Economists can’t say: “we told you so.” Economists don’t have perfect foresight. But like doctors after the outbreak of a contagious disease – economists can tell you how the disease might spread, so that you may be better prepared. Here are some of the possible dangers ahead.
More liquidity is good for entrepreneurs, but not always. New empirical analysis gives evidence on a hypothesis formulated by Adam Smith and suggests directions for policy discussions.
The nature of central banking and monetary policy formulation has changed radically over the past two decades. The revolution was driven by the interaction of monetary policy failures and theoretical developments.
Incumbents enjoy an electoral advantage that they have been known to exploit to the detriment of society. Recent theoretical research into “political contracts” suggests ways of mitigating the incumbency problem.
Historical evidence from a natural experiment in South Africa suggests that changing particular institutions is really only tinkering at the economic margins. Establishing clear property rights, by contrast, facilitates almost all economic interactions and unleashes the full potential of the economy. Several developing economies – such as Vietnam and China – have recently been moving down this road, and history suggests that the economic gains are likely to be large.
Recent research suggests that the additional predictive power of the yield curve – beyond the information in other macroeconomic variables – often appeared during periods of uncertainty about the underlying monetary regime. This is true, for example, of the US during the Volcker disinflation episode.
How is the quality of public education affected by the presence of private schools for the rich? Theory and evidence suggest that the link crucially depends on the structure of the political system. A large private education sector can benefit public schools in a broad-based democracy where politicians are responsive to the needs of families using public schools, but leads to disastrous outcomes in a society that is politically dominated by the rich.
Public interventions are bad except when there is a well-identified market failure. Since early August, we have witnessed a massive market failure due to acute information asymmetry. Intervention should directly address the failure, but that’s not possible this time, so we have the second-best solution. Why is it that a second-best solution is better than none?
Ensuring secure career paths, streamlining layoff procedures, creating a more efficient unemployment insurance system and changing the way it is financed. All these reforms are possible, but they can only be accomplished together.
Are Muslims successfully resisting integration in the UK? And are Muslims who belong to certain socio-economic or demographic groups more likely to integrate than others?
Parents are right to worry about their children's early use of cannabis, at least with respect to educational attainment. Early initiation into cannabis reduces educational attainment considerably.
Today Americans work much more than Europeans, while this was not the case back in the 1970s. Have Europeans become lazier than Americans? Arguably not: differences in working time across the two sides of the Atlantic simply reflect differences in workers incentives over their working life.
Increasing the flexibility of the exchange rate regime is the major priority in setting a course towards the full integration of China into the international financial system.
A thousand years ago, Asia was ahead. Why is Europe richer now? Asia was geographically less vulnerable to cultural diffusion and thus benefited from enhanced assimilation, lower cultural diversity and greater accumulation of society-specific human capital; this was an edge in the agricultural stage. Greater cultural rigidity, however, diminished the ability to adapt to a new technological paradigm, delaying their industrialisation.
Even though the CAP has been heavily reformed over the past 15 years, it continues to support major unproductive sectors of European agriculture. This has helped to frustrate the WTO trade talks and to embarrass the EU’s broader commercial policy agenda.
To economists, criminals are people with a low opportunity cost and few legitimate opportunities. Terrorism is different. Terrorists and their organisations seek to make a political statement; terrorists arise when there are severe political grievances with no alternatives for pursing those grievances.
Obesity at the individual level is a medical problem, but the rapid rise in global obesity is a policy problem. Research on US data shows that the obesity is inversely related to a variety of measures of social and economic advantage. One important factor is years of maternal education, but much of the link between socioeconomic factors and obesity remains unexplained.
New empirical research on patent citations shows that when it comes to the flow of new ideas, distance is now dying. But for many sectors, especially in the more traditional and mature technologies, it is not yet dead; spatial agglomeration of R&D still makes sense.
Securitisation transferred credit risk from bank’s balance sheets to the market. The subprime problem became a crisis when some of this risk landed back on banks. Regulators need to find a way to deal with the off-balance sheet operations of banks that made this possible and to improve transparency concerning banks’ effective exposure to risk.
The US’s 150 fatalities per million is far above the EU’s 95, suggesting that the package of policies in Europe - including a higher driving age and a lower drinking age - leads to lower fatalities. Indeed, recent research shows that raising the minimum legal drinking age to 21 in the US did not reduce traffic fatalities among 18-20 year olds and may even have raised fatalities among younger groups.
US income inequality has grown but not in a way that suggests trade with developing countries is the major reason. It’s not the least skilled who have fallen behind, but profits and the wages of the very richest Americans that have raced ahead.
The WTO negotiations are likely to experience an 18-24 month suspension before, during, and after the US presidential election. This provides a first-rate opportunity to contemplate alternatives to the current set of negotiating proposals. Here are some ideas.
A rate cut is unnecessary. Congress will swiftly augment the Bush bail-out, adding a fiscal stimulus worth, say, 0.5% of GDP. The anticipation of relief on both the fiscal and monetary side is likely to be enough to normalise credit conditions.
Data on Germany suggest that important differences in the evolution of skill requirements at work by gender explain a substantial fraction of the closing of the gender wage gap. Policies promoting female employment should respond to these changing skill requirements.
- 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
- Do entrepreneurs matter?Becker, Hvide
- 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
CEPR Policy Research
- 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
- Does Supporting Passenger Railways Reduce Road Traffic Externalities?Lalive, Luechinger, Schmutzler
- 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