CAGE Background Briefing Series

The Costs and Benefits of the Renewable Transport Fuel Obligation

The Renewable Transport Fuel Obligation (RTFO) is a key policy in the UK aimed at reducing carbon emissions by mandating the blending of biofuels with fossil fuels. This briefing examines the policy’s costs for petrol consumers, decomposes the impact of biofuel prices and the obligation rate, evaluates the benefits to carbon emissions, and calculates the implied cost of carbon. This work assumes that the biofuels used to meet the RTFO adhere to the relevant government rules and regulations on their composition and sourcing.

Discrimination in hiring based on potential and realised fertility: A field experiment

Sascha O. Becker, Ana Fernandes and Doris Weichselbaumer, The CAGE Background Briefing Series No. 99, June 2019

The arrival of a child affects women and men differently in terms of labour market outcomes, but it is difficult to separate out the causal impact of discrimination from other factors. This column uses empirical evidence from Germany, Switzerland, and Austria to show that women are most affected in part-time job applications if they signal a ‘risk’ of having young children soon.

Advertising as a major source of human dissatisfaction: Cross-national evidence on one million Europeans

Chloé Michel, Michelle Sovinsky, Eugenio Proto and Andrew Oswald, The CAGE Background Briefing Series No. 98, May 2019

Although the negative impact of conspicuous consumption has been discussed for more than a century, the link between advertising and individual is not well understood. This column uses longitudinal data for 27 countries in Europe linking change in life satisfaction to variation in advertising spend. The results show a large negative correlation that cannot be attributed to the business cycle or individual characteristics.

Tariffs and politics: Evidence from Trump’s trade wars

Thiemo Fetzer and Carlo Schwarz, The CAGE Background Briefing Series No. 97, April 2019

Tariff retaliation is widely believed to be politically motivated. This column presents evidence that retaliation against the Trump administration’s tariff hikes seems to be systematically targeted against the Republican voter base. China appears to have been able to achieve a high degree of political targeting but likely harmed its own economy by targeting agricultural goods for which the US is a major supplier. The EU, on the other hand, appears to be more successful in navigating the trade-off. It also finds some evidence suggesting that Republican candidates fared worse in the mid-term elections in the US counties most exposed to retaliation.

Austerity caused Brexit

Thiemo Fetzer, The CAGE Background Briefing Series No. 96, April 2019

A rich literature has emerged aiming to make sense of the causes behind the Brexit vote, but it has mainly been descriptive. This column uses regional-level data on spending and voting behaviour, as well as individual-level survey data, to argue that the austerity policies in place in the UK since 2010 were an important contributing factor to the vote to Leave. Estimates suggest that the close-run referendum could have resulted in a victory for Remain had it not been for austerity.

Voting with their money: Brexit and outward investment by UK firms

Holger Breinlich, Elsa Leromain, Dennis Novy and Thomas Sampson, The CAGE Background Briefing Series No. 95, February 2019

Media reports suggest that some UK firms have started to move production abroad in anticipation of Brexit. Using data on announcements of new foreign investment transactions, this column reports evidence that the Brexit vote has led to a 12% increase in the number of new investments made by UK firms in EU27 countries. At the same time, new investments in the UK from the EU27 have declined by 11%. The results are consistent with the idea that UK firms are offshoring production to the EU27 because they expect Brexit to increase barriers to trade and migration, making the UK a less attractive place to invest and create jobs.

Brexit: Blame it on the banking crisis

Nicholas Crafts, The CAGE Background Briefing Series No. 94, January 2019

Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that they are in fact closely connected. The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote. The implication is that the economic costs of the banking crisis are much larger than is usually supposed.

The economic effects of Brexit: Evidence from the stock market

Holger Breinlich, Elsa Leromain, Dennis Novy, Thomas Sampson and Ahmed Usman, The CAGE Background Briefing Series No. 93, October 2018

How did the stock market react to the Brexit referendum of June 2016? This column shows that initial stock price movements on the day after the Leave vote were driven by fears of an economic slowdown in the UK and by a sharp devaluation of the pound. Later movements following two speeches by Theresa May in October 2016 and January 2017 were more closely correlated with potential future changes to tariffs and non-tariff barriers on UK-EU trade. This indicates that these speeches led investors to update their assessment of the likelihood of a hard Brexit.

Currency unions mean more trade, but not for everyone

Natalie Chen and Dennis Novy, The CAGE Background Briefing Series No. 92, July 2018

Currency unions usually go hand in hand with deeper economic integration. But does that automatically mean more international trade? This column shows that since the end of WWII, currency unions have on average been associated with 40% more trade between member countries. The ‘thin’ relationships between countries who do not trade much with each other benefit the most from currency unions, with little in the way of a boost for more established trading relationships.

New eBook: The economics of the Great War: A centennial perspective

Stephen Broadberry and Mark Harrison, The CAGE Background Briefing Series No. 91, November 2018

November 2018 marks the 100th anniversary of the end of World War I. This column introduces a new VoxEU eBook which takes the opportunity to reflect on recent work that provides a reassessment of the role of economics in the war.

Politics in the Facebook era: How reading political ads on Facebook affects our voting behaviour (…and helped Trump to win the presidential election)

Federica Liberini, Michela Redoano, Antonio Russo, Angel Cuevas Rumin and Ruben Cuevas Rumin, The CAGE Background Briefing Series No. 90, November 2018

The ways we access news and, with it, the nature of political communication have radically changed since the advent of social media. This column uses a unique dataset that matches individuals to Facebook audiences to examine the extent and intensity of online political campaigns conducted on the site before the 2016 US presidential elections. The social platform had a significant effect in persuading undecided voters to support Trump and in persuading Republican supporters to turn out on election day, but had no effect on Clinton’s side.

The importance of frontier knowledge for the generation of ideas

Alessandro Iaria, Carlo Schwarz and Fabian Waldinger, The CAGE Background Briefing Series No. 89, January 2018

Access to existing knowledge fuels basic scientific progress and is key to the development of new technologies. This column studies how the decline in scientific cooperation that occurred during and after WWI affected science and innovation. The interruption of international knowledge flows led to stark declines in both the volume and quality of scientific production. This points to the merits of opening up access to scientific journals and of discerning what constitutes frontier research.

Economists relaxed about Bitcoin: New CFM-CEPR expert survey on cryptocurrencies, the financial system, and economic policy

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 88, December 2017

Cryptocurrencies have been a staple of news headlines in 2017. The latest Centre for Macroeconomics and CEPR survey suggests that the majority of leading European economists do not believe that these currencies are currently a threat to the stability of the financial system, or will be in the next couple of years. A majority of panel members, however, are in favour of greater regulatory oversight, primarily because of concerns that the anonymity and opacity of cryptocurrencies facilitate tax evasion and other criminal activities.

Moving around: The changing geography of US manufacturing during the 20th century

Nicholas Crafts and Alex Klein, The CAGE Background Briefing Series No. 87, December 2017

The geography of industrial production changed dramatically during the 20th century both across and within countries. This column provides new estimates of changes in the spatial concentration of US manufacturing from 1880 to 1997. The average level across all industries fell by more than half over the period. Although creative destruction has had a strong spatial component, almost all industries can be described as significantly spatially concentrated at all times.

The Soviet economy, 1917-1991: Its life and afterlife

Mark Harrison, The CAGE Background Briefing Series No. 86, November 2017

Russia’s Soviet era was distinguished not by economic growth or human development, but by the use of the economy to build national power. On the centenary of the Bolshevik revolution of 1917, this column shows that while the education of women and better survival rates of children improved opportunities for many citizens, Soviet Russia was a tough and unequal environment in which to be born, live and grow old. The Soviet economy was designed for the age of mass production and mass armies. That age has gone, but the idea of the Soviet economy lives on, fed by nostalgia and nationalism.

Brexit was a cry of financial pain and not the influence of the old

Federica Liberini, Andrew Oswald, Eugenio Proto and Michela Redoano, The CAGE Background Briefing Series No. 85, October 2017

There has been much debate on the determinants of the vote for Brexit. This column uses newly released data from the Understanding Society study to examine the characteristics of individuals who were for and against Brexit. Unhappiness contributed to the vote to leave the EU, but this was driven by feelings about individual financial situations rather than a general dissatisfaction with life. Brexit does not appear to have been caused by the old – only those under the age of 25 were substantially pro-Remain.

Global risks from rising debt and asset prices: Views of leading economists

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon and Ricardo Reis, The CAGE Background Briefing Series No. 84, October 2017

The outgoing German finance minister, Wolfgang Schäuble, has recently expressed concerns about the risks posed to the world economy by high levels of debt. This column presents the latest Centre for Macroeconomics and CEPR survey of leading economists, in which a strong majority of respondents agree that an excess of public and private debt together with inflated asset prices mean that the world economy faces heightened risks. A similarly strong majority of the experts also agree that the loose monetary policy of major central banks is responsible for the recent increase in global leverage and asset values.

The midlife low in human beings

David Blanchflower and Andrew Oswald, The CAGE Background Briefing Series No. 83, September 2017

Most textbooks in social psychology teach students the idea that happiness and psychological wellbeing are essentially independent of age. Based on data on 1.3 million randomly sampled individuals across a large number of countries, this column argues instead that humans have a fundamental tendency to a midlife low which is apparently substantial and not minor. This puzzling phenomenon seems an important and fundamental one, and its existence should not be ignored.

Unemployment insurance and reservation wages

Thomas Le Barbanchon, Roland Rathelot and Alexandra Roulet, The CAGE Background Briefing Series No. 82, June 2017

The generosity of unemployment insurance can influence the time and energy job seekers dedicate to searching for a job, as well as the jobs they are willing to accept. Yet we know little about how unemployment insurance affects the reservation wages of the unemployed. Using new French data, this column shows that increasing unemployment generosity does not affect the reservation wages or the ‘pickiness’ of job seekers.

A new bargaining perspective on sovereign debt restructuring

Marcus Miller, Sayantan Ghosal, The CAGE Background Briefing Series No. 81, September 2017

Lacking some supra-national, overseeing authority, sovereigns in default typically renegotiate with their creditors. In these negotiations, the owed principal typically receives a ‘haircut’. This column explores whether overburdened sovereign debtors can strategically leverage delay as they bargain with their creditors. Under asymmetric information, a delay in the form of offers that the debtor knows won’t be accepted can work out in the debtor’s favour. The findings suggest that strategic delay can be used to show where restructuring is necessary.

The implications of Brexit for the City

Michael McMahon, The CAGE Background Briefing Series No. 80, September 2017

The UK’s membership of the EU has been a key factor behind the City of London’s emergence as a leading global financial centre. This column looks at the implications of Brexit for the City. While it is unlikely that many banks or other financial institutions will simply up and leave in the coming months, their expansion and hiring decisions may lean toward the remaining EU member states for some of their operations. And unless the politicians conducting the Brexit negotiations do their utmost to limit the damage, the loss of passporting rights is likely to have a significant negative impact on the UK financial sector.

Short-term migration, rural workfare programmes, and urban labour markets

Clément Imbert, The CAGE Background Briefing Series No. 79, September 2017

Rural policies that affect migration to the cities may have significant impact on urban labour markets. However, there is little empirical evidence on the magnitude of these effects. This column argues that India’s rural employment guarantee – the world’s largest workfare programme – reduces short-term migration from rural areas. At the same time, it increases wages of urban unskilled workers.

Environmental economic history

James Fenske, Namrata Kala, The CAGE Background Briefing Series No. 78, September 2017

A global literature has developed that illuminates the reciprocal and dynamic relationship between humans and their environment in other regions across the world. This column, which first appeared as a chapter in a recent Vox eBook, surveys on two topics in the literature: the impact of geographic endowments and the impact of environmental shocks on historical and long-run development.

Electoral accountability and the natural resource curse

Amrita Dhillon, Pramila Krishnan, Manasa Patnam, Carlo Perroni, The CAGE Background Briefing Series No. 77, September 2017

The ‘curse’ of natural resources on economic development has been well documented, but there is no consensus on its underlying causes. Exploiting the formation of new Indian states in 2001, this column shows that the effects of state breakup on local economies differ systematically across natural resource rich and resource-poor areas, in line with the spatial distribution of natural resources within states. The relationship between resource abundance and economic outcomes flows, at least in part, through a political channel.

UK industrial strategy: Views of economists on its desirability and prospects for success

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 76, September 2017

A majority of UK-based macroeconomists welcome the government’s new industrial strategy, but doubt that the government can deliver. This column, which presents the results of the latest Centre for Macroeconomics and CEPR survey, shows a large majority of economist think that the UK needs a new regional strategy to tackle inequality across different parts of the country.

The future of central bank independence: Results of the CFM–CEPR Survey

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 75, September 2017

Over the past 30 years, most central banks across the advanced economies have been given the ability to conduct monetary policy independently from interference by fiscal and political authorities. The latest Centre for Macroeconomics and CEPR expert survey invited views on whether this era of central bank independence is drawing to a close, particularly in Europe. Only 31 of the 70 respondents disagreed with the statement that there will be significant changes in the independence of monetary policy in the UK and the Eurozone in the foreseeable future. The survey also reveals that the well-established proposition among economists that a reduction in central bank independence will lead to higher inflation is no longer taken for granted, but maintaining central bank independence remains desirable.

The danger of Germany's current account surpluses: Results of the CFM and CEPR Survey

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 74, September 2017

The October 2016 expert survey of the Centre for Macroeconomics (CFM) and CEPR invited views from a panel of macroeconomists based across Europe on Germany’s trade surplus, its impact on the Eurozone economy, and the appropriate response of German fiscal policy. More than two-thirds of the respondents agree with the proposition that German current account surpluses are a threat to the Eurozone economy. A slightly smaller majority believe that the German government ought to increase public investment in response to the surpluses.

Happiness and wellbeing as objectives of macroeconomic policy: Views of economists

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 73, September 2017

Are quantitative measures of subjective wellbeing reliable enough to provide insights into empirical macroeconomic analysis, and should they influence the objectives of macroeconomic policy? The latest Centre for Macroeconomics and CEPR expert survey finds a reasonable amount of openness to wellbeing measures among European macroeconomists. On balance, though, there remains a strong sense that while these measures merit further research, we are a long way off reaching a point where they are widely accepted and sufficiently reliable for macroeconomic analysis and policymaking.

German Council of Economic Experts’ view of ECB policy: Results of the CFM–CEPR Survey

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 72, September 2017

A recent report by the German Council of Economic Experts argues that the current monetary policy of the ECB is no longer appropriate and is masking structural problems in Eurozone countries. The November 2016 Centre for Macroeconomics and CEPR expert survey invited views on the report. More than three-quarters of respondents disagree that ECB monetary policy should become less accommodating, and respondents also disagree that ECB policy is masking structural reforms. The panel is divided, however, on whether ECB policy is making implementation of structural reforms less likely.

Flexible labour markets, real wages, and economic recoveries: Views of economists

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 71, September 2017

Real hourly wage growth has behaved quite differently across countries over the past ten years. This column describes how the majority view of the latest Centre for Macroeconomics and CEPR expert survey is that low growth of real wages has had a positive impact on European employment rates during the recovery phase of the Great Recession. A strong majority of respondents also agrees that the dire performance of UK real wage growth relative to the big Eurozone economies is in large part due to the UK’s labour market policies, which provide workers with comparatively weak protection.

Brexit: The potential for a financial catastrophe and long-term consequences for the UK financial sector

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 70, September 2017

This week’s UK referendum on EU membership is likely to have both short- and long-term effects on the country’s financial sector. This column, which reports the views of panel members in the monthly Centre for Macroeconomics survey, finds that almost all think that a vote for Brexit would lead to a significant disruption to financial markets and asset prices for several months, putting the Bank of England on high alert. On top of the risk of a financial crisis in the near future, an unusually strong majority agrees that there would be substantial negative long-term consequences. No panel member expects the overall consequences of a Brexit outcome to be beneficial for the UK economy – the first time since this survey began that one side of the argument is supported by none of the respondents.

Brexit and the economics profession: Are academic economists out of touch with voters and politicians?

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 69, September 2017

The outcome of the UK’s referendum on EU membership has prompted much soul-searching in the economics profession, which was nearly unanimous in anticipating negative economic consequences from a vote for Brexit. This column presents the July 2016 Centre for Macroeconomics survey of experts, which asked for views on the role played by economic arguments in the referendum outcome, and whether institutional change is needed in the way that the findings of academic economic research – and the views of the profession as a whole – are communicated. While opinions are divided, many of the respondents who do not advocate institutional change still see considerable problems in the relationship of the academic macroeconomic community with policymakers and the public at large.

Economic models vs ‘techno-optimism’: Predicting medium-term total factor productivity rates in the US

Nicholas Crafts, Terence Mills, The CAGE Background Briefing Series No. 68, September 2017

Estimates of trend total factor productivity growth in the US have been significantly reduced, contributing to fears that the slowdown is permanent. This column provides an historical perspective on the relationship between estimated trends in total factor productivity growth and subsequent outcomes. It argues that In the past, trend growth estimates have not been a good guide for future medium-term outcomes, and ‘techno-optimists’ should not be put off by time-series econometrics.

Brexit: Lessons from history

Nicholas Crafts, The CAGE Background Briefing Series No. 67, September 2017

Joining the EU raised the level of UK real GDP significantly. This column suggests that leaving the EU will very probably have a negative effect on UK GDP, but history does not tell us how strong this effect will be. However, history does suggest that the notion that there will be a faster rate of long-run trend growth facilitated by Brexit is not persuasive. The obstacles to better supply-side policy are, as ever, to be found in Westminster not in Brussels.

Brexit: A new industrial strategy and rules on state aid

Nicholas Crafts, The CAGE Background Briefing Series No. 66, September 2017

Depending on the outcome of negotiations, Brexit potentially changes the rules that govern the use of industrial policy. The UK government has in mind risky policy reforms that appear to be incompatible with EU rules on state aid. This column argues that this is an unheralded downside of a hard Brexit.

Growing, shrinking, and long-run economic performance

Stephen Broadberry, John Joseph Wallis, The CAGE Background Briefing Series No. 65, September 2017

Most analysis of long-run economic performance abstracts from short-run fluctuations and seeks to explain improved performance through an increase in the rate of growth. Using data on annual rates of change of per capita income reaching back to the 13th century for some countries, this column show that improved long-run performance has actually occurred primarily through a decline in the rate and frequency of shrinking. Structural change, technological change, demographic change and the changing incidence of warfare offer at best a partial explanation; a full understanding requires a consideration of institutional change.

The fundamental factors behind the Brexit vote

Sascha O. Becker, Thiemo Fetzer, Dennis Novy, The CAGE Background Briefing Series No. 64, September 2017

In the Brexit referendum on 23 June 2016, the British electorate voted to leave the EU. The vote is widely seen as a watershed moment in British history and European integration. This column asks why some areas vote to leave the EU, and others voted to remain.

Are bad business practices holding back small firms in developing countries?

David McKenzie, Christopher Woodruff, The CAGE Background Briefing Series No. 63, July 2016

Better management practices are associated with better firm performance, and the quality of management practices is also associated with per capita income. This column explores the effect of business practices on small firms in developing countries. The findings indicate that better business practices are correlated with higher productivity, higher firm profits, and higher rates of survival. Poor business practices are holding back small firms in developing countries.

Efficiency and welfare costs of VAT: Evidence from VAT notches

Li Liu, Ben Lockwood, The CAGE Background Briefing Series No. 62, July 2016

Most countries have a threshold below which businesses do not need to register for value added tax (VAT). This column looks at the costs and efficiency of VAT by analysing behavioural responses of firms to the registration threshold. Voluntary registration appears more likely when the cost of inputs is high or when the proportion of business-to-consumer sales is low. There is bunching around the threshold, and this is more likely when the cost of inputs relative to sales is low or the proportion of business-to-consumer sales is high.

US cities and productivity in the railroad era

Nicholas Crafts, Alex Klein, The CAGE Background Briefing Series No. 61, July 2016

The Great Depression is considered one of the darkest times for the US economy, but some argue that the US economy experienced strong productivity growth over the period. This column reassesses this performance using improved measures of total factor productivity that allow for comparisons of productivity growth in the Depression era and in later decades. Contrary to Alvin Hansen’s gloomy prognosis of secular stagnation, the US economy was in a very strong position during the 1930s by today’s standards.

Historical analysis of national subjective wellbeing using millions of digitised books: Introducing the HPS Index

Thomas Hills, Eugenio Proto, Daniel Sgroi, The CAGE Background Briefing Series No. 60, July 2016

With records of subjective wellbeing going back less than half a century, this column asks if we can know the impact of key past events on the happiness of our ancestors. It presents a new historical index that draws on millions of digitised books in the Google Books corpus of words using sentiment analysis. The index – which goes back to the 1776 US Declaration of Independence, 200 years earlier than any other index of happiness – makes it possible to analyse the historical drivers of happiness in France, Germany, Italy, Spain, the UK and the US.

Estimating border effects in international trade: User beware

Cletus C. Coughlin, Dennis Novy, The CAGE Background Briefing Series No. 59, July 2016

Borders impede trade, and a major objective of research in international trade has been to identify by how much. This column argues that bilateral trade data can give a misleading picture. Larger countries have inherently smaller border effects because their data aggregate over more space and economic activity. Trade economists need to think harder about how slicing up the map at the level of countries drives estimates of important policy variables.

The political economy of liberal democracy

Sharun Mukand, Dani Rodrik, The CAGE Background Briefing Series No. 58, July 2016

There are more democracies in the world than non-democracies, but few of the democracies go beyond electoral competition. This column highlights the contrast between electoral democracies and liberal ones, that is, those that protect civil rights in addition to political and property rights. Liberal democracies are rare because the failure to protect minority rights is a common consequence of the emergence of democracy. They are especially uncommon in the developing world, where decolonisation and identity cleavages sparked social mobilisation.

Cereals, appropriability, and hierarchy

Joram Mayshar, Omer Moav, Zvika Neeman, Luigi Pascali, The CAGE Background Briefing Series No. 57, July 2016

Conventional theory suggests that hierarchy and state institutions emerged due to increased productivity following the Neolithic transition to farming. This column argues that these social developments were a result of an increase in the ability of both robbers and the emergent elite to appropriate crops. Hierarchy and state institutions developed, therefore, only in regions where appropriable cereal crops had sufficient productivity advantage over non-appropriable roots and tubers.

Farewell to the vultures? Argentine debt restructuring and bargaining theory

Marcus Miller, Sayantan Ghosal, The CAGE Background Briefing Series No. 56, July 2016

Shylock’s insistence in ‘The Merchant of Venice’ that his “pound of flesh” be paid as per the contract, regardless of the extreme and grotesque cost to the debtor, is an apt parallel with vulture funds holding out on Argentinian debt pay-outs. This column assesses the Argentinian debt situation and develops an accord that would create a compromise between the extremes on both sides.

The nature and effectiveness of central-bank communication

Stephen Hansen, Michael McMahon, The CAGE Background Briefing Series No. 55, July 2016

In addition to setting interest rates, central banks also communicate with the public about economic conditions and future actions. While it has been established that communication can drive expectations, less is known about how it does so. This column attempts to shed light on this question. Applying novel measures to the content of Federal Reserve statements, it shows that forward guidance is a more important driver of market variables than disclosure of information about economic conditions.

The future role of unconventional monetary policy: CFM Survey results

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 54, July 2016

Quantitative easing is called ‘unconventional monetary policy’, but monetary policy could get much more ‘unconventional’. Things like ‘helicopter money’, abolishing currency and negative nominal interest rates have entered the public policy debate. This column reports the views of leading experts on the future role of unconventional monetary policy, and what might be called ‘unconventional unconventional monetary policies’. Opinions are divided. There is a healthy dose of scepticism on the effectiveness of current and future policies, but also many respondents express urgency that central banks should have more policy tools to affect inflation and real activity when the need arises. Ultimately, the experts’ hesitations match those of central banks.

Taxing the foreign profits of multinational firms

Michael P. Devereux, Clemens Fuest, Ben Lockwood, The CAGE Background Briefing Series No. 53, July 2016

Tax avoidance by multinational firms is a complex challenge for national governments and the global tax system. Increasingly, high-income countries have been moving from foreign tax credit systems, to exempting foreign source ,income from domestic taxation. This column investigates how foreign profits should be taxed, taking into account the economic role of capital ownership. Domestic tax rates should ensure optimal allocation between domestic and foreign assets, while the tax base should be set to ensure asset purchases are undistorted. Countries may be forced to change their tax systems in more fundamental ways, however, as the mobility and flexibility of multinational corporations continues to grow.

Onwards and upwards: American productivity growth during the Great Depression

Gerben Bakker, Nicholas Crafts, Pieter Woltjer, The CAGE Background Briefing Series No. 52, July 2016

The prices of higher quality goods respond less to exchange-rate movements

Natalie Chen, Luciana Juvenal, The CAGE Background Briefing Series No. 51, January 2014

Empirical research finds that import prices do not fully adjust to exchange-rate changes. In other word, there is a limited response of trade to exchange-rate fluctuations. This column argues that part of this pass-through puzzle is explained by quality. Exchange-rate movements are more strongly absorbed into the export prices of higher quality goods. Therefore, the volume of their exports would be less responsive to exchange-rate shocks, leading to an incomplete exchange-rate pass-through.

The UK's new National Living Wage: Likely impact on employment, wages, and prices

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 50, July 2016

A new National Living Wage (NLW) replaces the UK’s National Minimum Wage from April. This column reports the views of leading experts on its likely effects on employment, wages, and prices. A majority of respondents in the monthly Centre for Macroeconomics survey believe that the NLW will not lead to significantly lower employment; similarly, a majority of respondents believe that the NLW will only have a muted effect on wages and prices. The key unknown for many in considering the overall economic impact of the NLW is how quickly the UK economy will grow over the coming years.

The Brexit question will increase financial market volatility

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 49, July 2016

Sterling fell dramatically following the announcement of a date for the UK’s referendum on whether to remain an EU member. This column reports the views of leading experts on whether the possibility of ‘Brexit’ would lead to further volatility in financial markets and the broader economy. There is near unanimity in the monthly Centre for Macroeconomics survey that the Brexit question will increase financial volatility and will pose economic costs in the medium term. Financial volatility can be expected to be especially high if polls remain close. Lack of clarity about the UK’s economic arrangements with the EU following Brexit are the main concern for the medium term.

Market volatility: More likely ‘noise’ than reason for concern

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, The CAGE Background Briefing Series No. 48, July 2016

The beginning of 2016 has seen dramatic developments in key markets, including falls in share prices, low oil prices, and a slowdown in some emerging market economies. This column summarises the views expressed on these issues by leading experts in the monthly Centre for Macroeconomics survey. While all recognise the considerable uncertainty in the world economy, fewer than a third fear that these events will have a significant negative impact on the ,UK’s economic recovery. The prevailing argument is that any negative effects of lower foreign demand and market instability will be compensated by the benefits of lower oil prices.

Japan and the Great Divergence, 725 to 1874

Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta, Masanori Takashima, The CAGE Background Briefing Series No. 47, July 2016

Japan was the first Asian nation to achieve modern economic growth. This column discusses new evidence suggesting that Japan’s growth started from a lower level than Britain’s and grew more slowly until the Meiji Restoration. The key to understanding modern economic growth seems to lie in identifying the forces that dampened growth reversals, rather than the forces responsible for growth itself.

Trade and tasks over three decades

Sascha O. Becker, Marc Muendler, The CAGE Background Briefing Series No. 46, July 2016

Offshoring and global value chains have reshaped global trade patterns. This column describes how the German economy has been exposed to significant offshoring for at least three decades. The authors find an increasing importance of high-end tasks in the country. Organising and consulting activities under deadlines, changing business conditions, and tougher performance standards are an increasingly common reality in German workplaces. Labour market institutions in German trade partners are largely unrelated to the changing content of German imports.

Doorstep banking in rural Sri Lanka increases customer savings...and income

Christopher Woodruff, The CAGE Background Briefing Series No. 45, August 2015

Recent findings in development economics indicate that microloans are likely to perform best when accompanied by financial education, insurance, and savings products. This column presents evidence from a natural experiment in Sri Lanka, which involved door-to-door collection services among rural households. The evidence suggests that the programme increased both savings and income. In order to build up savings in the initial period, participants increased the hours worked. The treatment also triggered exit from self-employment. Financial service innovation can, therefore, have a major effect on the incentives to exit poverty.

Happiness and voting

Eugenio Proto, The CAGE Background Briefing Series No. 44, August 2015

Retrospective voting – voting for incumbents if one’s situation has improved under the politician’s watch – is a well-established pattern. This column shows that this pattern also applies when ‘improvement’ is measured by a subjective measure of well-being. Among the stark results discussed is the finding that newly widowed women are 10% less likely to be pro-incumbent than the control group.

GDP and life satisfaction: New evidence

Eugenio Proto, The CAGE Background Briefing Series No. 43, August 2015

The link between higher national income and higher national life satisfaction is critical to economic policymaking. This column presents new evidence that the connection is hump-shaped. There is a clear, positive relation in the poorer nations and regions, but it flattens out at around 30,000–$35,000, and then turns negative.

The midlife crisis in humans and other apes

Andrew Oswald, The CAGE Background Briefing Series No. 42, August 2015

Humans tend to go through midlife crises regardless of context. So too, it appears, do apes. This column draws on recent research showing apes’ midlives to be, like humans’, dogged by the same pattern of unhappiness.

High home ownership as a driver of high unemployment

Andrew Oswald, The CAGE Background Briefing Series No. 41, August 2015

Unemployment is once again the bane of the US and Europe. This column highlights an intriguing association between home ownership and high unemployment using US state-level data. Given the heavy subsidisation of and rise in home ownership, this association merits more attention from economists.

Money makes people right-wing and inegalitarian

Andrew Oswald, The CAGE Background Briefing Series No. 40, August 2015

Rich people typically lean right politically. Are they motivated by deeply moral views or self-interest? This column argues that money makes you right-wing. It shows that lottery winners in the UK are more likely to switch their allegiance from left to right.

Uncertainty and the Great Trade Collapse: New evidence

Dennis Novy, The CAGE Background Briefing Series No. 39, August 2015

The recent global crisis hit output, but the decline in international trade was twice as big. Standard models of trade fail to account for the severity of the event. This column proposes a new model that argues the great trade collapse was due to uncertainty. The uncertainty lead firms to postpone orders. As a result, trade declined substantially more than production. Data from the US for the past 50 years show quantitatively large effects of uncertainty shocks on the trade.

TTIP: Is free trade coming to the north Atlantic?

Dennis Novy, The CAGE Background Briefing Series No. 38, August 2015

The negotiations for the Transatlantic Trade and Investment Partnership are about a year old and making only slow progress. This column argues that TTIP is a long-run project that will probably take several years to complete. Despite its significance to global trade, without support from the top echelons of government it might falter.

Saving the euro: self-fulfilling crisis and the 'Draghi put'

Marcus Miller, The CAGE Background Briefing Series No. 37, August 2015

Like banks, indebted governments can be vulnerable to self-fulfilling financial crises. This column applies this insight to the Eurozone sovereign debt crisis, and explains why the ECB’s Outright Monetary Transactions policy reduced sovereign bond spreads in the Eurozone.

To exit the Great Recession, central banks must adapt their policies and models

Marcus Miller, The CAGE Background Briefing Series No. 36, August 2015

During the Great Moderation, inflation targeting with some form of Taylor rule became the norm at central banks. This column argues that the Global Crisis called for a new approach, and that the divergence in macroeconomic performance since then between the US and the UK on the one hand, and the Eurozone on the other, is partly attributable to monetary policy differences. The ECB’s model of the economy worked well during the Great Moderation, but is ill suited to understanding the Great Recession.

Outright Monetary Transactions sterilised?

Michael McMahon, The CAGE Background Briefing Series No. 35, August 2015

'Sterilisation' – where purchases of assets by a central bank are offset by withdrawals – may help the ECB to control inflation. This column discusses how the ECB’s current approach may be fraught with danger, however. In a world where sovereign default risk is perceived to be likely, the ECB’s only real hope is that its approach makes a Eurozone default impossible.

Could Obama buy Ohio votes?

Michael McMahon, The CAGE Background Briefing Series No. 34, August 2015

With the US presidential election turning on a handful of swing states, suspicion arises that an incumbent could ‘buy’ the election by shifting the federal government’s state-level spending to critical states. This column reports ongoing research that suggests this is not likely to be the case. Voters do not seem to reward presidents for more federal spending on private contracts in a given state. As such, it does not seem that Obama could buy votes in swing states such as Ohio using his power as the incumbent.

Mark Carney and first impressions in monetary policy

Michael McMahon, The CAGE Background Briefing Series No. 33, August 2015

Markets will be perusing the new Bank of England Governor’s comments for hints on his hawkishness. This column presents evidence showing that Monetary Policy Committee members tend to become more dovish as they become more experienced (i.e. after having participated in 18 or more meetings), with this tendency most marked in members with dovish preferences.

Central bank transparency and committee deliberation

Michael McMahon, The CAGE Background Briefing Series No. 32, August 2015

Central bank transparency is essential to democratic accountability. Central bankers often limit it – fearing its stifling effect on frank debate. Yet transparency may induce monetary policy committee members to be better prepared. This column discusses evidence showing that the ‘better prepared’ effect is important empirically. Exploiting a natural experiment in the Fed Open Market Committee in 1993 – and using computational linguistics tools to measure the impact of transparency on deliberation – the research shows that the net effect is a more informative deliberation process.

Costing secrecy

Mark Harrison, The CAGE Background Briefing Series No. 31, August 2015

Democracy often seems bureaucratic with high ‘transaction costs’, while autocracies seem to get things done at lower cost. This column discusses historical research that refutes this. It finds empirical support from Soviet archives for a political security/usability trade-off. Regimes that are secure from public scrutiny tend to be more costly to operate.

Four myths about the Great War of 1914-1918

Mark Harrison, The CAGE Background Briefing Series No. 30, August 2015

The Great War offers lessons for today. But this column argues from recent research that many so-called lessons are misunderstood. Secretive, authoritarian regimes become dangerous when they fear the future. Deterrence matters. Other aspects also demand re-evaluation.

Escaping liquidity traps: Lessons from the UK's 1930s escape

Nicholas Crafts, The CAGE Background Briefing Series No. 29, August 2015

The UK escaped a liquidity trap in the 1930s and enjoyed a strong economic recovery. This column argues that what drove this recovery was ‘unconventional’ monetary policy implemented not by the Bank of England but by the Treasury. Thus, Neville Chamberlain was an early proponent of 'Abenomics'. This raises the question: is inflation targeting by an independent central bank appropriate at a time of very low nominal-interest rates?

Competing successfully in a globalising world: Lessons from Lancashire

Nicholas Crafts, The CAGE Background Briefing Series No. 28, August 2015

Europeans worry about competition from low-wage economies. This column looks at the basis of the success of the 19th-century Lancashire cotton industry faced with a similar situation. The message is that the productivity benefits of a successful agglomeration can underpin both high wages and competitive advantage in world trade. Policymakers can support such agglomerations by easing land-use restrictions, promoting investments in transport, and providing local public goods.

The Eurozone: If only it were the 1930s

Nicholas Crafts, The CAGE Background Briefing Series No. 27, August 2015

This column argues that the legacy of public debt resulting from the crisis in the Eurozone is a serious threat. Both the size of the problem and the options to address it make life much more difficult for policymakers than was the case in the late 1930s after the collapse of the gold standard. For some countries, a ‘subservient’ central bank might be preferable to the ECB.

Walking wounded: The British economy in the aftermath of World War I

Nicholas Crafts, The CAGE Background Briefing Series No. 26, August 2015

It is well-known that World War I was expensive for Britain. The indirect economic costs were also huge. This column argues that the adverse implications of the Great War for post-war unemployment and trade – together with the legacy of a greatly increased national debt – significantly reduced the level of real GDP throughout the 1920s. A ballpark calculation suggests the loss of GDP during this period roughly doubled the total costs of the war to Britain.

The prices of higher quality goods respond less to exchange-rate movements

Natalie Chen, The CAGE Background Briefing Series No. 25, August 2015

Empirical research finds that import prices do not fully adjust to exchangerate changes. In other words, there is a limited response of trade to exchangerate fluctuations. This column argues that part of this pass-through puzzle is explained by quality. Exchange-rate movements are more strongly absorbed into the export prices of higher quality goods. Therefore, the volume of their exports would be less responsive to exchange-rate shocks, leading to an incomplete exchange-rate pass-through.

Accounting for the great divergence

Stephen Broadberry, The CAGE Background Briefing Series No. 24, August 2015

The economic divergence we observe today was existent even a thousand years ago. Thanks to recent work on historical data, we can now trace the economic development of different countries centuries back in the past. This column discusses the roots of the Great Divergence between European and Asian economies. The column argues that divergence is due to the differential impact of shocks that hit economies with different structural features.

World War I: Why the Allies won

Stephen Broadberry, The CAGE Background Briefing Series No. 23, August 2015

In the massive circumstances of total war, economic factors play the deciding role. Historians emphasise size in explaining the outcome of WWI, but this column argues that quality mattered as well as quantity. Developed countries mobilised resources in disproportion to their economic size – the level of development acted as a multiplier. With their large peasant sectors, the Central Powers could not maintain agricultural output as wartime mobilisation redirected resources from farming. The resulting urban famine undermined the supply chain behind the war effort.

Do entrepreneurs matter?

Sascha O. Becker, The CAGE Background Briefing Series No. 22, August 2015

Standard microeconomics ignores personalities, but business studies stress the importance of entrepreneurs. This column presents evidence that shows that personalities are important. Looking into the death of a firm’s founder during the first ten years of a company’s existence, the data suggest that entrepreneurs matter – they are the ‘glue’ that holds a business together.

Regional transfers in Europe: Do we need fewer of them or different ones?

Sascha O. Becker, The CAGE Background Briefing Series No. 21, August 2015

The EU encourages regional cohesion through transfers for structural changes and development. This column presents new research suggesting that some poorer countries don’t benefit as well as we might expect. This is likely to be because of worse technological and institutional absorptive capacity. Structural transfers need reform, and policymakers would do well to focus on recipients’ absorptive capacity.

The economic legacy of Mrs Thatcher

Nicholas Crafts, The CAGE Background Briefing Series, No. 20, July 2013

The death of Lady Thatcher makes it opportune to consider the difference that her governments made to the UK's economic performance. This column is an ‘economic obituary’.

Returning to growth in the UK: Policy lessons from history

Nicholas Crafts, The CAGE Background Briefing Series, No. 19, July 2013

A return to growth is urgently needed in the UK. Recovery from severe recessions was achieved in the 1930s and the 1980s in the presence of fiscal consolidation. This column examines the lessons from those experiences for today’s policymakers.

Do falling trade costs benefit all countries equally?

Dennis Novy, The CAGE Background Briefing Series, No. 18, July 2013

Trade barriers such as transportation costs and tariffs reduce international trade. But when these trade barriers come down, do they increase international trade equally among countries? This column presents evidence from OECD countries that trade costs have a differential impact depending on the trade intensity of the countries involved. When they already trade a lot, country pairs hardly benefit. But bilateral trade grows faster when the initial trade relationship was thin.

Russia's national income in war and revolution, 1913 to 1928

Mark Harrison and Andrei Markevich, The CAGE Background Briefing Series, No. 17, July 2013

At the start of the 1920s, Russia’s economy suffered the greatest economic catastrophe of a turbulent 20th century. This column argues that measuring this experience yields lessons for the relationship between state capacity, government policies, and economic development.

Trade and global climate-policy

John Whalley, The CAGE Background Briefing Series, No. 16, July 2013

In terms of new emissions reductions, little materialised at the climate-change negotiations in Durban in November. This column argues that trade policy could widen the range of jointly beneficial potential outcomes and in this sense be a potential facilitator of an agreed global climate regime. Moreover, trade provides a mechanism for achieving an internalisation outcome for the global externality that climate change represents.

The contribution of Chinese FDI to Africa's growth

John Whalley and Aaron Weisbrod, The CAGE Background Briefing Series, No. 15, July 2013

In the three years before the global crisis, the average GDP growth in sub- Saharan Africa was around 6%. This period also saw significant Chinese foreign direct investment flowing into the continent. This column uses growth-accounting methods to assess what portion of this growth can be attributed to Chinese FDI. Although for some countries and years the effects were negligible, some countries saw total GDP growth from 2002 to 2009 increase by 0.5 percentage points due to Chinese FDI alone.

Making globalisation work for workers

Sascha O Becker, Marion Jansen, and Marc Muendler, The CAGE Background Briefing Series, No. 14, July 2013

As job losses continue to haunt the headlines, people are left asking if long- term unemployment is to be one of the so-called benefits from globalisation. This column reports on a conference aimed at understanding how globalisation can be made to work for workers.

When markets freeze: Tobin's q and QE

Marcus Miller and John Driffill, The CAGE Background Briefing Series, No. 13, July 2013

Just what on earth is going on in the global economy? Rather than get caught up in the hysteria, this column says the answers are best found by looking through the pages of history and dusting down some old textbooks.

The ins and outs of UK unemployment

Jennifer Smith, The CAGE Background Briefing Series, No. 12, July 2013

Labour-market policy can try to make it easier to get hired or harder to get fired. This column asks which of these approaches policymakers should prioritise. Focusing on the UK, it finds that while job-finding rates could be improved, policies aimed at reducing the amount of job losses during a recession play an equally important role despite being less in vogue.

Competition cured the "British disease"

Nicholas Crafts, The CAGE Background Briefing Series, No. 11, July 2013

Britain’s relative economic decline throughout the 20th century—the so-called “British disease”—was a national embarrassment that only went away in the 1980s. This column presents new research showing that competition provided the cure. Only when Britain returned to a regime of competition and openness similar to that which had prevailed before World War I did productivity growth resume.

The Habsburg Empire and the long half-life of economic institutions

Sascha O Becker and Ludger Woessmann, The CAGE Background Briefing Series, No. 10, July 2013

How the long-gone Habsburg Empire is still visible in Eastern European bureaucracies today.

Studying abroad and international labour market mobility

Matthias Parey and Fabian Waldinger, The CAGE Background Briefing Series, No. 9, July 2013

Is the ERASMUS scheme—where European students study for a year in a foreign country—just an excuse for a holiday or does it have some economic value? This column analyses how studying abroad affects labour-market mobility using the exposure to ERASMUS as an exogenous source of variation in studying abroad. It finds that studying abroad increases an individual's probability of working in a foreign country by about 15 percentage points.

Civil conflicts hurt firms - by displacing workers

Christopher Ksoll, Rocco Macchiavello, and Ameet Morjaria, The CAGE Background Briefing Series, No. 8, July 2013

As unrest continues in the Arab countries, many are asking about the economic costs. While the macro effect of civil conflicts is widely studied, little is known of the micro effects. This column presents evidence from the short-term violence following the 2007 election in Kenya. It finds that firms providing cut flowers to Western markets saw a significant rise in costs, largely due to the displacement of workers.

An historical perspective on the Great Recession

Nicholas Crafts, The CAGE Background Briefing Series, No. 7, July 2013

What started as a subprime crisis in the US soon spread to a global crisis resulting in what some have called the Great Recession. This column argues that economists spectacularly failed to take the prevention of financial crises seriously. But since then, economists have heeded the lessons from past crises and have helped avoid the worst.

A recession to remember: Lessons from the US, 1937 - 1938

Nicholas Crafts and Peter Fearon, The CAGE Background Briefing Series, No. 6, July 2013

The global crisis has been frequently compared to the Great Depression. The recession of 1937 has been less widely discussed. This column asks what lessons it can teach today’s policymakers. Its key message is that while fiscal consolidation should not be postponed, the exit strategy needs to focus on providing monetary support for aggregate demand as fiscal stimulus is withdrawn.

China and antidumping

Chunding Li and John Whalley, The CAGE Background Briefing Series, No. 5, July 2013

Over the last decade, China has been the target of more antidumping measures than any country in the world. This column examines the impacts and argues that China should be paying more attention to measures that come from its main trading partners.

Corruption as a barrier to entry

Nauro F Campos, Eugenio Proto, and Saul Estrin, The CAGE Background Briefing Series, No. 4, July 2013

Conventional wisdom says that corruption hurts the economy because it taxes investment and weakens public services. This column presents evidence from interviews with CEOs in Brazil. It argues that corruption acts as a barrier to entry, with potential entrants put off by the uncertainty over what bribes to pay and when to pay them.

Global imbalances: are we measuring the right thing?

Chunding Li, John Whalley and Yan Chen, The CAGE Background Briefing Series, No. 3, July 2013

As the debate over global imbalances develops, this column asks whether the discussion is based on faulty data. Using data from the US, Japan, Germany, and the Czech Republic, it argues that not taking due account of foreign affiliate sales leads to a warped view of trade in goods and services.

"Happiness economics" in reverse: Does happiness affect productivity?

Daniel Sgroi, The CAGE Background Briefing Series, No. 2, July 2013

Happiness economics typically looks at how macro-level variables such as economic growth affect happiness. This column turns such thinking on its head and asks whether a rise in happiness might change behaviour at the micro-level, looking specifically at productivity. Experiments suggest that happiness raises productivity by increasing workers' effort. Economists may need to take the emotional state of economic agents seriously.

Monetary theory from a Chinese historical perspective

John Whalley , Zheng Xueyi and Yaguang Zhang, The CAGE Background Briefing Series, No. 1, July 2013

While many commentators focus on China’s future, this column draws economic theory insights from its past. It argues that Chinese monetary theory preceded Western thought and influenced the likes of Adam Smith and Karl Marx. Moreover, it says the Eastern emphasis on the pursuit of wisdom, as opposed to knowledge, has a role to play in today’s economic debate.