Misalignments of real exchange rates continue to be the most visible and painful symptom of asymmetric shocks within the Eurozone. An important factor behind such misalignment is the difference in national wage formation and bargaining systems, especially between core and periphery members. This column argues that all members need to have institutions that ensure wage developments are in line with productivity developments. This would eliminate an important source of asymmetric behaviour and reduce resistance to EZ-wide fiscal mechanisms capable of absorbing asymmetric shocks.
André Sapir, 12 February 2016
Jacob Funk Kirkegaard, 25 January 2016
The migrant crisis will continue to top headlines in 2016. This column takes a detailed look at the EU’s response to dealing with migration, concluding that everything points towards failure as the likely outcome. Unlike the most critical aspects of the Eurozone Crisis, the main drivers of the current migration emergency are external factors such as war. These circumstances are highly unlikely to change in the medium term. The hardball politics and threats that proved extraordinarily effective in coercing member states into accepting domestic political conditionality in return for financial aid during the Eurozone Crisis are doomed to fail when it comes to migration.
Giacomo Calzolari, Vincenzo Denicolò, 20 January 2016
Intel dominates the market for microchips, an essential component of innumerable electronic devices. This column proposes a structured antitrust test that could tackle the issue of how antitrust authorities make decisions on whether a dominant firm’s rivals can compete for exclusive contracts effectively. This decision depends on the size of the dominant firm’s competitive advantage, which isn’t something that we can easily measure but is something that is correlated with other variables, such as the firms’ market shares.
Pablo Fajgelbaum, Eduardo Morales, Juan Carlos Suarez, Owen Zidar, 06 January 2016
Tax policy varies widely across countries and across regions within countries. This column presents evidence suggesting that in the case of the US, harmonising tax rates could lead to significant increases in aggregate economic output. EU policymakers should take note.
Biagio Bossone, Marco Cattaneo, 04 January 2016
‘Helicopter tax credits’ have been proposed as a means of injecting new purchasing power into the economies of Eurozone Crisis countries. This column outlines one such system for Italy. The Tax Credit Certificate system is projected to accelerate Italy’s recovery over the next four years, and will likely be sustainable. It also provides a tool to avoid the breakup of the Eurosystem and its potentially disruptive consequences.
Matthew J. Bloomfield, Ulf Brüggemann, Hans B. Christensen, Christian Leuz, 17 December 2015
Labour mobility is an important prerequisite for the efficiency of labour markets. In the EU, however, different standards across countries present an implicit economic barrier for high-skilled professionals. This column examines how the recent EU harmonisation of professional standards in accounting affected cross-border migration relative to other professionals. The harmonisation had a strong positive effect on accountants’ cross-border migration. Harmonisation could thus be a potentially powerful tool for policymakers seeking to improve labour market efficiency.
Daniel Gros, Willem Pieter de Groen, 15 December 2015
Banking policy remains of great importance in the aftermath of the Global Crisis. This column presents recent research on the ability of the Single Resolution Fund to weather any future crisis scenario imaginable. The fund will be built up gradually over the coming decade, but as the losses from any future banking crisis are also likely to arise over a long period of time, the Single Resolution Fund should be sufficient to deal even with a crisis of similar proportions to the last one.
Scott Ross Baker, Nicholas Bloom, Steven J. Davis, 15 December 2015
The recent influx of refugees to Europe has stoked security fears and created anxiety about the social and economic consequences. This column provides new quantitative indicators for the intensity of migration-related fears and policy uncertainty, based on newspaper articles. The indices are presented for the US, UK, France, and Germany, and extend back to 1995. They show that recent levels of concern and uncertainty in European countries about migration are unprecedented.
Nauro F. Campos, Fabrizio Coricelli, 11 December 2015
Whatever the result of Britain’s upcoming in-or-out referendum on EU membership, its relationship with the EU will change substantially. To assess these changes, it is important to understand how Britain has benefited from EU membership. This column argues that EU membership has brought benefits through three key mechanisms – trade, foreign investment, and finance. The current focus on UK exports to and imports from the EU may severely underestimate the true potential costs to Britain of Brexit.
Ángel Ubide, 09 December 2015
The diversity of European economic cycles, economic structures, and political dynamics is a strength of the Eurozone. However, sustainable arrangements are required to distribute risks and ensure that all countries can use fiscal policy to cushion economic downturns. This column proposes the creation of a system of stability bonds for the Eurozone. These could be structured to minimise moral hazard, improve governance, and ensure that fiscal policy can support growth during the next recession.
Daron Acemoglu, Murat Üçer, 18 November 2015
Following an anaemic performance with severe imbalances in the 1990s and a debilitating financial crisis in 2001, Turkey enjoyed a period of rapid economic growth. Since about 2007 onwards, however, economic growth has slowed significantly and productivity growth has stagnated. This column argues that, rather than providing another example of the ‘stop-and-go’ cycles typical of emerging economies, the Turkish economy's ups and downs during this era reflect institutional improvements in the immediate aftermath of its financial crisis, followed by an ominous slide in the quality of these economic and political institutions.
Shekhar Aiyar, Anna Ilyina, Andreas Jobst , 05 November 2015
European banks are struggling with high levels of non-performing loans. This column explores the channels through which persistently high non-performing loans hold down credit growth and economic activity. A survey of EU authorities and banks reveals that the loans are not written-off for a variety of deep-seated reasons, including legal and tax code issues. An agenda is proposed comprising tightened bank supervision, structural bankruptcy reforms, and the development of markets for distressed assets.
Simone Moriconi, Giovanni Peri, 19 October 2015
Unemployment rates vary widely across EU countries. While national institutions and policies explain much of the variation, cultural values, attitudes, and beliefs may also play a role. This column uses survey data from 26 EU countries to investigate the existence of culturally transmitted preferences for work. Country-specific preferences for work are found to have a positive effect on emigrants’ labour market outcomes, with those from countries with an above-average preference for work having higher employment rates abroad. Cultural preferences are significant enough that EU countries may never converge to the same employment rate.
Matteo Regesta, Alessandro Tentori, 04 October 2015
Market liquidity is all about smooth and rapid executions of large transactions. But why is it hard to keep big markets liquid? This column looks at liquidity in fixed-income markets, assesses new trends (as well as the EU’s new market instrument rules), and makes recommendations to policymakers to avoid illiquidity – a timely reminder that the social costs of illiquidity should not be underestimated.
Kick-off Conference of the ADEMU project (A Dynamic Economic And Monetary Union). Hosted by University of Cambridge, October 8-9, 2015. More information and registration: http://ademu-project.eu/
Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, Hiroshi Iyetomi, 05 September 2015
Deflation is a threat to the macroeconomy. Japan had suffered from deflation for more than a decade, and now, Europe is facing it. To combat deflation under the zero interest bound, the Bank of Japan and the European Central Bank have resorted to quantitative easing, or increasing the money supply. This column explores its effectiveness, through the application of novel methods to distinguish signals from noises.
Esa Jokivuolle, Jussi Keppo, Xuchuan Yuan, 23 July 2015
Bankers’ compensation has been indicted as a contributing factor to the Global Crisis. The EU and the US have responded in different ways – the former legislated bonus caps, while the latter implemented bonus deferrals. This column examines the effectiveness of these measures, using US data from just before the Crisis. Caps are found to be more effective in reducing the risk-taking by bank CEOs.
Nauro F. Campos, Fabrizio Coricelli, 17 July 2015
Greece’s reluctance to implement ‘the structural reforms required for debt sustainability’ is a recurrent theme in the debate on the EZ Crisis. This column qualifies this conventional wisdom by reassessing the relationship between Greece and the EU over the past four decades. Although Greece has implemented structural reforms that were substantial enough to bring about a turning point in its relationship with the EU, these reforms have been overly localised, badly sequenced and implemented by short-sighted political elites. The role that structural reforms can play in solving the current crisis should not be overestimated.
Nauro F. Campos, Fabrizio Coricelli, Luigi Moretti, 19 June 2015
The imminence of the British referendum lays the European integration project at a crossroads. One tabled policy proposal is to offer different membership options – shallow integration (economic only) and deep integration (economic and political). This column presents new evidence comparing these two options. Focusing on Norway, a country that is economically but not politically associated with the EU, deep integration is estimated to bring a 6% productivity gain in the first five years, compared with shallow integration. These findings bring new economic arguments to debates about EU integration and membership.
Niklas Gadatsch, Tobias Körner, Isabel Schnabel, Benjamin Weigert, 03 June 2015
There is a broad consensus that financial supervision ought to include a macroprudential perspective that focuses on the stability of the entire financial system. This column presents and critically evaluates the newly-created macroprudential framework in the Eurozone, with a particular focus on Germany. It argues that, while based on the right principles, the EU framework grants supervisors a high degree of discretion that entails the risk of limited commitment and excessive fine-tuning. Further, monetary policy should not ignore financial stability considerations and expect macroprudential policy to do the job alone.