, travel, or horses). These contrasting results are consistent with both evolutionary psychology and social role theory.

Guillouet, Khandelwal, Macchiavello, Teachout, 07 January 2022

Developing countries regularly use financial incentives to attract multinational companies in the hope of stimulating knowledge transfers and positive spillovers. This column analyses the role of language frictions in impeding transfers of management knowledge within multinationals using survey and experimental evidence from Myanmar. It finds that potential employers value higher English efficiency and prior multinational experience, and an English language course treatment is shown to improve the English ability of domestic managers, increase their interactions with foreign managers, and increase their involvement in the management of company personnel. 

Bindseil, Papsdorf, Schaaf, 07 January 2022

Bitcoin’s market capitalisation reached new peaks in November 2021. This column suggests it is hard to find arguments supporting the cryptocurrency’s current valuation. Even if the financial stability risks of a Bitcoin collapse could be contained, the burst of the bubble would imply painful losses for many retail investors and society at large. The authors conclude that public authorities should refrain from taking measures supporting additional investment flows into Bitcoin and should treat it as rigorously as the conventional financial industry to combat illicit payments, money laundering, and terrorist financing. 

Desmet, 07 January 2022

Are the differences between what men and women like decided at birth, or do we learn to prefer different things? Klaus Desmet tells Tim Phillips about new research that investigates global patterns in 45,397 Facebook interests.

Read more and download the free DP behind this podcast:
Cuevas Rumin, R, Cuevas Rumin, A, Desmet, K and Ortuño-Ortín, I. 2021. 'The Gender Gap in Preferences: Evidence from 45,397 Facebook Interests'. CEPR

Agan, Cowgill, Gee, 06 January 2022

Salary history bans are increasingly popular in the US. Using a field experiment to investigate how salary history disclosures impact employer demand, this column finds that disclosing a high salary is often a signal of quality and yields higher salary offers. However, higher salaries can also make candidates too expensive to justify a callback. The authors find evidence that such policies can equalise some outcomes across genders, but sometimes as a result of reductions for men rather than raises for women.

Broer, Druedahl, Harmenberg, Öberg, 06 January 2022

Early signs of a recession can lead to a negative feedback loop, with workers' concerns about unemployment dampening demand and thus deepening the recession. This column uses a heterogeneous agent model to quantify the importance of the ‘unemployment-risk’ channel for business cycle fluctuations in the US economy. It shows that the channel accounts for around one-third of observed unemployment fluctuations. As the demand amplification through precautionary savings is inefficient, this finding provides an additional rationale for stabilisation policies by policymakers. 

Nano, Stolzenburg, 05 January 2022

The role of global value chains for development is often told from a manufacturing or agriculture perspective. This column discusses how the rise of global services value chains offers developing countries with new opportunities by providing jobs, revenue, and productivity growth. In addition, they do so in a more inclusive way than manufacturing. Policymakers need to invest in human capital and address regulatory barriers to services trade to make the most of this development.

van Bergeijk, 05 January 2022

The use of economic sanctions as a foreign policy tool has increased sharply over the past decade. Drawing a comparison with the first sanction decade of the 1990s, this column analyses the drivers of the recent sanction wave and argues that the increased use of economic sanctions will be sustained in the foreseeable future.

Taneja, Mizen, Bloom, 04 January 2022

COVID-19 resulted in a shift towards working from home. This column discusses the findings of a survey of over 2,000 UK working adults, which suggest that online meetings are more efficient for smaller gatherings of 2 to 4 people, while in-person meetings are preferred for gatherings of 10 or more. Online efficiency is also dependent on demographics, with women and more educated employees reporting that online meetings are relatively more efficient. Unsurprisingly, employees who work from home more and with good internet quality also report higher relative online meeting efficiency. 

Daysal, Ding, Rossin-Slater, Schwandt, 04 January 2022

Pandemics have a major impact on households and the economy. But how common endemic viruses affect long-term population human capital and economic outcomes is not well understood. This column uses data from Denmark to explore the mechanisms and consequences of a child’s exposure to respiratory disease in early life. Younger siblings have two to three-times higher rates of hospitalisation for respiratory conditions during their first year of life compared to older siblings. The family unit plays a central role in virus transmission and birth order can influence children’s longer-term outcomes.

D'Acunto, Weber, 04 January 2022

Commentators and policymakers are deeply divided about the causes, consequences, and persistence of the surge in inflation around the world as the economic activities resume after the COVID-19-induced closures. This column discusses how recent research on the dynamics of inflation and inflation expectations inform the policy debate. Consumers’ inflation expectations are an important missing piece in the puzzle policymakers are trying to solve. To avoid the self-fulfilling prophecy of inflation, central bankers might seek to communicate directly also with ordinary consumers, rather than only with financial market experts, and convince them that price increases will only be temporary.


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