David Chambers, Elroy Dimson, 20 October 2014

Yale University has generated annual returns of 13.9% over the last 20 years on its endowment – well in excess of the 9.2% average return on US university endowments. Keynes’ writings were a considerable influence on the investment philosophy of David Swensen, Yale’s CIO. This column traces how Keynes’ experiences managing his Cambridge college endowment influenced his ideas, and sheds light on how some of the lessons he learnt are still relevant to endowments and foundations today.

Christian Thimann, 17 October 2014

Having completed the regulatory framework for systemically important banks, the Financial Stability Board is turning to insurance companies. The emerging framework for insurers closely resembles that for banks, culminating in the design and calibration of capital surcharges. This column argues that the contrasting business models and balance sheet structures of insurers and banks – and the different roles of capital, leverage, and risk absorption in the two sectors – mean that the banking model of capital cannot be applied to insurance. Tools other than capital surcharges may be more appropriate to address possible concerns of systemic risk. 

Gaston Gelos, Hiroko Oura, 23 August 2014

The landscape of portfolio investment in emerging markets has evolved considerably over the past 15 years. Financial markets have deepened and become more internationally integrated. The mix of global investors has also changed, with more money intermediated by mutual funds. This column explains that these changes have made capital flows and asset prices in these economies more sensitive to global financial shocks. However, broad-based financial deepening and improved institutions can enhance the resilience of emerging-market economies.

Raphael Boleslavsky, Christopher Cotton, 16 August 2014

Grade inflation is widely viewed as detrimental, compromising the quality of education and reducing the information content of student transcripts for employers. This column argues that there may be benefits to allowing grade inflation when universities’ investment decisions are taken into account. With grade inflation, student transcripts convey less information, so employers rely less on transcripts and more on universities’ reputations. This incentivises universities to make costly investments to improve the quality of their education and the average ability of their graduates.

Coen Teulings, Richard Baldwin, 10 September 2014

The CEPR Press eBook on secular stagnation has been viewed over 80,000 times since it was published on 15 August 2014. The PDF remains freely downloadable, but as the European debate on secular stagnation is moving into policy circles, we decided to also make it a Kindle book. This is available from Amazon; all proceeds will help defray VoxEU expenses.

Ton Van Schaik, 06 July 2014

Piketty’s book “Capital in the 21st century” has gained popularity with its finding of a growing gap between wage earners and capital owners. This column presents a test to the two main laws in Piketty’s book. The attractiveness of these two laws is in their simplicity, but so is their limitation. Piketty neglects investment replacement and depreciation.

Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell, 29 June 2014

Small and medium-size enterprises (SMEs) often report difficulties in obtaining external finance. Based on new research, this column argues that these difficulties are not due to greater financial risks associated with SMEs. Instead, they are the result of imperfections in the market for external finance that negatively affect smaller and younger enterprises. The same research has shown that these types of firms are also the most reliant on external finance to support their investment and growth.

Marco Buti, Philipp Mohl, 04 June 2014

Investment in the Eurozone is forecast to remain below trend until 2015, with a particularly large shortfall in the periphery. Low investment reduces aggregate demand, thus lowering short-term growth, and it also hampers medium-term growth through its effect on the capital stock. This column highlights three causes of low Eurozone investment – reduced public investment, financial fragmentation, and heightened uncertainty – and proposes a series of remedies.

Carl Kitchens, 29 January 2014

Economists have found that large-scale infrastructure investments tend to increase economic growth and reduce poverty. However, there has been relatively little research on the effects of smaller, more targeted investment projects. This column discusses recent research on the effects of the US Rural Electrification Administration, which provided subsidised loans for connecting farms to the electric grid. Counties that received electricity through the REA witnessed smaller declines in agricultural productivity, smaller declines in land values, and more retail activity than similar counties that did not.

Charles Yuji Horioka, Akiko Terada-Hagiwara, 25 January 2014

Corporate saving has sharply increased over the last two decades, but there has been relatively little research on its determinants. This column presents recent work that estimates Asian firms’ cash flow sensitivity of cash. The impact of cash flow on the increase in firms’ cash holdings is positive and statistically significant, and larger and more highly significant for smaller firms. Since smaller firms are more likely to be financially constrained, these results suggest that Asian firms – especially smaller ones – save more when their cash flow increases in order to finance future investments

Indraneel Chakraborty, Itay Goldstein, Andrew MacKinlay, 25 November 2013

Higher asset prices increase the value of firms’ collateral, strengthen banks’ balance sheets, and increase households’ wealth. These considerations perhaps motivated the Federal Reserve’s intervention to support the housing market. However, higher housing prices may also lead banks to reallocate their portfolios from commercial and industrial loans to real-estate loans. This column presents the first evidence on this crowding-out effect. When housing prices increase, banks on average reduce commercial lending and increase interest rates, leading related firms to cut back on investment.

Peter Gal, Gabor Pinter, 21 September 2013

Renting capital goods makes up 20% of total capital expenses by US companies and this type of capital spending increases in downturns. This column discusses research showing that the systematic pattern of corporate leasing can be linked to credit constraints. This means that a robust rental sector has the potential to mitigate the negative effects of financial disruptions when obtaining credit becomes difficult.

Hans Degryse, Liping Lu, Steven Ongena, 21 August 2013

Non-bank financing originating in the shadow banking system has increasingly become an issue for policymakers. This column argues that informal financing has, in fact, been an essential element of corporate performance in China. Through reviewing the interaction between informal and formal financing, evidence suggests that informal financing simultaneously granted with formal financing (co-funding) is helpful for growth, especially for small firms.

Eduardo Cavallo, 03 April 2013

Latin America and the Caribbean have less infrastructure than the rest of the world. What they have is also of much poorer quality. This column argues that to reap the rewards of good infrastructure, Latin American and Caribbean countries must increase both investment and saving over the long-term by creating institutional capacity, strengthening the rule of law, and building stable macroeconomic-policy frameworks. It won’t be easy.

Ron Alquist, Linda Tesar, Rahul Mukherjee, 26 March 2013

Is foreign direct investment different in times of crisis? This column tests the ‘fire-sale foreign direct investment hypothesis’, finding that acquisitions undertaken during crisis periods do not fundamentally differ from those undertaken during non-crisis periods. The fire-sale foreign direct investment notion may well be ‘all smoke, and no fire’.

Michael Stolpe, 22 March 2013

The crisis has shot holes in government budgets devoted to pro-growth public goods. This column argues that health-related public goods support long-term economic growth. Governments may be more inclined to focus on spending related directly to jobs, such as education and welfare-to-work programmes, but health should not be forgotten

Pierre-Richard Agénor, Otaviano Canuto, Michael Jelenic, 21 December 2012

Many of the emerging economies of the last two decades are now ensnared by ‘the middle-income trap’, in which middle-income countries don’t quite push through to high income status. This column presents recent research suggesting that, if governments act early and decisively to improve access to advanced infrastructure, enhance the protection of property rights, and reform labour markets, trapped economies – like their East Asian counterparts in the 1990s – can push on through.

Reda Cherif, Fuad Hasanov, 10 November 2012

Policymakers in many commodity-exporting countries confront the question of how much to consume, save, and invest out of revenues from commodity exports. This column says policy should focus on improving productivity in the tradeable sector and reducing volatility through diversifying this sector. This would lower precautionary saving needs, increase investment, raise consumption, and improve welfare.

Stijn Claessens, Neeltje van Horen, 31 January 2012

How did foreign banks adjust their investment and lending decisions during the global financial crisis? This column uses a new and comprehensive database to show that the crisis dramatically halted foreign direct investment in banking and that foreign banks often cut back on lending more than their domestic competitors. While exits have so far been limited, this is likely to change in the coming years.

Dimitri Vayanos, Paul Woolley, 18 January 2012

According to classical economics, there are no gains to be made in an efficient market. Yet markets are often far from efficient and the gains are often far from insignificant. So should investors follow the herd or rely on best guesses of fair value? This column argues that the optimal strategy depends on whether you are in for the short or long term.

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