Institutions and economics

The welfare cost of lawlessness: Evidence from Somali piracy

Tim Besley, Thiemo Fetzer, Hannes Felix Mueller, 28 February 2013

Somali piracy has created a major externality due to disruption to shipping, especially in the Gulf of Aden. How costly is this anarchy? This column analyses micro-data on individual shipping contracts and finds that piracy increased transport costs by around 8%. The $120 million in net revenues that pirates generate are more than offset by the costs borne by the shipping industry, which lie between $0.9 billion and $3.3 billion.

Misplaced concerns about central-bank independence

Marco Annunziata, 12 February 2013

Economists and policymakers are increasingly concerned that central-bank independence is being threatened. This column argues that central banks are not losing their independence, but that their room for manoeuvre is being eroded by a lack of structural reforms and fiscal adjustment. The financial crisis has caused mission creep, pushing central banks well beyond their comfort zones and as the time comes to pull back, independent monetary policy could still be powerless against fiscal dominance.

Things we must consider in shaping Japanese economic policy for the future

Keiichiro Kobayashi, 10 February 2013

Japan is under new leadership, bringing fresh attempts to tackle deflation. This column argues that the lessons we can learn are Going forward, a change of party politics with every change of government will likely become a recurring event in Japan. In order to restore people’s confidence in the fiscal management and social security system in the light of that prospect, institutional systems should be designed in a way to allow flexibility, premised on the fact that the government cannot make commitments into the remote future. Political leaders – whether they belong to the ruling or opposition parties – need to come up with new ideas toward achieving that end.

Estimating neutral interest rates in Latin America

Nicolas Magud, Evridiki Tsounta, 16 January 2013

The ‘neutral’ rate is the real interest that is consistent with stable inflation and narrow output gaps. This column discusses the various estimation techniques and presents estimates for a range of Latin American nations. No methodology is fully correct: central banks must still make a subjective judgement, but econometrics can significantly help to inform it.

The hidden gains from trade liberalisation

Amit Khandelwal, Peter K. Schott , Shang-Jin Wei, 15 January 2013

The institutions that manage trade barriers are subject to corruption, imposing additional distortions. This column shows that in China, the government misallocated quota licenses permitting firms to export. When the US and EU abolished quotas governing textile exports in 2005, China experienced productivity gains not only from the actual elimination of the quota but also from the termination of the misallocation due to inefficient licensing.