For the keen economist only - Research-based policy analysis
20th September 2021
For the keen economist only - Research-based policy analysis and commentary from leading economists at -------
VoxEU.org - CEPR's policy portal - was set up in June 2007 to promote "research-based policy analysis and commentary by leading economists". Vox's audience consists of economists working in the public sector, private sector, academia and media - as well as students of economics in the broad sense. Vox columns cover all fields of economics broadly defined and is widely read (the site receives about a half million page views per month).
Many academic papers on the site of which the outlines below are just the latest fraction.
September 2021 published to date
Skill-biased technological change and the demographic composition of the US military
Asoni, Gilli, Gilli, Sanandaji, 19 September 2021
There is a common perception that the US military predominantly recruits individuals from the most disadvantaged socioeconomic backgrounds with limited other career options. This column argues that this is no longer the case. Skill-biased technological change has led the US military to recruit more higher-skilled personnel since the 1990s, and while in 1979 the probability of joining the military was clearly higher for those with lower-than-average family income, for the 1997 cohort the probability was much more evenly distributed.
Teams become more productive when their hours are shorter
Shangguan, DeVaro, Owan, 18 September 2021
It has been argued that when workers are already working long weeks, adding more hours can reduce productivity. This column tests this argument using evidence from Japan. The authors find that long working hours of key team members harm team productivity. In contrast, shorter hours cause the opposite effect, perhaps because workers recover from fatigue and arrive for work with increased energy and focus.
The flight from quality
Judge, Kashyap, 17 September 2021
In March 2020 we all assumed there would be some reaction to Covid-19 on Wall Street but, when markets did the opposite of what most people expected, the Fed had to step in to stabilise the economy. Anil Kashyap and Kathryn Judge tell Tim Phillips what happened, why, and how to stop it happening again.
Read more about the research behind this: VoxColumn: Reforming the macroprudential regulatory architecture in the US, Kathryn Judge, Anil Kashyap.
The impact of trade costs can be weak or strong - depending on how much countries trade
Chen, Novy, 17 September 2021
Many countries try to bring down trade costs by striking free trade agreements, forming currency unions or joining the WTO. But when trade costs fall, how much does trade increase? This column finds that the impact depends on how intensively countries trade. Falling trade costs boost trade between countries with initially ‘thin' trading relationships where the scope for growth is largest. But they have a much weaker impact for country pairs that are already trading heavily.
Carbon tax, cross-border carbon leakage, and border tax adjustments
Cheng, Ishikawa, 16 September 2021
As a result of global warming, carbon taxes and emissions trading policies are in the spotlight. However, lack of cross-country coordination can cause carbon leakage and increases in emissions. This column analyses the effectiveness of carbon taxes and border tax adjustment policies in reducing emissions and shaping firms' decisions on abatement investment and firm location. It shows that a higher carbon tax can sometimes lead to higher global emissions and discourage investment in clean technology. Likewise, border tax adjustments should be designed carefully to ensure lower emissions and compatibility with WTO rules.
Fostering FinTech for financial transformation
Beck, Park, 16 September 2021
The recent wave of financial innovation related to digitalisation has the potential to change the landscape of financial service providers quite dramatically, creating the need for a flexible regulatory framework that can accommodate these changes while safeguarding stability. This column introduces a new eBook that takes stock of financial digitalisation over the past decade and applies global lessons to the regulatory debates in Korea.
(Successful) democracies breed their own support
Acemoğlu, Ajzenman, Aksoy, Fiszbein, Molina, 15 September 2021
Concerns about the viability of democracy have deepened in recent decades amid growing discontent between and among voters, the rapid spread of misinformation, and the rise of extremist and populist parties across the West. Using large-scale survey data covering more than 110 countries, this column shows that individuals with longer exposure to successful democracies tend to exhibit stronger support for democratic institutions. Democracies breed their own support - but only when they can successfully deliver on promises of economic growth, peace, political stability, and the provision of essential public goods.
Ripple effects of monetary policy
Garcia-Appendini, Ongena, 14 September 2021
Firms may face bottlenecks forcing them to cut activity and adjust prices when monetary tightening financially constrains their business partners. This column focuses on firms producing intermediate goods in the US to show how monetary policy can have ‘ripple effects' along supply chains through input-output linkages involving financially constrained firms. These transmission channels of monetary policy may be especially relevant in the post-Covid context of higher corporate leverage, significant supply chain disruptions, and inflationary pressures.
Financial innovation today and tomorrow
Lerner, Seru, 14 September 2021
Financial innovation is intensely controversial, yet we know little about where or by whom these new products and services are developed. This column looks at over 24,000 financial US patents applied for between 2000 and 2018 to analyse the nature of financial patents. A surge in financial patenting was driven by IT firms and firms in industries outside of finance. Financial regulatory actions seem to have adversely affected innovation by financial firms, while regions with the highest technological opportunities attracted financial innovation by IT and non-financial firms.
What drives house prices: Lessons from the literature
Duca, Muellbauer, Murphy, 13 September 2021
Research on house price cycles and their interactions with the economy has burgeoned since the Global Financial Crisis. This column draws five lessons from a recent comprehensive survey. It argues that conventional theories of house price dynamics are misleading. Shifts in credit conditions, together with differences in housing supply response across cities, regions and countries, account for much of the heterogeneity of house price outcomes. Finally, increased demand for space and unprecedented policy interventions together explain the very different house price experience in the pandemic compared with the Global Financial Crisis.
The impact of COVID-19 on global production
Zhang, 13 September 2021
COVID-19 has had large impacts on global production and international trade. The column uses quarterly aggregate-level data on foreign affiliates of Japanese multinational corporations to show that multinational production and supply chains were negatively affected by the COVID-19 pandemic, especially in the 2nd quarter of 2020. The sales of Japanese manufacturing affiliates almost recovered in the 4th quarter of 2020, indicating the resilience of global production and multinationals' supply chains. But there are large variations in recovery across countries.
Equity premium predictability over the business cycle
Moench, Stein, 12 September 2021
The US equity market follows a V-shaped pattern around recessions, with sharply negative returns heading into recessions and a strong recovery as the recession unfolds. In addition, recessions are usually preceded by an inverted yield curve. This column shows that the term spread is a robust predictor of recessions, and that model-implied recession probability forecasts do a good job of predicting the equity premium out-of-sample. An investment strategy based on the recession probability model could be used to time the equity market and lead to higher and less volatile profits over time.
The labour market implications of economic uncertainty
den Haan, Freund, Rendahl, 11 September 2021
It has been argued that increased uncertainty can worsen unemployment if employers prefer to wait and postpone job creation. However, under the dominant theory of unemployment - the search-and-matching model - the value of waiting plays no role. This column proposes an amended model which relaxes some of the theoretical assumptions, and shows that an increase in perceived uncertainty does indeed increase the value of waiting, thus reducing job creation.
Remembering Peter Neary
Adams-Prassl, Honohan, Javorcik, Mrázová, Portes, 10 September 2021
Earlier in 2021 Peter Neary passed away. This special episode pays tribute to his work and examines why Peter was held in such affection by his colleagues. With contributions from Patrick Honohan, Richard Portes, Monika Mrázová, Beata Javorcik, and Abi Adams-Prassl.
Wage-setting as macroeconomic policy
Koll, Watt, 10 September 2021
Inflation in the euro area has been well below the ECB's target since 2013. This column proposes institutionalising nominal wage setting within the economic governance of the euro area to bring inflation on target. Such a policy would also address the built-in tendency for divergences in internal demand dynamics and competitiveness within the euro area.
Firm heterogeneity and the college wage gap in Japan
Ikeuchi, Fukao, Perugini, 09 September 2021
In contrast to other comparable developing countries, wage inequality in Japan has remained stable in recent decades. However, this trend belies the substantial variation in wage gaps at the firm level. This column uses detailed worker and firm microdata to study how firm characteristics affect the evolution and variability of Japan's college wage gap. It finds that larger establishments and those with a larger share of regular workers exhibit higher college wage premiums. These traits likely signify more productive environments with greater capacity to attract and keep highly educated employees with better unobservable characteristics.
Mortgage rates, origination fees, and the transmission of monetary policy
Benetton, Gavazza, Surico, 09 September 2021
In the aftermath of the 2007-09 financial crisis, central banks have sought to stimulate the economy through new policies aimed at revamping credit and housing markets. This column examines the effects of the Bank of England's Funding for Lending Scheme, which offers cheap medium-term loans to UK lenders. Mortgage lenders actively price-discriminate across borrowers using two-part tariffs which split the origination fee from the interest rate. This increased after the introduction of the scheme, implying a stronger transmission of monetary policy to credit markets and the real economy.
What 3.5 million French firms can tell us about the efficiency of Covid-19 support measures
Cœure, 08 September 2021
In March 2020, the French parliament tasked an independent committee with monitoring the financial support available to companies during the Covid-19 crisis. A rich firm-level database - matching receipt of government money with balance-sheet records, tracing payroll and turnover trajectories for the first two waves of the pandemic – was the result. This column mines that database to evaluate the incentives for accepting government aid; the impact of support measures; and heterogeneity across industries, firms, and locations. The authors judge French fiscal support during the crisis a tentative success.
The euro area's COVID-19 recession
Cardani, Croitorov, Di Dio, Frattarolo, Giovannini, Hohberger, Pfeiffer, Ratto, Vogel, 08 September 2021
The COVID-19 recession differs strongly from past crises in recent history. This column summarises the integration of key economic features of the pandemic into the European Commission’s estimated DSGE model. Shock decompositions highlight the dominant role of ‘lockdown shocks’ (‘forced savings’, labour hoarding) for explaining the quarterly pattern of real GDP growth in 2020, complemented by negative contributions from foreign and investment demand notably in 2020q2 and a negative impact of persistently higher (precautionary) savings. The inflation response has been modest given the severity of the recession.
What’s worth knowing in economics? A global survey among economists
Andre, Falk, 07 September 2021
Research shapes policy. But what we choose to study is subjective. This column uses a global survey of almost 10,000 academic economists to find their opinions on what economic research should look like. Many economists think that economic research should become more policy-relevant, multidisciplinary, and disruptive, and should pursue more diverse research topics.
Design of climate change policies needs to internalise political realities
Furceri, Ganslmeier, Ostry, 07 September 2021
The call for stricter climate change policies is gaining momentum in many countries. But despite rising public awareness, there could be political obstacles to adopting the measures needed to combat climate change. This column argues that policy design and timing are critical to overcoming political costs to climate mitigation policies, as is the need to provide effective social insurance policies. An implication is that political realities may often dictate the need to sacrifice some efficiency in climate mitigation policies in order to secure political buy-in.
Why real wages are stagnating in Japan and Korea
Chun, Fukao, Kwon, Park, 06 September 2021
In many developed countries, real wage growth has lagged behind labour productivity growth in recent decades. This column uses data from Japan and Korea to study the relationship between labour productivity growth, real wage growth, and labour’s terms of trade, defined as the ratio of the consumer price index to the GDP deflator. It shows that the main reason for the real wage-labour productivity growth gap is a large decline in labour’s terms of trade. Raising real wages in the future will require policies to support the business environment and develop high value-added sectors.
The Downton Abbey effect: British aristocrats, American brides
Taylor, 05 September 2021
The late 19th-century decline in British agricultural prices shrank the incomes of aristocrats and of land-owning ‘commoners’ as well. To carry on the tradition of raising money through auspicious marriages, British aristocrats looked across the Atlantic – to US heiresses with large dowries but no pedigrees, even by the standards of their own country. This column examines the social and economic forces that steered the daughters of US business magnates into marriages with British aristocrats.
Historical legacies shaping the 2021 Peruvian presidential election
Guardado, 04 September 2021
The 2021 victory of Pedro Castillo as president of Peru is commonly attributed to the support of poor, rural, and indigenous groups. However, profound historical factors also played a role. In particular, areas where colonial rule was more ruthless in the 18th century – as measured by the expected returns to office, the tax burden, and the intensity of anti-colonial rebellions – exhibited higher support for Castillo in 2021. Interestingly, this support is not visible for other leftist and Marxist parties in the elections of 1980 and 1985.
Efficiency and equity in a socially embedded economy
Fleurbaey, Kanbur, Snower, 03 September 2021
There has been a spate of critiques of mainstream, neoclassical economics in the last few years. This column argues that this is partly the result of a core general model that is too narrow. Instead, the authors propose a base model that includes not just the economy but also the socioeconomic system. The model encompasses many specific themes in the literature such as the interplay between economic inequality and efficiency, but it also takes us well beyond the conventional economic resource allocation-based perspective on inequality.
Share vaccines, save lives
Andaloussi, 02 September 2021
How many lives could be saved if rich countries shared their vaccines? Less than 2% of people in low-income countries have received even one dose. Mehdi Benatiya Andaloussi tells Tim Phillips about his calculation of how many lives would be saved by the end of 2021 if vaccines were shared more fairly - and how many have been lost because this hasn't happened so far.
Read more about the research discussed and download the free discussion paper:
Benatiya Andaloussi, M and Spilimbergo, A. 2021. 'How many lives could be saved through the early sharing of vaccines globally?' CEPR
Mask mandates save lives
Hansen, Mano, 02 September 2021
The emergence of new Covid-19 variants and a highly uneven vaccine rollout have put mask mandates back on the policy agenda. This column presents new evidence that state-level mask mandates reduced new weekly COVID-19 cases, hospital admissions, and deaths significantly in the US. The results imply that 87,000 lives were saved up until 19 December 2020, while an additional 58,000 lives could have been saved if all states had put in place a mandate starting in April 2020. Mask mandates had a greater effect in counties more positively inclined towards mask wearing.
Immigration and natives’ exposure to COVID-related risks in the EU
Bossavie, Garrote Sanchez, Makovec, Özden, 01 September 2021
The COVID-19 shock exerted pressure on labour markets around the world. This column explores how the prevalence of immigration in the labour market affected different types of workers’ exposure to virus-related risks in 15 destination countries in Western Europe. It finds that not only were immigrant workers more vulnerable to the economic and health shocks of the pandemic; they also served as a protective shield for native workers. By undertaking higher-risk occupations, immigrants enabled native workers to move into work with fewer face-to-face interactions or jobs that could be carried out from the safety of home.
The ECB strategy: The 2021 review and its future
Reichlin, Adam, McKibbin, McMahon, Reis, Ricco, Weder di Mauro, 01 September 2021
The ECB signalled an historic shift in its 2020 strategy review. This column introduces a new CEPR report which argues that the review has moved the ECB in the right direction but leaves some key issues unaddressed. The report focuses on the definition of the ECB’s inflation target, its operational framework, fiscal and monetary policy interactions, and the implications for monetary policy of climate change and related mitigation initiatives. The authors identify topics to be addressed in future strategic reviews and provide a framework as a basis for this ongoing analysis.
