This column revisits the heated debate over international trade, offshoring, and US wages using new data. It says that increased international exchange with low-income countries has depressed US wages. That effect only arose during the 1990s, suggesting a different conclusion about trade, offshoring, and income inequality than the previous round of debate.
This column introduces "triple time-inconsistent" episodes. First, a public institution is expected to cave in and offer a bailout to prevent a crisis. Then, in an attempt to regain credibility, it pulls back. Finally, it resumes bailing out the survivors of the wreckage caused by the policy surprise. This column characterises the 1998 Russian crisis and the current crisis as triple time-inconsistency episodes and says that a financial crisis may simply be a bad time to try to build credibility.
Opponents of US climate change legislation voice concerns about its effect on consumers in coal-reliant states, industries’ competitiveness, and regressive distributional consequences. This column argues that these concerns are either unfounded or have been addressed fairly. It says the conflict is more about ideology than distributional issues.
Over-the-counter (OTC) markets produced most of the toxic assets that played a prominent role in the ongoing crisis. This column advocates further transparency in OTC markets regulation, arguing that it would make participants apply appropriate risk controls, lower systemic risk, and better situate regulators to address failures of large institutions.
International trade has transmitted demand contractions across national boundaries throughout the crisis. This column analyses the transmission of the recession through US trade flows at the sectoral level. US imports of housing construction inputs peaked before many other popular housing indicators.
After a crisis-induced hiatus, the exchange rate landscape seems to be moving back to a situation that resembles 2007. This column says that fear of appreciation is part of a leaning-against-the-wind exchange rate policy that promises to be the norm for emerging economy currencies for years to come. That may pose difficulties for global rebalancing.
Does gender matter in banking? This column presents evidence from an Albanian bank that it does. Female loan officers build better portfolios, such that loans to borrowers working with a female are significantly less likely to incur arrears.
Avinash Dixit of Princeton University talks to Romesh Vaitilingam about game theory in economics: its emergence and development after the Second World War, particularly from the 1970s onwards; its applications in business, public policy and daily life; and the future research agenda. The interview was recorded in Princeton in August 2009.
Recent research argues that culture affects economic outcomes. Do markets instil cultural values that support good outcomes? This column provides evidence that more competitive markets raise employees’ trust levels. That suggests that competitive markets build the values that support them.
The composition and timing of the fiscal stimulus is a major concern for policymakers. This column presents research showing that anticipated tax cuts result in reduced economy activity before they take effect. During the current downturn, that constitutes a strong argument against stimulus policies that phase in tax cuts over time.
Why have Canadian banks fared better during the crisis than their OECD peers? This column attributes their stability to their reliance on depository funding rather than more risky wholesale funding. It recommends a Pigouvian tax penalising banks using excessive short-term wholesale funding.
Do the US and Europe risk repeating Japan’s lost decade? This column warns that if the US or European financial clean-ups falter, they will be vulnerable to recurring financial crises. It argues that macroeconomic models should not treat finance as an innocuous veil and calls for a new approach that places financial intermediaries at the centre of its models.
Developed economies are implementing massive fiscal stimulus packages. Should emerging economies? This column warns them that fiscal multipliers are not certain, financing budget deficits will not be easy, the risk of default looms, and central bank independence may be eroded.
Like flights, securities can be non-stop (direct claims) or they can involve (sometimes many) intermediate stops (indirect claims). How should we measure the vulnerability of different securities to "systemic risk"? This column proposes a simple index to capture the important information of interest to both regulators and investors.
How would financial markets assess complicated structured products in the absence of ratings agencies? This column uses the history of emerging economies’ government debt to argue that investment banks used to win market share by building a reputation for quality products. It says that ratings agencies insulated investment banks from reputational rewards and freed them to deal in junk.
Bruce Sacerdote of Dartmouth College talks to Romesh Vaitilingam about his research on the academic performance of school children from New Orleans who were forced to relocate as a result of Hurricane Katrina in August 2005. The interview was recorded at the Centre for Market and Public Organisation in Bristol (UK) in February 2009.
Proponents of universal early education hope that such investments will yield long-term socioeconomic benefits. This column presents evidence that state governments funding public kindergartens in the US actually widened socioeconomic disparities across adults, as whites made gains that blacks did not. That result highlights the sensitivity of policy interventions to their means of funding and the structure of existing alternatives.
Is Iceland perhaps too small to be sustainable as a sovereign state? This column argues there are many reason why small is beautiful. Even though they do not benefit from scale economies and large pools of talent, small countries with cohesive societies can be successful as long as they are open to the world. Still, Iceland stands to gain from joining the EU.
Under the US “cash for clunkers” programme, billions of dollars are being allocated to pay drivers to purchase a new vehicle and scrap their old automobile. This column says the programme will reduce international trade in used cars, which significantly benefits consumers in developing economies. Such trade also increases the average emission efficiency of automobiles in both the US and developing nations, which raises the possibility that “cash for clunkers” might raise global emissions.
Rent-seeking by politicians and firms likely distorts the allocation of public resources. This column shows that, in Italy, when politicians appointed with the majority coalition are directly involved in the economic activity of private firms, those firms’ profits increase by 5% on average. The increase can be as high 20% in markets highly dependent on public demand, implying a significant welfare loss.
What explains developing countries’ greater economic volatility? This column documents the relationship between democracy and growth reversals. It argues that greater democracy, not higher income, is responsible for dampening economic volatility. Greater democratisation and economic diversification would reduce both dramatic declines and growth accelerations.
Robert Shiller of Yale University talks to Romesh Vaitilingam about his book, co-authored with George Akerlof, Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism. The interview was recorded in London in May 2009.
Latin Americans are relatively educated, so why has their economic growth lagged over the past four decades? This column attributes the disappointing performance to the difference between educational quantity and quality. Schooling is relevant for economic growth only insofar as it actually improves cognitive skills, and Latin American economies have lagged in terms of educational quality.
Why is there so much disagreement about the causes of the crisis? This column says that lax monetary policy and excessive leverage are to blame. It argues that many alleged causes are simply symptoms of these policy errors. If that is correct, then the recommended corrective is remarkably simple – there is no need for intrusive regulatory measures constraining non-bank intermediaries and innovative financial instruments.
This column outlines tough questions about economics and economists raised by the global crisis.
Though Germany’s 2006 fiscal rule was designed to achieve fiscal sustainability, it could be a valuable “exit” mechanism from the crisis-linked build-up of public debt. Contradicting criticisms of the new rules as too constricting, this column argues there are few constraints on the ongoing counter-cyclical fiscal policy, and provisions allow for future flexibility. Ironically, the more serious risk is that the flexibility could weaken implementation.
The financial crisis introduced a sense of urgency to the debate on the desirable structure of financial supervision in the EU. This column, which accompanies a new CEPR Policy Insight, provides two policy recommendations. First, policymakers could consider the harmonisation of supervisors´ governance arrangements. Second, consideration should be given to the introduction of a European mandate for national supervisors in order to better align incentives in the EU supervisory framework for micro-prudential supervision.
As Greenland moves away from Denmark and acquires more autonomy, this column asks whether it might be too small. In assessing the relationship between country size and economic performance, it warns that small states have more volatile GDP, more volatile consumption, and more incompetent civil servants.
The crisis is a brutal reminder of the fragility of banks. This column suggests that managers of large banks be obliged to act as insurers against systemic crises. This would create incentives for them to be concerned about the stability of the banking system as a whole.
Are new immigrants a fiscal burden on incumbent residents? This column looks at Eastern European immigrants in the UK and shows that they are net contributors to public finances because they have a higher labour force participation rate, are likely to pay more in indirect taxes like VAT, and make much lower use of benefits and public services.
Finding reliable indicators that predict the likelihood and severity of crises across countries has been a frustrating quest for economists. This column suggests that countries with better creditor protection suffer less when a crisis hits.
Helen Ladd of the Sanford School of Public Policy at Duke University talks to Romesh Vaitilingam about her research on the impact of parental choice on educational segregation, which analyses data on the changing racial composition of schools in North Carolina. The interview was recorded at the Centre for Market and Public Organisation in Bristol (UK) in June 2009.
The food crisis caught some policymakers off guard. Will they be ready next time? This column argues that most studies of the crisis offer little in the way of tractable policy responses. This knowledge gap leaves policymakers unprepared to prevent or mitigate the next food price crisis.
Will the current crisis reverse the past two decades of democratisation and financial liberalisation? This column documents the complex, non-linear relationship between political and financial reform. Financial liberalisation often reverses as countries move from autocracy to democracy, as “partial democracies” are less liberalised, and there are big differences between de jure and de facto liberalisation.
How important is nutrition to economic development? This column shows that the introduction of the potato can explain 22% of the rise in population and 47% of the rise in urbanisation during the 18th and 19th centuries.
Marriage rates have been falling over the last thirty years and cohabitation has emerged as an important social institution. A large number of US polices have been designed to increase the incidence of marriage and to stabilise existing marriages. This column shows that custody law is one such policy – it has had a large positive impact on marriage rates since 1969.
The 2008 global financial crisis has led to renewed calls for “early warning models” to reduce the risks of future crises. But this column says that few of the characteristics suggested as potential causes of the crisis actually help predict the intensity and severity of the crisis across countries. That bodes poorly for the performance of future early warning models.
This column examines the white paper on financial supervision issued by the Obama administration in mid-June. It focuses on the proposal’s preference for interagency cooperation over supervisory consolidation and warns that such an approach, while politically expedient, risks worse governance outcomes.
Less synchronised business cycles would be good news for the world economy, allowing for more stable global growth and opportunities for risk-sharing across countries. However, is decoupling fact or fiction? This column says that, contrary to much current commentary, there is no downward trend in synchronisation.
Six months into his presidency, Barack Obama has failed to grasp the nettle on trade and investment policy. This column says Obama has been weak and indecisive in the face of deep divisions within the Democratic Party over international economic policy. His deference to Congress has resulted in poor policymaking.
- Fiscal consolidation: At what speed?Blanchard, Leigh
- Public debt and economic growth, one more timePanizza, Presbitero
- Escaping liquidity traps: Lessons from the UK’s 1930s escapeCrafts
- The lessons of the North Atlantic crisis for economic theory and policyStiglitz
- Helicopter money as a policy optionReichlin, Turner, Woodford
- A tale of two depressions: What do the new data tell us? February 2010 updateEichengreen, O’Rourke
- Educated in America: College graduates and high school dropoutsHeckman, LaFontaine
- Eurozone breakup would trigger the mother of all financial crisesEichengreen
- Debt, deleveraging, and the liquidity trap: A new modelKrugman
- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji
Reichlin, Baldwin, 14 April 2013
Reichlin, Turner, Woodford
CEPR Policy Research
- The "Greatest" Carry Trade Ever? Understanding Eurozone Bank RisksAcharya, Steffen
- Political Credit Cycles: The Case of the Euro ZoneFernández-Villaverde, Garicano, Santos
- Winning by Losing: Incentive Incompatibility in Multiple QualifiersDagaev, Sonin
- Income and schoolingBrückner, Gradstein
- Monetary Policy and Rational Asset Price BubblesGalí
- How the EZ crisis is permanently changing EU institutionsMicossi
- WTO 2.0: Global governance of supply-chain tradeBaldwin
- Is US economic growth over? Faltering innovation confronts the six headwindsGordon
- The economic crisis: How to stimulate economies without increasing public debtWood
- Austerity: Too Much of a Good Thing?Corsetti