CEPR News In focus this week: 19 January 19 Jan 2023 This weekly press briefing highlights some of the latest research reports, discussion papers and other publications from CEPR. It also features some of the latest columns on VoxEU, as well as new blogs/reviews, audio interviews and short films.
What Ukraine needs for EU integration Writing at VoxEU, Pavlo Klimkin and Ivan Mikloš argue that Ukraine’s post-war reconstruction should be intertwined with EU integration. They show that although reforms are already visible in multiple areas, more progress is needed to improve law enforcement, property rights, and strengthen the judiciary. Additionally, post-war modernisation will require both significant official resources as well as private foreign direct investment in order to be successful.
Ukraine’s necessary post-war institutional changes Writing at VoxEU, Tymofiy Mylovanov and Gerard Roland argue that Ukraine must strive to become a full-fledged liberal democracy, with all the institutional safeguards, as soon as the Russian invaders have been defeated, and identifies priorities for the country’s institutional reconstruction. The authors state that the absolute priority should go to judicial reform, but Ukraine also needs to prevent the re-emergence of oligarchs and well as reforming the media and other institutions.
Inflation in Italy and the impact of government policies A study by Nicola Curci, Marco Savegnago, Giordano Zevi and Roberta Zizza analyses the effectiveness of Italian government policies aimed at cushioning firms and households from rising energy prices. The research shows that policies explicitly targeted towards less well-off households were the most efficient, while the untargeted reductions of energy and fuel prices were the least efficient.
How rising energy prices affect the German manufacturing sector Writing at VoxEU, Sylwia Bialek, Claudia Schaffranka and Monika Schnitzer discuss the impact of higher energy prices on industrial production in Germany. Results show that: - Increases in energy costs will be unequally distributed across sectors. Within sectors, the most energy-efficient producers will gain market shares. - Germany will need to undergo a substantial structural change in the next few years, but the fears of wide deindustrialisation are misplaced. - Policymakers should not hinder the transformation unless strategic industries are at play.
Carbon taxes can be a boon for the world, even in the short run A study by Bruno Conte, Klaus Desmet and Esteban Rossi-Hansberg shows that a carbon tax of $40 per tonne of CO2 introduced by either the EU or the US would on impact expand the local economy and generate global welfare gains. The authors suggest that it is time to take another serious look at carbon taxes; they are less costly than previously thought.
How a South Korean amusement park developer’s illiquidity turned into a credit market crisis A study by Burçin Kısacıkoğlu and Sang Seok Lee uses the recent credit crunch in South Korea as a natural experiment that demonstrates how political gaffes and decision errors can cause severe financial market dislocations. It reveals how a single, politically motivated default of negligible size turned into a financial system-wide credit crisis requiring a massive government intervention to remedy. The authors suggest that such examples could serve as a warning to other economies.
World happiness, ranked A study by David Blanchflower and Alex Bryson combines data from a poll covering two million individuals in 164 countries and a survey of two and a half million Americans focusing on eight measures of wellbeing, both positive (life satisfaction, enjoyment, smiling, being well-rested) and negative (pain, sadness, anger, worry. The US does surprisingly well, with nine of the list’s top ten ‘happiest’ places, while the Nordic countries, which traditionally rank highly using life satisfaction measures, do not rank as highly with other measures.
By acting swiftly now, we can prevent a Volcker shock There have been voices declaring – especially in retrospect – that the ECB should have hiked its rates earlier, and that frontloading should have been more forceful. Writing at VoxEU, Olli Rehn argues that while there may be some truth in this argument, medium- and longer-term inflation expectations are still relatively well anchored and the task now is to maintain this by making strong enough moves so that a highly restrictive monetary policy shock can be avoided in the future.
Sources of large firms’ market power and why it matters Writing at VoxEU, Filippo di Mauro, Matthias Mertens and Bernardo Mottiron argue that it is important to differentiate between various sources of firm market power on output and input (most notably labour) markets. European firm-level data reveals that large firms charge lower markups in product markets but exert their market power significantly in labour markets. Competition authorities can and must distinguish between the sources of market power when attempting to regulate it.
CEPR News EUROPE'S ECONOMIC SECURITY: Navigating Unprecedented Challenges in a Shifting World New Report from CEPR and Bruegel Highlights Urgency for Comprehensive Reassessment of EU Strategy