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What does ‘Keynesian’ really mean?

Jonathan Portes, 7 February 2012

What does it mean to be a ‘Keynesian’? This column argues that, like so much in economics, the label has become politicised. The cost is an impoverished policy debate that is resulting in millions of avoidable job cuts.

Falling policy uncertainty is igniting the US recovery

Scott Baker, Nicholas Bloom, 7 February 2012

Reading the business press, one gets the impression that the world of policy is in a very uncertain state around the world. This column presents an up-to-date index of policy uncertainty and suggests that the calming of policy uncertainty may have aided recent economic prospects in the US. Unfortunately, policy uncertainty still appears extremely high in Europe with the Eurozone crisis.

The fiscal compact treaty: Keynes and the German taxpayer

Jacob Funk Kirkegaard, 6 February 2012

Europe’s new fiscal compact is seen by some as the death of Keynesian government spending. This column argues that such analysis is simply wrong. It says that there is still room for government spending in extreme situations, but that there are now more safeguards to maintain stability, reduce contagion, and placate German taxpayers.

Shifting motives: Explaining the build-up in official reserves in emerging markets since the 1980s

Atish R Ghosh, Jonathan D Ostry, Charalambos Tsangarides, 6 February 2012

Over the past three decades, emerging market economies have been rapidly accumulating reserves – a trend that has resumed, and even accelerated, following the 2008 global financial crisis. This column examines factors driving this accumulation and how these factors have evolved over time and differed across countries.

Seven things I learned about the transition from communism

Andrei Shleifer, 5 February 2012

Twenty years ago, communist countries began their shift towards capitalism. What do we know now that we didn’t know then? Harvard's Andrei Shleifer, the Russian-born, American-trained economist, provides his answers and their relevance for contemporary policymakers.

Is Italy going to make it?

Nicola Borri, Gianfranco di Vaio, Giuseppe Ragusa, 4 February 2012

Will Italy be able cut its debt and abide by the new EU fiscal rules? This column presents a simulation of the evolution of the Italian debt-to-GDP ratio. It finds that Italy’s borrowing and saving plans are sustainable – even at today’s high interest rates.

Europe without euro and EU

Bruno S Frey, 3 February 2012

What will happen if the euro collapses? For many people, the answer is unmitigated disaster. But this column argues that to identify the euro, the EU, and Europe as one, as many politicians like to do, is totally misleading. A possible demise of the euro and the EU can be seen as a chance for the evolution of a better future Europe.

Sovereign ratings when default can come explicitly or via inflation

Charles A.E. Goodhart, 2 February 2012

Inflation in the UK is now more than double that of France, but only one country has had its credit rating downgraded. This column argues that government credit ratings should be aided by a second rating measuring the potential loss of real value, whether by inflation or default.

Next-generation system-wide liquidity stress testing

Christian Schmieder, Heiko Hesse, Benjamin Neudorfer, Claus Puhr, Stefan W Schmitz, 1 February 2012

The global financial crisis has shown that neglecting liquidity risk comes at a substantial price. This column presents a new framework to run system-wide, balance sheet data–based liquidity stress tests. The liquidity framework includes a module to simulate the impact of bank-run type scenarios, a module to assess risks arising from maturity transformation and rollover risks, and a framework to link liquidity and solvency risks.

Understanding past and future financial crises

Pierre-Olivier Gourinchas, Maurice Obstfeld, 1 February 2012

What explains the different effects of the crisis around the world? This column compares the 2007–09 crisis to earlier episodes of banking, currency, and sovereign debt distress and identifies domestic-credit booms and real currency appreciation as the most significant predictors of future crises, in both advanced and emerging economies. It argues these results could help policymakers determine the need for corrective action before crises hit.

Foreign banks and the global financial crisis: Investment and lending behaviour

Stijn Claessens, Neeltje van Horen, 31 January 2012

How did foreign banks adjust their investment and lending decisions during the global financial crisis? This column uses a new and comprehensive database to show that the crisis dramatically halted foreign direct investment in banking and that foreign banks often cut back on lending more than their domestic competitors. While exits have so far been limited, this is likely to change in the coming years.

Anorexia and bulimia: New evidence from European women

Joan Costa-i-Font, Mireia Jofre-Bonet, 30 January 2012

Striving for the perfect body can take its toll, both physically and mentally. This column shows how excessive preoccupation with self-appearance can give rise to preventable eating disorders, such as anorexia and bulimia, among European females. It is time for policy action to shift people’s perceptions of their ideal body closer to what is healthiest.

Does the renminbi matter? Evidence from China’s disaggregated processed exports

Willem Thorbecke, 29 January 2012

Understanding China’s economy is becoming as difficult as it is important. This is particularly the case for China’s exports and its exchange rate, which have been the source of controversy and intense debate in recent years. Shedding light on the issue, this column disaggregates China’s processing trade, with some surprising implications for policy in the region and elsewhere.

Foreign banks: New data on trends and effects

Stijn Claessens, Neeltje van Horen, 28 January 2012

Foreign banks on domestic soil have always been controversial. This column presents a newly collected, comprehensive database on bank ownership for 137 countries over the period 1995–2009. It shows that current market shares of foreign banks average 20% in OECD countries and 50% elsewhere. In developing countries, however, foreign bank presence is correlated with less private credit.

Rogue aid: Should we fear China’s aid programme?

Axel Dreher, Andreas Fuchs, 27 January 2012

China is often accused of providing ‘rogue aid’. China is said to be more interested in securing natural resources, export markets, and political alliances than concerned about the development of needy countries This column looks at the data on China’s aid allocations between 1996 and 2005. It finds that China is in fact no more self-serving than most Western donors.

Constraints to growth in Sri Lanka and private enterprise development in low-income countries

Christopher Woodruff, 27 January 2012

Christopher Woodruff talk to Viv Davies about his recent research in Sri Lanka that looks at the constraints to growth of micro-enterprises and how to generate job creation; he highlights the effects of wage subsidies, savings programmes, entrepreneurship training, firm registration and the transition from small informal firms to more dynamic enterprises. They also discuss a new 5-year competitive research grants programme, directed by Woodruff and co-ordinated by CEPR, that focuses on private enterprise development in low-income countries.

The coming resolution of the Eurozone crisis

Fred Bergsten, Jacob Funk Kirkegaard, 26 January 2012

Policy reactions to the Eurozone crisis are seen by many as short-sighted, incoherent, and driven by political expediency. This column disagrees. What we are seeing is a game of chicken among the key political and economic powers in Europe. As the crash looms ever closer, the right deals will be struck and Europe will emerge stronger and with its currency intact.

Surges in capital flows to emerging markets: Causes and policy implications

Atish R Ghosh, Mahvash Saeed Qureshi, 26 January 2012

In the immediate aftermath of the global financial crisis, there was a rapid surge in net capital flows to emerging market economies. The subsequent decline in recent months has been even more rapid. Looking at data on 56 emerging market economies between 1980 and 2009, this column examines the causes of the mercurial movement of capital flows across countries and outlines the implications for policy.

Europe’s fiscal union: Lessons from US federalism

C Randall Henning, Martin Kessler, 25 January 2012

In the last few months, several Vox columns have drawn parallels between Europe today and an emerging – and even less stable – United States in the eighteenth century. This column stresses that Europe’s leaders in search of a fiscal union need not seek to replicate the US experience but they should at least learn from it.

The back of Berlusconi: Is this the end of populism in Europe?

Luigi Guiso, Helios Herrera, Massimo Morelli, 25 January 2012

What good might come from Europe’s crisis? Profligate governments in Italy and Greece, while pandering to the masses, have left their countries with crippling debt. This column draws parallels with Latin America and argues that the current hardship may sound a death knell for populism in southern Europe, as it has elsewhere.

 

VoxEU Debates

Why do we need a financial sector?

Lead Commentaries include

What is the value added of banks?
Christina Wang
Where is Wal-Mart when we need it?
Thomas Philippon
What is the contribution of the financial sector?
Andrew G Haldane, Vasileios Madouros
The myth of financial innovation and the Great Moderation
Wouter den Haan, Vincent Sterk
On the tradeoff between growth and stability
Alexander Popov, Frank Smets



CEPR Policy Research

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Policy Insights and Reports

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.

Public Debts: Nuts, Bolts and Worries

Barry Eichengreen, Robert Feldman, Jeffrey Liebman, Jürgen von Hagen, Charles Wyplosz

The 13th CEPR/ICMB Geneva Report on the World Economy takes a long-term perspective on debt sustainability, arguing that fiscal stabilisation is easier the faster the economy is growing.

The implications of intra-euro area imbalances in credit flows

Willem Buiter, Juergen Michels, Ebrahim Rahbari

The Eurozone money transfer system, TARGET2, has huge imbalances whose meaning is subject to much debate. This Policy Insight by Citigroup Chief Economist Willem Buiter and co-authors argues that the imbalances show some banks can’t fund themselves without public support.

Resolve Falters As Global Prospects Worsen: The 9th GTA Report

Simon J Evenett

The 9th GTA report shows that the pick-up in protectionism since the Seoul G20 summit coincides with the deterioration in economic sentiment.

Discussion Papers

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.

Women's empowerment and economic development

Esther Duflo

Economic development and the empowerment of women are intertwined: gender inequality declines as a country develops, even without measures specifically targeted at women. And some evidence indicates that policies aimed at improving gender equality can help development. But, CEPR DP8734 argues, development alone is not enough to achieve gender equality and empowerment of women is not enough to spark development. Deprived of such a magic bullet, policymakers may need to commit to gender equality for its own sake if it is to be achieved.

Optimal taxation of top labor incomes: A tale of three elasticities

Thomas Piketty, Emmanuel Saez, Stefanie Stantcheva

As protesters occupy Wall Street and cities around the world decrying the disparity between the top 1% and the remaining 99%, CEPR DP8675 investigates the link between skyrocketing inequality and top tax rates in OECD countries. The authors find a strong correlation between tax cuts for the highest earners and increases in the income share of the top 1% since 1975.

Laws and norms

Roland Bénabou, Jean Tirole

Why do many oppose the selling of human organs if, as economists argue, this would increase supply? Economists see material incentives as key to changing behaviour – and are puzzled if incentives don’t work as expected. For psychologists, social norms explain such behaviour; legal scholars say law can shape society’s norms. CEPR DP8663 tries to reconcile these disparate insights with a unifying theory that could explain puzzles such the aversion to organ-selling as well as why so many people resist economists’ advice.

The "Austerity Myth": Gain without pain?

Roberto Perotti

With crisis plaguing the Eurozone and austerity the favoured prescription for diseased EZ economies, some are asking: Can big fiscal consolidations, especially those based on cuts, actually restart growth? CEPR DP8658 examines four episodes of past fiscal consolidations in European countries and evaluates the evidence.

Supply-side policies at the zero lower bound

Jesús Fernández-Villaverde, Pablo A Guerron-Quintana, Juan F Rubio-Ramirez

The authors of CEPR DP8642 offer a reminder about the usefulness of supply-side policies when the constraints of fiscal consolidation and the zero lower bound limit the macroeconomic-policymaking toolbox. A wealth effect from supply-side reforms could boost aggregate demand and help pull an economy out of the doldrums.

Unconditional convergence

Dani Rodrik

If rich and poor countries have access to the same technology, shouldn't their productivity levels eventually converge? This would imply that poor countries should grow more quickly until they catch up – but such a tendency has never been proven. CEPR DP8631 shows that this convergence in output does in fact occur – but within manufacturing sectors rather than in economies as a whole.