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VoxEU.org: Recent Articles

March 12, 2010
1:00
Do higher cigarette prices deter smoking?
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Evan Blecher, Deliana Kostova, Sara Markowitz, Hana Ross, 12 March 2010

Do higher cigarette prices deter smoking? This column finds that policymakers in developing countries could reduce cigarette consumption by youths by raising taxes. A 10% increase in the price will reduce youth cigarette demand by 18.3%.

Full Article: Do higher cigarette prices deter smoking?
March 11, 2010
1:00
Underappreciated benefits of the Eurozone
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Francesco Paolo Mongelli, 11 March 2010

Why would countries share a single currency? This column introduces a new CEPR Policy Insight and argues that some aspects are missing in the current debate on the merits of the EMU. Benefiting from monetary union is a matter of time, perseverance, and seizing opportunities.

Full Article: Underappreciated benefits of the Eurozone
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The long wave of government debt
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Andrew Scott, 11 March 2010

The high levels of government debt have raised concern among policymakers and commentators. But this column argues that markets have financed much larger levels of debt than are currently predicted for the UK and US. Given the enormous financial shock these economies have experienced, they might actually be better off with high debt for a long period of time.

Full Article: The long wave of government debt
March 10, 2010
1:00
The political resource curse
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Fernanda Brollo, Tommaso Nannicini, Roberto Perotti, Guido Tabellini, 10 March 2010

Is the discovery of natural resources necessarily a good thing? Examining data from Brazil, this column finds that a 10% windfall in government revenues leads to a 12 percentage point increase in corruption and a 3 percentage point reduction in the probability that politicians have a degree. The chance that an incumbent is reelected raises by over 4 percentage points.

Full Article: The political resource curse
March 09, 2010
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A 4% inflation target?
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Daniel Leigh, 9 March 2010

Olivier Blanchard, the IMF’s Chief Economist, recently broached the idea that central banks should target an inflation rate of 4% during the good times to leave more room for nominal rate cutting during bad times. This column supports this view, presenting new research showing that a higher inflation target could have halved the output loss of Japan during its “Lost Decade.”

Full Article: A 4% inflation target?
March 08, 2010
1:00
Antidumping: Much ado about nothing?
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Hylke Vandenbussche , Maurizio Zanardi, 8 March 2010

The global crisis has raised fears that governments would engage in a protectionist spiral. This column argues that, while countries have by and large kept their promises not to raise barriers to trade, antidumping has crept up. Far from being a “small price to pay”, the new tough users of antidumping laws such as Brazil, India, Mexico, Taiwan, and Turkey have 5.9% fewer annual imports as a result.

Full Article: Antidumping: Much ado about nothing?
March 07, 2010
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Social networks and the massive migration within China
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Yuyu Chen, Ginger Zhe Jin, Yang Yue, 7 March 2010

What determines mass migration within countries? Examining data from China – the biggest internal migration experience in human history – this column finds that migrants from the same village tend to cluster at the same destination for the same occupation. This pattern is driven by social networks within villages that reduce the moving costs for future migrants, such as the risk of not finding a job.

Full Article: Social networks and the massive migration within China
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For a fair treatment of trade finance under Basel III
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Marc Auboin, 7 March 2010

Trade finance is an essential facility for world trade. But this column argues that the safe, short-term, and self-liquidating character of trade finance has not been properly recognised under the Basel II framework and the proposed revised rules ("Basel III") seem to raise additional hurdles to trade finance. Both trade financiers and regulators should strive to avoid this.

Full Article: For a fair treatment of trade finance under Basel III
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The political limits to globalisation
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Daron Acemoglu, Pierre Yared, 7 March 2010

Is globalisation inevitable and irreversible? This column argues that globalisation is a policy choice. It examines the relationship between military expansion and international trade flows, finding that increased nationalist and militarist sentiments are negatively associated with trade. A 10% increase in military spending between 1985 and 2005 is associated with a reduction in the trade share of GDP of around 2%.

Full Article: The political limits to globalisation
March 06, 2010
1:00
Consumer reactions to exchange rate and trade price shifts: New evidence from online book retailing
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Jean Boivin, Robert Clark, Nicolas Vincent, 6 March 2010

How much of a change in exchange rates is required to redress global imbalances? This column presents new evidence from online bookstores suggesting that neither shoppers nor retailers react to price differences across borders. This implies that realignment of cross-country consumption levels may require large and persistent exchange rate changes.

Full Article: Consumer reactions to exchange rate and trade price shifts: New evidence from online book retailing
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Argentina all over again? Lessons for Europe
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Augusto de la Torre, Eduardo Levy-Yeyati, Sergio Schmukler, 6 March 2010

The fiscal crisis in several European countries has led many commentators to suggest novel solutions, including a holiday from the euro. This column examines the much-cited example of Argentina and argues that such ideas look better on paper than in practice. What these countries need is a “good old bailout” – conditional on “getting the house in order”.

Full Article: Argentina all over again? Lessons for Europe
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Why policymakers need to take note of high frequency finance
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Richard Olsen, 6 March 2010

Why should high-frequency finance be of any interest to policymakers interested in long-term economic issues? This column argues that the discipline can revolutionise economics and finance by turning accepted assumptions on their head and offering novel solutions to today’s issues.

Full Article: Why policymakers need to take note of high-frequency finance
March 05, 2010
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Ageing populations and productivity
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Jan van Ours, 5 March 2010

Ageing populations are a concern for many developed countries, with increasing dependence on the working population expected. Despite this, there is relatively little research on how productivity changes with age. This column argues that while older people do not run as fast, there is no evidence of a mental productivity decline and little evidence of an increasing pay-productivity gap. The negative effects of ageing on productivity should not be exaggerated.

Full Article: Ageing populations and productivity
March 04, 2010
1:00
Why Europe should reject a new Glass-Steagall Act
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Hans-Werner Sinn, 4 March 2010

A return of the Glass-Steagall Act has been suggested by US policymakers and commentators as a way to reduce risk in financial markets. This column argues that the legacy of separate commercial and investment banks actually made the crisis worse. Europe should not follow these proposals but should instead concentrate on strengthening the capital reserves of its banks.

Full Article: Why Europe should reject a new Glass-Steagall Act
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Employment protection legislation and the financial crisis
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Marco Leonardi, Julián Messina, Giovanni Pica, 4 March 2010

How do financial crises alter the effects of employment protection legislation? This column argues that firms with insufficient access to credit are even less able to rationalise their costs by switching from labour to capital – reinforcing the negative effects on productivity. But policymakers should also consider that, in countries with less-developed financial markets, employment protection provides insurance against labour-market risk.

Full Article: Employment protection legislation and the financial crisis
March 03, 2010
1:00
New evidence on the effect of bank loans and credit standards on Eurozone output
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Lorenzo Cappiello, Arjan Kadareja, Marco Protopapa, Christoffer Kok Sørensen, 3 March 2010

How important is credit availability to the real economy? This column examines evidence from the Eurozone and suggests that a change in loan availability has a positive and statistically significant effect on GDP. This provides support for the policies taken by central banks to alleviate pressures on the banking system.

Full Article: New evidence on the effect of bank loans and credit standards on Eurozone output
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The net fiscal stimulus in the US 2008-2009: Less than what you might think
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Joshua Aizenman, Gurnain Kaur Pasricha, 3 March 2010

The crisis led to significant fiscal stimulus efforts by the US government to offset the downturn. But this column argues that, properly adjusted for the declining fiscal expenditure of the fifty states, the aggregate stimulus was close to zero in 2009. While a net decline was avoided, the stimulus did not raise aggregate expenditure above its predicted mean. This can explain the anaemic reaction of the US economy to the alleged “big federal fiscal stimulus”.

Full Article: The US fiscal stimulus: Less than what you might think
March 02, 2010
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Is the New Deal in banking a guide for today?
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Eugene N. White, 2 March 2010

Where do the real causes of the global financial crisis lie? This column argues that that a dispassionate examination is needed in order to properly reform the banking system. As the Glass-Steagall Act of 1933 illustrates, a mad dash for regulation where special interests can manipulate popular outrage is a recipe for cooking up the next financial disaster.

Full Article: Is the New Deal in banking a guide for today?
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Natural resources and development strategy after the crisis
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Milan Brahmbhatt, Otaviano Canuto, 2 March 2010

How important are primary commodities for economic development? This column suggests that primary commodity prices are likely to ease over the next five years. Nevertheless, commodity revenues will remain high, raising challenges that, if not addressed, can harm long-run development. With good governance, however, such revenues can also be a valuable resource to help accelerate overall development.

Full Article: Natural resources and development strategy after the crisis
March 01, 2010
1:00
When will the Fed raise interest rates?
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Olivier Coibion, Yuriy Gorodnichenko, 1 March 2010

How long will US interest rates remain so low? This column argues that estimates using the 1993 Taylor rule are concentrating on the output gap, whereas in reality the Fed places much greater emphasis on output growth. Using an updated Taylor rule, this column favours the market view that rates will rise towards the end of 2010.

Full Article: When will the Fed raise interest rates?
February 28, 2010
1:00
Macroeconomics for the 21st century: Part 2, Policy
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Roger E. A. Farmer , 28 February 2010

What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the second in a two-part outline of a new paradigm for macroeconomics in the 21st century, focusing on policy. It argues that fiscal policy is not the right response to a financial crisis.

Full Article: Macroeconomics for the 21st century: Part 2, Policy
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Persistence of bad governments
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Daron Acemoglu, Georgy Egorov, Konstantin Sonin, 28 February 2010

Why do bad and incompetent governments emerge and persist under a variety of different political regimes? This column presents a new insight. Even though more democratic regimes do not necessarily perform better than less democratic ones under given conditions such as during conflicts or early economic development, more democratic regimes do appear to have greater flexibility in the face of shocks.

Full Article: Persistence of bad governments
February 27, 2010
1:00
Macroeconomics for the 21st Century: Part 1 Theory
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Roger E. A. Farmer , 27 February 2010

What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the first of a two-part outline of a new macroeconomics paradigm for the 21st century, starting with the theory.

Full Article: Macroeconomics for the 21st century: Part 1, Theory
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Is China trying to “lock up” the world’s natural resources?
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Theodore H. Moran, 27 February 2010

The rapid emergence of China as a major industrial power poses a complex challenge for the world’s natural resources. This column argues that the Chinese government-backed investments in natural resource supplies are predominately in areas that will help expand, diversify, and improve competition in the global supplier system. But potential geopolitical consequences remain a reason for concern.

Full Article: Is China trying to “lock up” the world’s natural resources?
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Why the IMF should deal with Greece
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Juergen Matthes, 27 February 2010

The situation in Greece has called into question the EU’s ability to deal with fiscal crises. This column argues that the EU’s political vulnerability is likely to prevent it enforcing existing rules for fiscal discipline. The IMF should therefore be called in. This would take the blame off the Eurozone, re-establish lost credibility, and avoid moral hazard.

Full Article: Why the IMF should deal with Greece
February 26, 2010
1:00
Estate taxation and intergenerational transfers: New evidence from Italy
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Tullio Jappelli, Mario Padula, Giovanni Pica, 26 February 2010

What are the effects of inheritance tax on bequests and tax avoidance? This column examines data from Italy suggesting that the abolition of transfer taxes increased real estate inheritance by around 2 percentage points. Given that the ratio of real estate to total wealth exceeds 85% for the over 60s in Italy, it is likely that at least part of this increase is a genuine effect.

Full Article: Estate taxation and intergenerational transfers: New evidence from Italy
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Global imbalances: Are emerging markets the new guest at the party?
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Ari Aisen, Dalibor Eterovic, 26 February 2010

What will happen to the global imbalances that many argue caused the global financial crisis? This column suggests that, while both surplus and deficits countries may make adjustments, emerging markets that have so far been on the sidelines of the action and outside the core discussion of global imbalances could start to absorb the excess liquidity.

Full Article: Global imbalances: Are emerging markets the new guest at the party?
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Cutting now or later: Making sense of the debate on UK government debt
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Simon Wren-Lewis, 26 February 2010

How fast and how soon should UK government debt be cut? This column argues that recent debate on this issue contains as much agreement as disagreement. Many economists now believe that fiscal councils could provide an institutional solution to fiscal policy difficulties.

Full Article: Cutting now or later: Making sense of the debate on UK government debt
February 25, 2010
1:00
Services-led growth: A new hope for development late-comers?
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Ejaz Ghani, 25 February 2010

Which is the best route to development: Manufacturing or services? This column argues that India’s example of a “services revolution” – rapid growth and poverty reduction led by services – provides inspiration for late-comers to development and challenges the conventional wisdom that industrialisation is the only rapid route to economic development.

Full Article: Services-led growth: A new hope for development late-comers?
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The economics of cloud computing
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Federico Etro, 25 February 2010

What will the next big technology be? This column argues that “cloud computing” will have a dramatic effect on how we live our lives and how we do business. The economic impact of the diffusion of this technology could match that of telecommunication infrastructures in the '70s and '80s or the introduction of the internet in the '90s. Once diffusion gathers apace, cloud computing could significantly boost GDP growth and could create around a million EU jobs within five years.

Full Article: The economics of cloud computing
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Time for independent fiscal policy committees
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Tim Besley, Andrew Scott, 25 February 2010

The financial crisis has brought large fiscal deficits and soaring public debt. A switch to tight fiscal policy risks throttling the recovery, but continuing deficits are spooking markets. This column argues the obvious solution is to promise future fiscal rectitude and stick with the current expansionary policies in the near term. This requires independent fiscal policy committees to institutionalise fiscal transparency and restore credibility to governments’ long-term public finances.

Full Article: Time for independent fiscal policy committees
February 24, 2010
1:00
Rules vs discretion in macroprudential policies
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Massimo Libertucci, Mario Quagliariello, 24 February 2010

How much “freedom” should policymakers have? This column discusses to what extent the experience gained from monetary policy can help to define how macroprudential policy should be implemented.

Full Article: Rules vs discretion in macroprudential policies

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