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New-paradigm globalisation and networked FDI: Evidence from Japan

Richard Baldwin, Toshihiro Okubo, 24 May 2012

New-paradigm globalisation – driven by lower coordination costs rather than trade costs – is changing the nature of international commerce, the political economy of trade liberalisation, the nature of trade agreements and much more. This column, using data on Japanese multinationls, presents evidence that the nature of FDI is also changing away from the traditional classification of ‘horizontal’ or ‘vertical’.

When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets

Livia Chiţu, Barry Eichengreen, Arnaud Mehl, 23 May 2012

Conventional wisdom states that the dollar took over as the leading international currency after the Second World War. This column presents new evidence from the bond markets suggesting it was much earlier in the 1920s. This implies that inertia and lock-in effects in international currencies are not all they’re cracked up to be and that the shift to a multipolar currency system might happen sooner than commonly believed.

Capital gains on international portfolios: New evidence from the Eurozone

Sebnem Kalemli-Ozcan, Bent E. Sørensen, 23 May 2012

News reports today are full of negative stories on the Eurozone. This column presents evidence of a much-overlooked benefit. The common currency has led to increased financial integration and in turn increased risk sharing, which helps to significantly reduce output shocks. Those arguing for a break up of the Eurozone should take note.

Is Europe ready for banking union?

Nicolas Véron, 23 May 2012

Many policymakers and academics are now agreed that a banking union, together with some form of fiscal union, is needed if the Eurozone is to emerge from the crisis in one piece. This column argues that while the current proposals for a banking union still need to be fine tuned, the crisis calls for swift and bold action.

Rethinking the ‘war on drugs’: Insights from the US and Mexico

Ernesto Zedillo, 22 May 2012

Illegal drugs are one of the planet’s most pressing problems. They shatter hundreds of millions of lives and wreak untold social, economic and political damage in both consuming and producing nations. In this column, ex-President of Mexico Ernesto Zedillo introduces an eBook he edited on the issue that points very strongly in the direction of a serious reconsideration of drug policy.

The age of equality

Richard Pomfret, 22 May 2012

Politicians who rail against socialism or capitalism always adopt a more moderate stance after they come into office. This column argues this is because we are still experiencing the consequences of the industrial revolution. The current state of that process involves a widely accepted compromise between aggregate prosperity and distributional equality.

How universities helped transform the medieval world

Davide Cantoni, Noam Yuchtman, 21 May 2012

We like to think that we have moved on from the Middle Ages, but do universities from that period have something to teach us about the role of government in education? This column thinks so.

Trade and inequality: New insights from Brazil

Elhanan Helpman, Oleg Itskhoki, Marc Muendler, Stephen Redding, 20 May 2012

What is the effect of trade on inequality? This column presents a unique study examining wage inequality in Brazil after liberalisation. Starting from a closed economy, the column finds that wage inequality will initially rise as only some firms take advantage of the new opportunities. But as trade costs continue to fall and more firms start to trade, wage inequality peaks and begins to fall back.

Germany should follow in the footsteps of China

Kamil Yilmaz, 19 May 2012

Germany’s fiscal response to the crisis was timid compared with those of China and the US. This column uses business-cycle connectedness indices to show that Germany should follow in the footsteps of China and increase its domestic spending so that it will generate net positive connectedness to others. Germany was able to increase its exports thanks to the fact that countries like the US, China and Japan stimulated domestic spending significantly.

Developing country and emerging market vulnerability to the Eurozone crisis

Joshua Aizenman, Yothin Jinjarak, Minsoo Lee, Donghyun Park, 19 May 2012

The Eurozone debt crisis has emerged as the single biggest threat to the global outlook. Applying event study methodology, this column estimates the responsiveness of equity and bond markets in developing countries and emerging markets to crisis news between 2005 and 2011. Whereas global crisis news had a consistently negative effect on equities and bonds, the Eurozone crisis looks thankfully more mixed and limited, so far.

Divorce rates help explain why Americans work more than Europeans

Indraneel Chakraborty, Hans Holter, Serhiy Stepanchuk, 18 May 2012

It is no secret that Americans work more than Europeans – 30% more according to recent studies. Many economists point to higher taxes in Europe as a major cause. This column suggests that divorce rates also play a role, particularly for women's labour supply.

Still standing: Global crisis and European firms

Gábor Békés, László Halpern, Miklós Koren, Balázs Muraközy, 18 May 2012

One of the key problems in Europe is the lack of competitiveness. With this in mind, this column presents a report looking at how European firms responded to the global financial crisis of 2008 and 2009 and finds lessons for today’s troubles. Chief among them - there is no one-size-fits-all solution.

The war of the sexes

Paul Seabright, 18 May 2012

Paul Seabright talks to Viv Davies about his recent book titled "The War of the Sexes: how conflict and cooperation have shaped men and women from pre-history to the present”. Seabright explains how game theory can shed light on the complex dynamics that create both conflict and cooperation between the sexes. They discuss the connection between the rise of modern capitalism and the rise of feminism, monogamy and marriage and whether there will ever be sexual equality.

Hume on hold? Consequences of not abolishing Eurozone national central banks

Michael Burda, 17 May 2012

The EZ crisis reveals critical flaws in the Eurozone’s design. This column argues that failing to abolish national central banks left the door open for national interests to interfere with the natural workings of the financial system and Hume’s adjustment mechanism. This flaw – and the omission of a European Banking Authority with real teeth – will come back to haunt Europe in the months and years to come.

Fiscal spending and growth: New evidence

Céline Carrère, Jaime de Melo, 17 May 2012

It is not just the OECD countries where fiscal policy is the subject of fierce debate. This column presents results from an “event analysis” carried out on a database of 140 countries over the period 1972-2005. It suggests that, for developing countries at least, a fiscal stimulus can be effective – provided the rest of the economy is stable and the fiscal deficit is low.

The Eurozone crisis: Fiscal fragility, external imbalances, or both?

Pietro Alessandrini, Michele Fratianni, Andrew Hughes Hallett, Andrea F Presbitero, 16 May 2012

Unsustainable debt along Europe’s periphery is bringing the euro to breaking point. But this column argues that this is not simply the result of fiscal ill-discipline. After 2010, the Eurozone crisis went from a fiscal crisis to a balance-of-payments crisis – with different prescriptions for policy.

Greece’s predicament: Lessons from Argentina

Peter Kretzmer, Mickey Levy, 16 May 2012

Greece’s economic and financial crisis is quickly deteriorating and there is no strategy – or even a coalition government – to figure out what to do next. This column looks at the lessons from Argentina’s default in 2001 and argues that Greece’s road to necessary economic reforms, fiscal sustainability and recovery may be even more daunting.

Greasing the wheel: Oil’s role in the global crisis

Lucas Chancel, Thomas Spencer, 16 May 2012

Between January 2002 and August 2008, the nominal oil price rose from $19.7 to $133.4 a barrel. This column gathers evidence on the role of this rise in prices in the global crisis. It suggests that oil prices had a direct impact on household expenditure on gasoline and increased mortgage delinquency rates. It adds that it also had many indirect impacts, notably though interest rate increases due to monetary policy.

Regional integration and natural resources: Who benefits?

Céline Carrère, Julien Gourdon, Marcelo Olarreaga, 15 May 2012

Regional integration schemes that include natural-resource-abundant countries have by and large been unsuccessful. Part of the reason is the uneven distribution of gains when resource-poor and resource-rich countries integrate. This column presents new evidence suggesting that the slow progress of regional integration efforts in the Middle East and North Africa can be explained by the reluctance of resource-rich countries to enter into trade agreements that will hurt them.

The housing market and the case for higher inflation targets in the US and the Eurozone

Joshua Aizenman, Menzie D. Chinn , 15 May 2012

Might more inflation be good for the US and Europe? This column looks at the housing market in the US and argues that, with houses dropping in price, buyers are playing a waiting game. And as buyers keep delaying, the price drops further. Given the importance of property in many economies, the knock-on effects are severe. Yet one way to break this vicious cycle is with inflation.

 

VoxEU Debates

Has austerity gone too far?

Moderated by Giancarlo Corsetti

Lead Commentaries include

Fiscal consolidation: Too much of a good thing?
John Van Reenen
Fiscal austerity and policy credibility
Marco Buti, Lucio R Pench
The austerity debate: Make haste slowly
Carlo Cottarelli
Too early to sound the alarm
Manfred J M Neumann
Spending cuts to improve confidence? No, the arithmetic goes the wrong way
J. Bradford DeLong



CEPR Policy Research

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Policy Insights and Reports

The Crisis Aftermath: New Regulatory Paradigms

The Editors

This new CEPR eReport is devoted to exploring the general issue of the origins of excessive risk-taking in the banking industry. In doing so, it provides the analytical ammunition required to rigorously examine regulatory policy at a time when it is undergoing a complete metamorphosis.

From vicious to virtuous: A five-point plan for Eurozone restoration

Marco Buti, Pier Carlo Padoan

In late 2011, the financial crisis had evolved dangerously into a vicious circle of sluggish growth, tensions in sovereign debt markets, and banking sector fragility. CEPR Policy Insight No. 61 looks at what measures are required to turn the economy around.

Trade, Competition, and the Pricing of Commodities

Simon J Evenett, Frédéric Jenny

After several decades of quiescence, global commodity prices almost doubled in 2008 and, after a brief fall, rose again in 2011. The papers in this new CEPR eReport aim to identify and assess the importance of the factors responsible for the recent increases in the levels and volatility of commodity prices.

Deep integration and production networks

Gianluca Orefice, Nadia Rocha

Do deep preferential trade agreements enhance the development of cross-border production networks? CEPR Policy Insight No. 60 examines new evidence on this relationship and finds that the link runs both ways: deep integration often leads to production-sharing, and the formation of production networks often lays bare the ‘gaps’ in governance and institutions that deep integration can address.

Trade Tensions Mount: The 10th GTA Report

Simon J Evenett

The 10th GTA report documents several factors that together imply that the protectionist threat to the world trading system is probably as significant as it was in the first half of 2009, when such concerns were last at their peak.

Unfinished Business? The WTO's Doha Agenda

Will Martin, Aaditya Mattoo

The Doha Development Agenda (DDA) is in limbo and negotiators face a difficult “trilemma”: to implement all or part of the draft agreements as they stand today; to modify them substantially; or to dump Doha and start afresh. At this critical juncture, this CEPR/World Bank volume aims to provide a better empirical basis for informed choices.

The Future of Banking

Thorsten Beck

This new Vox eBook presents a collection of essays by leading European and US economists that offer solutions to the crisis and proposals for medium- to long-term reforms to the regulatory framework in which financial institutions operate.

A framework for two macro policy instruments: Money and banking combined

Hans Gersbach

The way in which monetary policy, macroprudential policy, and microprudential regulation of banks should be organised and conducted is a major, as yet unresolved, issue. In CEPR Policy Insight No.58, the author outlines a policy framework for addressing this issue.

Resolving the Eurozone crisis: Time for conditional eurobonds

John Muellbauer

While prominent observers are preparing the funeral rites for the Eurozone, the author of CEPR Policy Insight No. 59 argues that the faulty machinery of the Eurozone can be successfully retrofitted and that it can survive.

Reforming the International Monetary System

Emmanuel Farhi, Pierre-Olivier Gourinchas, Hélène Rey

This CEPR report presents concrete proposals aimed at improving the international provision of liquidity in order to limit the effects of individual and systemic crises and decrease their frequency.

Discussion Papers

How can Bill and Melinda Gates increase other people's donations to fund public goods?

Dean Karlan, John List

With governments strapped for cash, charities are stepping up to provide public goods. But how can charities mobilise support from small donors to fund their work? CEPR DP8922 investigates whether altruists would donate more if they knew more about a charity’s quality. In the authors’ experiment, Bill and Melinda Gates matched donations to a particular charity. Small donors saw this as a signal of the charity’s quality – and donations soared.

The role of speculation in oil markets: What have we learned so far?

Bassam Fattouh, Lutz Kilian, Lavan Mahadeva

What caused the price of oil to surge in 2003–08? CEPR DP8916 assesses – and finds little evidence for – the popular view that ‘speculation’ drives oil price shocks. Economic fundamentals, the authors argue, are still the main determinants.

The dynamics of homeownership among the 50+ in Europe

Viola Angelini, Agar Brugiavini, Guglielmo Weber

In January the UK government launched an initiative to help the elderly downsize into smaller homes – and provoked the ire of pensioner groups nationwide. This reluctance to downsize to among the elderly perplexes economists, who maintain that leveraging housing wealth can help pensioners maintain a good standard of living on a fixed income. CEPR DP8889 investigates what is behind European pensioners’ puzzling housing decisions.

Aid and agency in Africa: Explaining food disbursements across Ethiopian households, 1994–2004

Nzinga Broussard, Stefan Dercon, Rohini Somanathan

Food aid can prevent starvation – but only if the neediest actually receive it. CEPR DP8861 examines how food aid in Ethiopian villages can be biased away from those who need it most. Households with greater local influence or groups targeted by international agencies often receive more than they need. Knowing more about these biases, the authors conclude, can improve distribution and save lives.

Unhappiness and job finding

Anne Gielen, Jan van Ours

Much research has documented that unemployment makes people unhappy. But does unhappiness spur the unemployed to look harder for jobs? And if so, why do governments need to help them find work with active labour market policies? CEPR DP8842 finds that the unhappiest of the unemployed do search harder for jobs, but don’t find them faster – suggesting that even the most motivated jobseekers could benefit from activation policies.

Gender differences in risk aversion: Do single-sex environments affect their development?

Alison Booth, Lina Cardona Sosa

Some blame women’s under-representation in high-level jobs on differences between the sexes in risk aversion and competitiveness. But are these differences in behaviour hardwired or learned? The authors of CEPR DP8690 tackled this thorny question with a controlled experiment in single-sex and co-educational classrooms. Women, they find, become far less timorous about uncertainty with the men out of the room.

The long-run effect of 9/11: Terrorism, backlash, and the assimilation of Muslim immigrants in the West

Eric D Gould, Esteban F Klor

How does radical Islamic terrorism impact Muslim immigrants in the West? The backlash against Muslims in the US after the terrorist attacks of 9/11 damaged assimilation among Muslim immigrants, argue the authors of CEPR DP8797 – and they present strong evidence to prove it.

Looking beyond the incumbent: The effects of exposing corruption on electoral outcomes

Alberto Chong, Ana De La O, Dean Karlan, Léonard Wantchékon

For democratic theorists, the notion that greater transparency improves accountability is axiomatic: when voters find out about political corruption, they punish the offending politicians by not voting for them again. But, the authors of CEPR DP8790 argue, many voters also respond to evidence of corruption by not voting at all – indicating that more transparency might not automatically result in a healthier democratic process.

The role of central banks in financial stability: How has it changed?

Willem Buiter

The global crisis inaugurated a new era for central banks in the advanced economies, when their conventional role as interest rate-setters and lenders and market makers of last resort expanded. Central banks have become the custodians of stability for financial markets – a role for which they lack both democratic accountability and political legitimacy, argues Willem Buiter in DP8780. He decries the new “perverse division of labour” between central banks and fiscal authorities and appeals for a reassessment of this pathological arrangement.

A series of unfortunate events: Common sequencing patterns in financial crises

Carmen M Reinhart

Financial crises often unfold according to common patterns, but the post-2007 contraction is in fact different from other post-WWII crises in its unusual severity, says Carmen Reinhart in CEPR DP8742. But the patterns of past crises may still provide clues on the future of housing, labour, and international financial markets. This paper outlines what that future might look like.