CEPR News In focus this week: 06 July 6 Jul 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.
GREEN WINDOW DRESSING A new CEPR study by Gianpaolo Parise uncovers evidence of widespread sustainability ratings manipulation by mutual funds. The research finds that money managers engage in “green window dressing”; funds increase ESG exposure before mandated portfolio disclosure and decrease it afterward. The analysis finds that ESG fund portfolios exhibit 31% higher ESG exposure immediately before mandatory portfolio disclosure than immediately afterwards. As a result, disclosed portfolios receive substantially higher ratings than actual portfolios would. The research documents that ESG manipulators earn higher risk-adjusted returns and attract more investor flows. At the asset level, the author finds that high-ESG (low-ESG) stocks rise (fall) in the days before fund portfolio disclosure and revert afterwards.
HOW EUROPE’S MANUFACTURING SECTOR COPES WITH ENERGY PRICE SHOCKS A new CEPR study by Lionel Fontagné, Philippe Martin and Gianluca Orefice uses data from the French manufacturing sector to show that firms adapt quickly, strongly and through multiple channels to energy shocks, even though electricity and gas bills represent a very small share of their total costs. Over the period 1996-2019, faced with an idiosyncratic energy price increase, firms reduce their energy demand, improve their energy efficiency, increase intermediate inputs imports and optimize energy use across plants. The research also finds that the impact of electricity shocks has weakened over time, suggesting that only firms able to adapt their production process to energy cost shocks have survived.
UK IMMIGRATION'S LIMITED IMPACT ON WAGE INEQUALITY The share of foreign-born in the UK rose from 5.3% in 1975 to 13.4% in 2015. A study by Christian Dustmann, Yannis Kastis and Ian Preston finds that immigration decreases the wages of lower-paid British-born workers and increases the wages of higher paid ones, but the magnitudes of these effects are small. And while wage inequality among immigrants is higher than among non-immigrants, the low number of immigrants relative to the native population means the impact on the overall earnings distribution is small. The findings illustrate that the overall effect of immigration on wage inequality in the UK has been limited.
GLOBAL CONCERNS MOUNT AS US INFLATION REDUCTION ACT SPURS SPILLOVER EFFECTS ON PRODUCTION AND TRADE Writing at VoxEU, Maria Grazia Attinasi, Lukas Boeckelmann and Baptiste Meunier provide a model-based assessment of the spillover effects of the main provisions of the 2022 US Inflation Reduction Act on global production and trade. The authors estimate substantive effects in the US sectors directly affected by the Act as well as non-negligible losses in specific EU sectors. The policies to boost the green transition need to carefully balance attracting investments and innovations with the risks of retaliatory measures and domestic security priorities.
VIRTUE SIGNALLING ON SOCIAL MEDIA: Academics' Offline Behaviour Supports Racial Justice Tweets Social media enables individual users to show support for moral causes online, fostering a kind of ‘virtue signalling’ that has provoked both praise and censure. A study by Deivis Angeli, Matt Lowe and research assistants at University of British Columbia compares the offline behaviour of academics in the US who tweet about racial justice with those who do not. The research shows that silent professors were 18% less likely to accept meetings with Black students than with white students, but showed no such bias regarding a student’s gender or first-generation status. By contrast, academics who were vocal on twitter favoured the minority group in all three cases. ‘Virtue signals’ appear to not be vacuous – academics back up their tweets with behaviour.
THE IMPACT OF SANCTIONS ON EXCHANGE RATES Using data on sanctions from 1914-45, a study by Barry Eichengreen et al. shows that their effect on the exchange rate depends on the balance of currency demand and supply, which can explain developments in the rouble exchange rate after Russia’s invasion. However, the direction of exchange rate movements is not an adequate metric of the success or failure of sanctions, but a reflection of the type and scale of measures imposed.
IT’S TIME TO NORMALISE THE EURO AREA FISCAL STANCE IN 2024 A study by Niels Thygesen et al. argues that fiscal policy normalisation should proceed more rapidly than currently envisaged and the economic good times be used to build fiscal buffers. This would also help the ECB in bringing inflation back to its target, while putting EU member states in a position to deal with the rising costs of ageing and climate change, as well as new challenges such as rising interest payments and costs of defence.
THE TRADE EFFECTS OF EU ADEQUACY DECISIONS A study by Martina Ferracane, Bernard Hoekman, Erik van der Marel and Filippo Santi analyses the trade impact of the European Commission’s determinations that data protection regulation in a partner country is equivalent to that of the EU, permitting personal data to flow freely to and from the EU. The research finds that such decisions increase digital trade by 6% to 14%, with a suggestive club effect for ‘adequate’ countries. The results are mainly driven by the two adequacy decisions granted to the US, revealing the importance of transatlantic mutual recognition for digital trade.
HOW UNEARNED WEALTH IMPACTS MARRIAGE, DIVORCE AND FERTILITY: New evidence from Sweden Using a sample of Swedish lottery players to understand the effects of a large, positive wealth shock on marital, divorce, and fertility decisions, a study by David Cesarini, Erik Lindqvist, Robert Östling and Anastasia Terskaya shows that for men, lottery winnings increased the chance of marriage, raised fertility rates, and reduced the risk of divorce. For women, the winnings increased their short-run (but not long-run) divorce risk, suggesting that wealth transfers targeted to women may enhance their bargaining power within the household and help them leave a destructive marriage.
PANDEMIC SAVINGS SURGE: Cross-country analysis reveals varying levels of excess savings and implications for economic recovery Households accumulated a large amount of ‘excess savings’ during the COVID-19 pandemic, fuelled in part by supportive fiscal policies. A study by Francois de Soyres, Dylan Moore and Julio Ortiz undertakes a cross-country comparison of how excess savings behave during recessionary episodes and draws implications for the current juncture. While the stock of excess savings is largely depleted in the US, in many other economies there is still room to unwind more. The unwinding of this excess stock of savings could continue to be a source of price pressures in these economies.
HOW OCCUPATIONS SHAPE RETIREMENT ACROSS COUNTRIES A study by Philip Sauré, Arthur Seibold, Elizaveta Smorodenkova and Hosny Zoabi investigates how occupations shape retirement behaviour, finding that there are large differences in individual retirement ages across occupations in the US, and retirement behaviour among individual European workers is strongly correlated with US occupational retirement ages. Occupational composition explains a sizeable share of differences in effective retirement ages across a sample of 45 countries. Occupational structure, which can be altered by technological change, matters for overall retirement behaviour.
SOVIET COMMUNISM AND THE STRENGTH OF THE FAMILY One of the main aims of Soviet communism was to remove capitalist institutions by abolishing the traditional family. Examining the effects of communism on preferences for the family as a source of informal support, a study by Joan Costa-i-Font and Anna Nicińska documents that exposure to Soviet communism steered family and social networks and increased the preference for family support (financial and non-financial) for both children and older parents.