March 2022

Korn, Stemmler, 31 March 2022

The war Russia is waging against Ukraine has already halted most of Ukraine’s production capabilities. Similarly, the sanctions raised against Russia by the international community end decades of economic cooperation across several economic sectors. This column draws on empirical evidence from over two decades of civil wars across the world to inform the debate on how international supply chains will adjust to the economic disruptions brought by violence, and how likely it is that the international economy will ever return to the pre-war situation.

Feld, Reuter, 31 March 2022

Debt ratios of EMU member states, which were already high in some cases, have increased significantly during the pandemic. This column argues that the current review of the European fiscal framework should not only discuss the design of the framework, but also how to strengthen enforcement and increase compliance with the fiscal rules. Increasing the political costs of non-compliance – through a reduction of complexity of the framework, an increase in national ownership and transparency, as well as simplicity of assessment – could help achieve this. Adding more flexibility, exceptions, and discretionary judgement would be counterproductive.

Harcourt, 31 March 2022

The Australian economist Geoff Harcourt, a leading light of post-Keynesian economics, capital theory and economic thought, passed away in December 2021. This column, written by his son and fellow economist Tim Harcourt, outlines his life and times, including many contributions to both economic analysis and economic policymaking. Geoff regarded himself as “a Cambridge economist and an Australian patriot” and, as Tim says, “he reached his production possibility frontier in all aspects life – both professional and personal – and shared his knowledge and love with all”. 

Gros, 30 March 2022

In the search for additional sanctions against Russia, one idea which is often discussed is for the EU, or individual Member States, to ban imports of Russian gas. The economic consequences of such a step would be very severe in the short run. This column makes the case for an alternative measure that would minimise economic disruptions and which would have a strong impact on the revenues flowing to Russia – a special import tariff on Russian gas.

Frattini, Solmone, 30 March 2022

More than three million Ukrainians have left their country since the start of the war on 24 February. Due to mandatory conscription of men in Ukraine, the majority of these refugees are women and children. This column explores the labour market integration of immigrant women in Europe using data from the past two decades. It shows that immigrant women face a double disadvantage determined by both their gender and immigration status, and their labour market outcomes have not improved over time. These disadvantages should be considered when designing policies to increase labour market participation and success. 

Kitao, Mikoshiba, 30 March 2022

Japan ranks 120th among 156 countries in terms of its gender gap, with women earning significantly less than men. This column uses survey data to investigate the employment and earnings dynamics of women in Japan over their life-cycle, and finds that tax exemptions and social insurance benefits for low-income spouses significantly dampen women’s labour supply and earnings. There is a significant room to improve women’s participation and earnings by removing the fiscal policies that disincentivise work and skill accumulation. The policy changes would also mean that the government could raise more tax revenues without causing a welfare loss.

Ha, Kose, Ohnsorge, 30 March 2022

The recent commodity price surge, in the wake of Russia’s invasion of Ukraine, has exacerbated already elevated inflationary pressures. A new CEPR Policy Insight argues that over the medium term, as recent shocks unwind, inflation is expected to ease back towards targets, but the Great Inflation of the 1970s is a reminder of the material risks to this outlook. As inflation remains elevated, the risk is growing that, to bring inflation back to target, advanced economy central banks will once again need to undertake a much more forceful policy response than currently anticipated. 

Mihailov, 29 March 2022

In response to sanctions imposed on Russia following the invasion of Ukraine, President Putin recently announced that ‘unfriendly’ countries would have to pay for Russian gas (and perhaps oil in the future) in roubles. This column discusses the possible reasons for the announcement and the potential economic and financial implications if Putin were to follow through on it. 

Bekkers, Góes, 29 March 2022

The war in Ukraine and the sanctions imposed on Russia have intensified the debate on the economic repercussions of a shift in global trade policy focus from mutual economic benefits of open trade policies to geopolitical considerations limiting interdependence. This column finds that a potential decoupling of the global trading system into two blocs – a US-centric and a China-centric bloc – would reduce global welfare in 2040 compared to a baseline by about 5%. Losses would be largest (more than 10%) in low-income regions that benefit most from positive technology spillovers from trade.

Becker, 29 March 2022

Millions of people have fled Ukraine as a result of Russia’s invasion in February 2022. This column argues that the massive refugee flow requires a united response from European countries, including the UK. Beyond providing shelter and food, it emphasises the importance of access to education for refugees. Episodes of forced migration following WWII underscore the importance of human capital accumulation. Ultimately, providing timely access to education can be a silver lining of forced migration, allowing refugees to invest in a brighter future. 

van Bergeijk, 28 March 2022

The sanctions against Russian have been described as “unprecedented”. This column argues that this is not the case, and neither is the current sanctions packet sufficient to realistically expect that they will work, as sanctions against military adventures have a significantly lower probability of success. The weak 2014 sanctions against Russia’s annexation of the Crimea reduced the credibility of broad-based EU sanctions and or the threat of scaling up targeted sanctions. The West could do better by including an embargo on capital goods and a boycott of Russian energy.

Grosjean, 28 March 2022

Conflict durably shapes how individuals view the state and interact with each other. This column uses data from more than 35,000 individuals in 35 countries to show how conflict victimisation in WWII left a negative imprint on levels of political trust throughout Europe and Central Asia that has persisted over generations. The author also finds a lasting impact of pre-WWI empires on political trust and democratic capital that varies even across regions that have since been integrated into the same country. The findings have implications for Ukraine, a country that experienced both a divided history and some of the highest victimisation rates in WWII. 

Bolhuis, Cramer, Summers, 28 March 2022

Many believe that the current elevated inflation in the US will subside as a range of factors associated with bottlenecks in the goods sector are alleviated. This column argues that the way that residential services inflation is measured and the characteristics of the housing market kept inflation down in 2021 despite large increases in real-time private sector measures. These past increases ensure an uptick in recorded housing inflation in 2022. The authors project that that residential inflation will peak in late 2022, but it will remain elevated in 2023 and that this could make a substantial contribution to overall inflation.

Porzio, Rossi, 28 March 2022

Traditional theories explain structural transformation by the decline in the relative demand for agricultural labour over the last two centuries. This column focuses on the ‘human side’ and argues that the relative supply of labour is another important driver. Using data for 52 countries, it shows that an increase in schooling led to a sharp reduction in the agricultural labour supply by equipping younger cohorts with skills more valued outside of agriculture and making them be less willing to stay on the farm. Governments might consider educational policies to accelerate the process of structural transformation, and thus economic development.

Fumagalli, Motta, Tarantino, 27 March 2022

The acquisition of potential competitors is a widespread phenomenon. This may be anti-competitive, as the incumbent kills off potential future competition, or welfare-improving, such as by easing financial constraints for the target. This column provides a framework to trade-off these effects. The authors find that antitrust agencies should prohibit takeovers whose transaction price is particularly high, as the high price signals that the takeover is not indispensable to the target firm’s success. This provides support for the proposals made by antitrust agencies to revise the current laissez-faire approach to mergers in digital markets.

Bellora, Fontagné, 26 March 2022

The proposed European Carbon Border Adjustment Mechanism seeks to curb carbon leakage, which undermines the EU’s ambitious goal of climate neutrality by 2050. This column explores whether the mechanism succeed in reducing carbon leakage, while at the same time restoring a level playing field for EU producers and minimising the likelihood of WTO panels or retaliation by trading partners. The authors argue that the mechanism will significantly curb European carbon leakages, but at a cost. EU member states will need at the very least to agree on how to end free allowances to be compatible with the WTO.

Hansen, Mano, 25 March 2022

The rollout of COVID-19 vaccines has led some observers to conjecture the return of the Roaring Twenties as consumers go back to the shops and workers to their offices. This column presents evidence of how the COVID-19 vaccine rollout in the US increased consumer spending and reduced initial unemployment claims as a share of the labour force. The effect of vaccinations has been greater in counties in urban settings, with worse initial socioeconomic conditions, and with lower education levels. These results imply that the vaccine rollout added 0.27 percentage points to US GDP growth in 2021 through the direct impact on consumption alone.

Erce, Mallucci, Picarelli, 25 March 2022

The debt jurisdiction affects a government’s ability to restructure its debt, is key to shaping the restructuring process, and affects the timing and conditions of market access. This column introduces a new database that codes sovereign defaults according to the legal jurisdiction governing the debt instruments. The database offers an overview of the last four decades of sovereign default on debt governed domestically. These data can be useful both for theorists in the need to calibrate their quantitative models and for policymakers facing the consequences of the pandemic.

Bachmann, Baqaee, Bayer, Kuhn, Löschel, Moll, Peichl, Pittel, Schularick, 25 March 2022

Germany depends on Russia for about one-third of its total energy consumption. If it is cut off from Russian energy imports, Germany will need to compensate through alternative supply sources, fuel shifting and economic reallocation, or demand reduction. The macroeconomic fallout would depend on how much the production structure can adjust and how substitutable the imports from Russia are by imports from other suppliers. This column shows that the effects of an estimated 30% shortfall of gas supplies are likely to be substantial but manageable, with a GDP decline in the range of 0.5% to 3%.  

Harrison, 25 March 2022

Economic warfare, including blockades of essential goods and bombings of industry, was widely used in WWII but with limited impact. This column explores Mançur Olson’s explanation, which is underpinned by the elementary economic concept of substitution. Olson argued that there are no essential goods; there are only essential uses, which can generally be supplied in many ways. This has sweeping implications for the use of economic sanctions, which can be applied to the present context of Russia’s aggression against Ukraine.

Skok, 25 March 2022

Are the Ukrainian economy and financial system holding up to Russia's bombardment? Yevhenii Skok tells Tim Phillips whether emergency policies have been able to maintain liquidity and financial stability, how much damage has been done to Ukraine's productive capacity, and what a post-war financial rebuild would look like.

Part of a series of commentaries on the economic consequences of the conflict in Ukraine.

Coviello, Guglielmo, Lotti, Spagnolo, 24 March 2022

Rules constraining bureaucratic discretion may limit the misuse of public funds but may also hinder government performance. Using Italian public works data, this column examines the prevalence and impact of procuring administrations manipulating the value of contracts. The authors find evidence suggesting that appointed administrations violate procedural rules to manipulate the value of contracts to retain discretion, and do it often enough to establish repeated interactions with less risky and better-performing suppliers so that, on average, procurement outcomes improve. They find no manipulation (and poorer procurement outcomes) for elected administrations, possibly due to stronger electoral discipline. 

Muellbauer, Aron, 24 March 2022

A key common feature of the global climate crisis and the Global Financial Crisis (GFC) lies in destabilising feedback loops. This column identifies and compares these highly non-linear processes, with lessons for policymakers and modellers. The cascades and contagion of the financial accelerator have climate parallels. Absent decisive action, accumulating greenhouse gases, in raising global temperatures, will lead to more carbon release and even higher temperatures, ultimately rendering much of the planet uninhabitable. Russia’s war creates immediate separate crises for the financial and global climate systems. By delaying approaches to net zero, their linkages increase future financial stability risks.

Albuquerque, Green, 23 March 2022

How would you respond to a one-off change in your income? For example, how would you react to someone handing you £500? Throughout the pandemic a large group of UK households were asked this hypothetical question in a survey. Households were also asked about their debt, savings, and expectations for the future, giving us an opportunity to unpick their responses. We might expect households who are concerned about their financial future to be less eager to spend, preferring to save up for rainier days. The authors of this column find the opposite result: concerned households would spend around 20% more than others.

Hoekman, Taş, 23 March 2022

Does international best practice public procurement regulation designed to maximise ‘value for money’ make it more difficult for smaller firms to win contracts? Using European procurement contract data, this column finds that higher quality regulation is associated with greater SME participation and higher probability that SMEs win contracts. Dividing contracts into smaller lots bolsters participation by SMEs, but only increases the probability of SMEs winning contracts for small-value lots (less than €25,000). The results suggest governments can enhance participation by SMEs in public procurement by improving the overall quality of procurement processes

Chaney, Gollier, Philippon, Portes, 22 March 2022

The financial and economic sanctions so far imposed on Russia to force it to end its invasion of Ukraine have not yet had the desired impact. This column argues that cutting off the financing of the Russian aggression is essential and requires immediately banning imports of Russian oil and taxing imports of Russian gas, while cushioning the shock of these measures on households, especially those with low incomes.

Morikawa, 22 March 2022

Since the onset of the COVID-19 pandemic, the number of people working from home has increased rapidly. However, the productivity of working from home is not yet well understood. This column explores the changes in prevalence, frequency, and productivity of working from home in Japan over a year of the pandemic. Fewer workers were working from home in 2021 compared to 2020. While the productivity of working from home has improved, it is still lower than the productivity of working at the office.

Kolsrud, Landais, Reck, Spinnewijn, 22 March 2022

Over the past two decades, many countries have reformed their public pension systems in pursuit of desirable fiscal effects, often by introducing or strengthening incentives for later retirement. However, the welfare effects of such interventions are still poorly understood. Using Swedish administrative data, this column uncovers significant redistributive costs of pension reforms that incentivise later retirement, especially when it comes to incentivising later retirement at very early and late retirement ages. Policymakers should consider not only the fiscal benefits of incentivising later retirement, but also the redistributive costs.

Blanchard, Tirole, 21 March 2022

A report generated by a commission of 24 distinguished economists focuses on three structural challenges for the global economy. The column sets out some of the conclusions. While the challenges of climate change, inequality and demographic change are significant, solutions – though sometimes expensive or unpalatable – exist.

Berner, Cecchetti, Schoenholtz, 21 March 2022

The sanctions on Russia in response to its invasion of Ukraine are the most powerful and costly punishments imposed on a major economy at least since the Cold War. This column poses and provisionally answers a series of questions raised by the sanction regime, covering issues such as secondary sanctions, Russia’s supposed ‘war chest’ of currency reserves, the roles of SWIFT and crypto, Russia’s options for retaliation, and the potential for systemic risk arising from the sanctions and any retaliation.

Snower, 21 March 2022

Russia’s invasion of Ukraine appears to have laid the old world order to rest. This column argues that we now stand at a crossroads. To guide us to a Benign Anthropocene that mobilises a transnational collective spirit for addressing the major global problems of our time – instead of a Toxic Anthropocene marked by deglobalisation, a collapse of global collective action, retreat into nationalisms, environmental collapse, and the rising danger of large wars – we need to ensure that the narratives underlying our actions are constructive, rather than destructive.

Dutz, Huitfeldt, Lacouture, Mogstad, Torgovitsky, van Dijk, 21 March 2022

Surveys are a crucial source of information for many important policy decisions. Yet, little is known about the extent to which different biases affect conclusions drawn from such data, and what we can do about them. Using survey data linked to administrative data, this column shows that a particular type of bias – nonresponse bias – can be large. The authors develop methods to detect and correct for nonresponse bias, which rely on simple changes to widely used survey designs.

Higashida, Ishikawa, Tarui, 20 March 2022

Existing studies of the impact of carbon pricing on carbon emissions typically ignore the role played by international transportation. This column provides a framework to assess the importance of this sector for carbon leakage across borders and across sectors. The authors identify the importance of asymmetric trade volumes on shipping routes, and the interplay between transportation costs and foreign direct investment choices, in determining the amount of carbon leakage. This shows the need to understand the market environment when designing carbon pricing policies. 

Feyen, Kawashima, Mittal, 19 March 2022

Crypto-asset holdings and transaction volumes have grown rapidly around the world, and crypto assets are increasingly regarded as an emerging asset class. This column finds that transaction volumes across countries appear to be driven by globally relevant factors such as US longer-term inflation expectations, US real Treasury yields, and gold and crypto-asset prices, rather than recent country-level macroeconomic developments. Volumes also tend to be higher in countries with higher information and communications technology penetration and greater reliance on remittances.

Arold, Woessmann, Zierow, 18 March 2022

Does compulsory religious education make us more likely to believe as adults, and does it make us more ethical? Ludger Woessmann, Larissa Zierow, and Benjamin Arold explain to Tim Phillips what educational reform in Germany can tell us.

Goodhart, Peiris, Tsomocos, Wang, 18 March 2022

The COVID-19 pandemic has coincided with a further rapid increase in corporate indebtedness. This column argues that high levels of corporate debt may distort the transmission of monetary policy and make contractionary monetary policy less effective in controlling inflation. Consequently, the trade-off between inflation stabilisation and output stabilisation becomes more problematic when there is a large volume of corporate debt in the economy. 

Kotz, Birshan, Russell, 18 March 2022

There is ongoing debate over how to judge a company's performance beyond profits alone. This column devises a way of accounting for who benefits from a company's value creation and why. The authors identify eight pathways through which economic value from corporations flows to households and the economy, and how these have evolved over the past 25 years. The analysis also suggests a growing disparity between types of companies in terms of their impacts on the eight pathways.

Skok, de Groot, 17 March 2022

The war in Ukraine is a humanitarian catastrophe, but how has the Ukrainian economy held up? This column examines the policies by the National Bank of Ukraine and the international financial community to maintain liquidity and financial stability in the country. It provides a brief monetary history of Ukraine, documents the policy actions of the past few weeks, and explores the challenges ahead.

Diamond, Moretti, 17 March 2022

Over the last three decades there has been increased polarisation in income among US communities, but how the standard of living varies across communities is not clear. This column uses transaction data for three million households to examine standards of living – in terms of consumption – in cities across the US by income and education, and how they relate to the local cost of living. For college-educated households, expensive cities offer incomes high enough to offset the higher cost of living and taxes. For less-educated households, expensive cities offer a standard of living that is systematically below that in affordable cities.

Domash, Summers, 17 March 2022

Since the beginning of the pandemic, labour market indicators have been sending different signals about the degree of slack in the US labour market. This column uses time-series and cross-section data to show that firm-side unemployment – a measure that ties together the unemployment rate with the vacancy and quits rate – predicts wage inflation better than the unemployment rate or the employment ratio, and that firm-side unemployment currently experienced in the US corresponds to a degree of tightness previously associated with sub 2% unemployment. The findings suggest that labour markets in the US are extremely tight and will likely contribute to inflationary pressures for some time to come. 

Thygesen, Beetsma, Bordignon, Debrun, Szczurek, Larch, Busse, Gabrijelcic, Jankovics, Malzubris, 16 March 2022

One of the key challenges for the next decade is how to facilitate the green transition. Governments are expected to scale up public investment, buffer the costs of more severe weather-related shocks, and deploy other fiscal tools in a way that facilitates a smooth private sector transition, as well as handle the unavoidable distributive effects of a higher carbon price. This column discusses this year’s conference of the European Fiscal Board, at which a prominent line-up of speakers had an open and inspiring exchange on how the greening challenge could be addressed in the future of the EU fiscal framework. 

Celasun, Hansen, Spector, Mineshima, Zhou, 16 March 2022

The Covid-19 pandemic has led to strong increases in goods demand and concurrent supply disruptions to production and distribution. This column uses data from 30 countries to show that in 2021, supply shocks had a negative impact on manufacturing output, while demand shocks had a positive impact. In contrast, both contributed to higher manufacturing goods prices. Furthermore, there is substantial diversity in the magnitude of these effects across countries and sectors. Policymakers should seek to address specific supply bottlenecks and minimise the scarring from prolonged weakness to manufacturing activity. 

Kainou, 16 March 2022

The Clean Development Mechanism under the Kyoto Protocol is the world’s first international carbon finance scheme. Companies can acquire tradeable certified emission reduction credits by investing in energy conservation and new energy projects in developing countries. Despite its early success, the scheme collapsed following a ‘carbon panic’ in 2012. This column reviews the collapse of the mechanism and its spillovers on Paris Agreement negotiations. While the scheme was unexpectedly revived thanks to interest from the US and developing countries, carbon financing remains structurally prone to panic.

di Giovanni, García-Santana, Jeenas, Moral-Benito, Pijoan-Mas, 15 March 2022

Whether the allocation of public procurement contracts should target small firms is the subject of active policy debate. This column uses firm-level evidence and a macroeconomic model to show that granting public procurement contracts to small firms may help them accumulate assets and overcome their financial constraints in the long run, but the reallocation of projects may damage the saving incentives of larger firms. Specific details on how procurement policies are implemented at the firm level are crucial for understanding their macroeconomic impact.

de Bromhead, Lyons, 15 March 2022

The world is becoming increasingly urban, raising questions about population redistribution and the sustainability of policies aimed at stemming the tide of rural depopulation. This column measures the impact of the world’s first large-scale rural public housing scheme on the long-term dynamics of population change. The authors find that Ireland’s Labourers Acts – which subsidised the construction of nearly 50,000 cottages for agricultural labourers between 1883 and 1915 – helped to reduce depopulation of the countryside but was unable to arrest the decline completely. 

Beetsma, Cimadomo, van Spronsen, 14 March 2022

The global crisis and Covid-19 pandemic highlighted the limitations of the European Economic and Monetary Union, particularly the lack of a fiscal union for cross-border risk sharing. This column proposes a central fiscal capacity for the euro area in which transfers to/from regions are driven by euro-area, country-specific, and region-specific shocks. The scheme can produce substantial stabilisation of regional growth with a limited need for the system as a whole to borrow in any given year. The success of the current Recovery and Resilience Facility will be an important litmus test for such a broader central fiscal capacity.

Eggertsson, Lin, Platzer, Riva, 14 March 2022

The Fed recently introduced an average inflation targeting framework, in which past inflation shortfalls shape current policy. This column assesses this policy relative to alternatives in the context of the Covid-19 recession and recovery. The authors calibrate a simple New Keynesian model at the zero lower bound to replicate the Fed’s policy, finding that the new framework substantially reduced the US output contraction by about 40%. Alternative policies would have reduced the contraction by even more. The results suggest that the Fed places some weight on output stabilisation alongside inflation.

Calì, Presidente, 13 March 2022

Do automation technologies constitute an opportunity or a threat for developing countries? This column uses data on Indonesian manufacturing firms to document a positive impact on employment of adopting robots. This finding contrasts with the existing evidence of negative impacts in economies at relatively advanced stages of automation, and could be explained by diminishing returns to robots, given the relatively low robot adoption in Indonesia. 

Seiler, 12 March 2022

Until recently, central banks such as the ECB and the Swiss National Bank considered the current rise in inflation to be temporary, albeit more persistent than expected. This column uses survey data from Switzerland and a quasi-experimental research design to show that companies’ long-term inflation expectations have increased significantly following Russia’s invasion of Ukraine, especially in manufacturing. In this sector, higher energy and commodity prices prove particularly important in motivating price increases. These findings add to concerns about de-anchored inflation expectations and, as a result, more persistent inflationary pressures.

O'Brien, Palma, 12 March 2022

Special wartime monetary policies have successfully been used on numerous occasions throughout history. This column describes how the Bank of England played a decisive role in supporting the British economy during the French Wars of 1793-1815. Rapid increases in military expenditure during wartime were supported by liquid and low-inflation government financing as well as reputable management of debt levels. In this light, current sanctions on the Bank of Russia could lead to long-term changes to Russia’s economy and political system as well. 

Bertheau, Acabbi, Barceló, Gulyas, Lombardi, Saggio, 11 March 2022

Studying the consequences of job loss can help us understand the extent to which labour markets efficiently reallocate unemployed workers to new jobs. Using a dataset that combines administrative records from seven countries with diverse labour market institutions, this column finds that the consequences of losing one’s job vary across countries. Workers in Denmark and Sweden experience the lowest earnings declines following job loss, while workers in Italy, Spain, and Portugal experience losses three times as high. Labour market institutions have the potential to mitigate these differences.

Hazan, Weiss, 11 March 2022

Until the second half of the 19th century, coverture laws granted married men almost unlimited power over the household. Moshe Hazan and David Weiss tell Tim Phillips about how abolition changed the number of children in a family, and how well those children were educated?

Read more about the research behind this Vox Talk and download the free DP:
Hazan, M, Weiss, D and Zoabi, H. 2021. 'Women's Liberation, Household Revolution'. CEPR

Danielsson, 11 March 2022

The cryptocurrency exchanges have only done what is legally required of them when sanctioning Russia for its invasion of Ukraine, unlike the mainstream financial institutions whose restrictions on the Russians generally exceeds what is required by law. This column argues that the implications for the future of cryptocurrencies will be considerable.

Vaitilingam, 10 March 2022

What are the likely economic consequences of Russia’s invasion of Ukraine and the responses by the international community? The IGM Forum at Chicago Booth invited its panel of leading European and US economists to express their views. As this column reports, an overwhelming majority of the experts think that the economic and financial sanctions that have been implemented to date will lead to a deep recession in Russia; and nearly four in five consider that the fallout from the invasion will both reduce global growth and raise global inflation over the next year. A slightly smaller majority agree that a total ban on oil and gas imports from Russia carries a high risk of recession in European economies – although several suggest that the likely impact of such an energy embargo is a price worth paying. Finally, asked about the potential effects of the weaponising of dollar finance on its role as the dominant world currency, reactions are mixed.

Danielsson, Goodhart, Macrae, 10 March 2022

The Western countries have sanctioned Russia in a way not applied to any globally integrated major power in over a century, ever since 1914. This column argues that there are lessons to be learned from the 1914 systemic crisis and that high inflation and government debt will make it difficult to contain a crisis today if one emerges. 

Frey, Presidente, 10 March 2022

The EU implemented the General Data Protection Regulation in May 2018. This column examines its impact of it on firm performance. The findings show that companies exposed to the new regulation saw an 8% reduction in profits and a 2% decrease in sales. These adverse performance consequences were primarily borne by small and medium-sized enterprises. In contrast, there is no evidence that large technology companies, such as Facebook and Google, experienced any reductions in either sales or profits.

Chepeliev, Hertel, van der Mensbrugghe, 09 March 2022

In response to the invasion of Ukraine, most OECD countries have announced punishing sanctions against Russia. But the sanctions have so far failed to target Russia’s primary source of foreign exchange – exports of fossil fuels. This column argues that while the short-term impact of restricting Russia’s fossil fuel exports on EU households’ real income would be non-trivial, the longer-term cost would be more modest and would be offset by considerable environment co-benefits. Meanwhile, the adverse impacts on the Russian economy would be overwhelming.

Ostermeijer, Koster, van Ommeren, Nielsen, 08 March 2022

Cars have changed the way cities are organised. This column uses a sample of 123 cities in 57 countries to show that car ownership reduces the density of people and employment by allowing low-density expansion into the urban periphery. The findings have implications for cities in developing countries, where strong car ownership increases are expected in the near future. If these countries follow a similar path, their cities will be more spread out. This is likely to cause more traffic congestion, as lower-density areas tend to be more car-dependent. 

Brailovskaya, Dupas, Robinson, 08 March 2022

High-interest consumer digital credit has exploded in popularity in low-income countries. However, many fear that it is exploitative and a potential debt trap. This column analyses the welfare effects of access to digital credit in Malawi and reviews similar studies in Kenya and Nigeria. Digital credit does not appear to systematically improve lives, while the lack of transparency raises serious concerns about predatory lending.

Ferrario, Stantcheva, 08 March 2022

With growing evidence that Americans hold strongly polarised views on policies, it is increasingly important for researchers and policymakers to develop methods to listen to citizens with different backgrounds and to better understand their views. This column discusses how asking open-ended questions in surveys can shed light on the first-order considerations that come to people's minds by not limiting them to a set of answer options. Applying this method to data from surveys on income and estate taxes conducted in the US in 2019 reveals clear political differences in the saliency of topics.

Darvas, Wolff, 07 March 2022

The EU’s ambitious emissions reduction targets will require a major increase in green investments. This column considers options for increasing public green investment when major consolidations are needed after the fiscal support provided during the pandemic. The authors make the case for a green golden rule allowing green investment to be funded by deficits that would not count in the fiscal rules. Concerns about ‘greenwashing’ could be addressed through a narrow definition of green investments and strong institutional scrutiny, while countries with debt sustainability concerns could initially rely only on NGEU for their green investment.

Martínez García, Doehr, 06 March 2022

Since 2021, the Federal Reserve has been signalling an earlier lift-off and a steepened federal funds rate path to rein in inflation. This column assesses evidence from the US of the signalling and uncertainty effects of forward guidance announcements. At the zero lower bound, forward guidance news shocks can have significant and asymmetric impacts, and historical evidence suggests the importance of clear communication to effectively restrain inflation. The Fed’s evolving guidance on lift-off and the removal of accommodation therefore pose more difficult trade-offs than were previously understood. 

Garicano, 05 March 2022

Which economic sanctions against Russia are lawful, which are politically feasible, and which will bite? In the second of VoxEU's series of commentaries on the economic consequences of the conflict in Ukraine, Luis Garicano - economist and MEP - describes what has been done so far and what more can be done.

You can find slides from Luis Garicano's presentation, Economic Warfare:Raising the Pressure on Putin, for RenewEurope extraordinary group meeting 26/02/2022, here .

Ciminelli, Rogers, Wu, 05 March 2022

The capital flows literature does not distinguish between increases in US interest rates caused by upward revisions in the Fed economic outlook (information shocks) from those that are not (pure monetary policy shocks). This column argues that this distinction is crucial. Pure monetary policy shocks have conventional, negative effects but positive information shocks do not. The latter even drive a reallocation out of US Treasuries and into growth-sensitive US assets. If the current Fed tightening cycle is driven by expectations of stronger growth, it might not be bad news for emerging markets.

Cho, Desbordes, Eberhardt, 04 March 2022

The current consensus in the literature that the finance-growth nexus is more complex than previously thought has led to concerns about ‘too much finance’. This column looks at the effects of 'too much finance' on growth and propensity for banking crisis and finds some evidence of a detrimental effect, but not for highly financially developed countries. Even for countries with intermediate levels of financial development, there do not appear to be any negative implications of ‘too much finance’ for long-term growth trajectories.

Kwon, Syropoulos, Yotov, 04 March 2022

Sanctions are now a central tool of governments’ foreign policy. This column examines the extraterritorial impact of sanctions on trade and welfare, and finds that the big extraterritorial burden of sanctions falls on target countries, whose trade with third countries is reduced significantly. Surprisingly, trade between senders and third countries increases due to sanctions. Thus, extraterritorial sanctions appear to be a stick and carrot for third countries, with the net effects depending on the size of the target and sender states and on the economic ties between the third countries/regions.

Mejean, 04 March 2022

China's Covid lockdown in early 2020 shocked the business world. How did this surprise disruption affect the firms that rely on imported Chinese products? Isabelle Mejean tells Tim Phillips about the economic impact in France, and which firms were most resilient. 

Bursztyn, Egorov, Haaland, Rao, Roth, 03 March 2022

Dissent plays a vital role in driving social change, but can be limited when individuals fear social sanction for expressing opinions about controversial issues. This column explores the function of rationales in facilitating dissent on both sides of the US political spectrum. Using a simple theoretical framework, it shows that liberals are more willing to post a tweet opposing movements to defund the police – and indeed face fewer social sanctions – when their tweet implies they have read scientific evidence supporting their position. Analogous experiments with conservatives demonstrate that the same mechanisms facilitate anti-immigrant expression.

Arold, Woessmann, Zierow, 03 March 2022

Compulsory religious education in school can have long-run consequences for students’ lives. Since the 1970s, German states at different times ended compulsory religious education in public schools and replaced it with a choice between ethics classes and religious education. This column shows that the reform not only led to reduced religiosity in students’ later life but also eroded traditional attitudes about gender roles and increased labour market participation and earnings.

Schmidt, 02 March 2022

Following a comprehensive review, the ECB announced its new monetary policy strategy in July 2021. Two key elements of this new strategy are the symmetry of the inflation target and the use of especially forceful or persistent measures when the economy is close to the effective lower bound. This column shows that these elements have strong foundations in existing macroeconomic frameworks. In the New Keynesian paradigm, a symmetric target may be more robust than asymmetric alternatives, and forceful or persistent measures may be necessary to stabilise inflation expectations. 

Lotti, Spagnolo, 02 March 2022

Monetary savings in public spending are one of the main arguments in favour of centralising procurement. In addition to direct savings from public administrations that buy through a central procurement agency, this column reports evidence of sizable indirect savings from public administrations that do not. These additional savings appear driven by informational externalities on less competent public buyers purchasing more complex goods. Accounting for indirect savings also increases the estimate of direct ones.

de Soyres, Santacreu, Young, 01 March 2022

To mitigate the health and economic fallout from the COVID crisis, governments worldwide engaged in massive fiscal support programmes. This column shows that governments that provided generous fiscal support increased the demand for consumption goods during the pandemic, but industrial production did not adjust quickly enough to meet the sharp increase in demand. This imbalance between supply and demand across countries led to high inflation. The findings suggest a sizable role for fiscal policy in affecting price stability, above and beyond what a monetary authority can do.

Alstadsæter, Bjørkheim, Davies, Scheuerer, 01 March 2022

There is no longer any debate that some multinationals avoid taxes by shifting profits to tax havens. What is less understood, however, is what happens to the money not spent on taxes. Using matched employer-employee administrative data from Norway, this column shows that employer profit shifting contributes to income inequality and benefits high-skilled and high-paid employees most. High-skilled workers in service industries gain the most, with CEOs experiencing the highest wage increase.

Borin, Mancini, Taglioni, 01 March 2022

Environmental, political, economic, and health disruptions in recent years have helped fuel concerns that too much interdependence through global value chains may be a problem. This column compares the relative effects of a domestic demand shock to those of a global value chain-related shock and concludes that engagement in global value chains allows unexpected shocks to demand to be managed better than in a world of predominantly domestic production, traditional trade, or regional value chains. Global value chain participation dampens exposure to risk, as idiosyncratic shocks are mitigated by a higher market differentiation.


CEPR Policy Research