CEPR News In focus this week: 18 January 18 Jan 2024 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.
ECONOMIC MULTILATERALISM 80 YEARS AFTER BRETTON WOODS The Bretton Woods institutions, created in 1944, aimed to foster global cooperation for economic recovery, development, and stability. However, the shift to a more market-oriented system in the 1990s led to social tensions and a backlash against globalization, altering the geopolitical balance. A CEPR study by Maurice Obstfeld highlights a changed world order and emphasizes the need for rich countries to recognize the importance of existing multilateral institutions in managing superpower competition and addressing global threats. The study underscores the challenge of balancing these imperatives to secure the future of multilateralism.
HOW OIL SHOCKS PROPAGATE: Evidence on the Monetary Policy Channel Using high-frequency responses of oil futures prices to prominent oil market news, a new CEPR study by Wataru Miyamoto, Thuy Lan Nguyen and Dmitriy Sergeyev estimates the effects of oil supply news shocks when systematic monetary policy is switched off by the zero lower bound (ZLB) and when it is not (normal periods) in Japan, the United Kingdom, and the United States. The research finds that negative oil supply news shocks are less contractionary (and even expansionary) at the ZLB compared to normal periods. Inflation expectations increase during both periods, while the short nominal interest rates remain constant at the ZLB, pointing to the importance of monetary policy for oil shock propagation.
UNLOCKING ECONOMIC POTENTIAL: Granting citizenship boosts jobs and integration for European refugees A study by Francesco Fasani, Tommaso Frattini and Maxime Pirot explores the effects of granting host country citizenship to refugees in Europe, focusing on how it affects their jobs and economic integration. Evidence from a large set of European countries shows that refugees benefit greatly from naturalisation, allowing them to bridge their gaps relative to other migrants with similar characteristics. Making it easier for everyone, not just refugees, to become citizens could boost economic activity and integration in host countries.
IMPORTING THE FENTANYL CRISIS A study by Tim Moore, Will Olney and Benjamin Hansen sheds light on the smuggling of illicit fentanyl, which is driving the most recent and deadliest phase of the US opioid crisis. Largely produced overseas, the secretive nature of drug trafficking operations has obscured details of smuggling routes. The research shows that a correlation exists between state imports and fentanyl overdose fatalities, indicating that legal trade channels are exploited for smuggling, resulting in increased drug-related deaths in high-import states. The findings have important policy implications, suggesting a greater role for enhanced customs screening efforts and more funding for demand-side interventions like drug treatment in states more exposed to international trade.
CHINA IS THE WORLD’S SOLE MANUFACTURING SUPERPOWER: An overview of its ascendancy China is now the world’s sole manufacturing superpower. Its production exceeds that of the nine next largest manufacturers combined. Writing at VoxEU, Richard Baldwin uses the recently released 2023 update of the OECD TiVA database to paint an eight-chart portrait of China’s journey to superpower status and the asymmetric impact that its dominance has had on global supply chains.
UNREMUNERATED RESERVES IN THE EUROSYSTEM, PART 1: Heads I win, tails you lose Prominent economists propose to reduce Eurosystem central bank losses by imposing large unremunerated required reserves to be ultimately paid by bank owners and borrowers. This first in a pair of columns by Robert McCauley and Julien Pinter argues that the rationale for such a policy – that remunerating reserves subsidises banks – is weak. Turning huge remunerated excess bank reserves into zero-yielding required reserves is a tax on banks. The policy change (‘tails you lose’) would not be considered had interest rates stayed low and large-scale bond-buying had turned a profit for central banks (‘heads I win’).
UNREMUNERATED RESERVES IN THE EUROSYSTEM, PART 2: Tax incidence and deposit relocation risks Imposing large unremunerated reserves on euro area banks would likely push bank intermediation offshore out of the euro area. This second of two columns by Robert McCauley and Julien Pinter recalls the eurodollar market’s experience from the 1970s to 1990 when immobile depositors, rather than bank shareholders or borrowers, bore the burden of such a reserve. Trillions in euro deposits could accordingly relocate to London, leaving smaller, less wealthy depositors to pay the tax. Since depositors would not all sit still for the tax, unremunerated reserve requirements would reduce Eurosystem central bank losses by less than generally estimated.
THE EFFECTS OF ELIMINATING EMPLOYMENT PROTECTION AMONG OLDER WORKERS: Evidence from Sweden Employment protection legislation creates ‘deadwood’ jobs: unprofitable jobs that firms cannot terminate because of the legislation and because entrenched older workers stay put to reap rents. A study by Emmanuel Saez, Benjamin Schoefer and David Seim analyses the effects of employment protection legislation in Sweden among older workers and shows that: - An excess spike in separations is seen at age 67, the cut-off age for the protection legislation. - Workers who stay in the same job after 67 see a clear and strong reduction in hours and earnings. - Employment protection legislation shifts social insurance and retirement funding to employers.
A MACROPRUDENTIAL APPROACH TO MANAGING CLIMATE RISK There are many indicators that can measure threats that climate change poses to financial stability. The macroprudential challenge is to corral these indicators into a coherent surveillance framework for managing risk. Writing at VoxEU, Paul Hiebert harnesses a growing body of evidence on indicators into three primary categories: climate shocks, exposures to these shocks, and financial risks resulting from the interaction of exposure and prevailing vulnerabilities. Existing evidence can be used to tailor a macroprudential approach to addressing climate risks – that is, a strategy to contain risk for banks and for the broader financial system.
INCENTIVES FOR CONSUMERS TO ACT AS TAX AUDITORS: Evidence from Germany Several countries use household tax credits to incentivise tax compliance in the provision of services to consumers. A study by Lilith Burgstaller and Sarah Necker investigates their effectiveness using a survey experiment among German homeowners. Tax credits increase the willingness to pay for an invoice. A tax credit that makes the financial benefit salient to consumers is most cost-effective. However, household tax credits are related to substantial free riding, questioning their usefulness to combat tax evasion.
JOB MATCHING DYNAMICS IN GERMANY: Study reveals wage disparities in firms' search channels Most firms match with workers through job postings, networks of personal contacts, or public employment agencies. A study by Carlos Carrillo-Tudela, Leo Kaas and Benjamin Lochner investigates the effects of each search channel on labour market outcomes in Germany and finds that: - Low-wage firms and low-wage workers are more likely to match via networks or public agencies, while high-wage firms and high-wage workers succeed more often via job postings. - Because search channels connect workers and firms at different rungs of the wage distribution, matching technologies matter not only for individual job search outcomes, but also for aggregate employment, productivity, and wage inequality.
IMPLEMENTING THE TRADE FACILITATION AGREEMENT SHOULD BOOST TRADE AMONG AFRICAN CONTINENTAL FREE TRADE AREA MEMBERS The main objective of the African Continental Free Trade Area is to eliminate trade barriers and boost intra-Africa trade. Writing at VoxEU, Jaime de Melo, Zakaria Sorgho and Laurent Wagner argues that implementing the Trade Facilitation Agreement’s provisions would be a powerful complement to the free trade area’s tariff-reduction agenda. A realistic implementation of TFA measures could reduce time in customs for imports by 2.7 days for exports by 1.7 days. These reductions in time translate into a tariff ad-valorem equivalent reduction in the range 3.6–7% for imports and an 8.1% extra growth for exports.
HOMEWARD BOUND: How migrants seek out familiar climates ‘Climate matching’ refers to the idea that migrants seek out destinations with climates similar to those of their origin. Analysing flows of German, Norwegian, and domestic migrants in the US, a study by Marguerite Obolensky, Marco Tabellini and Charles Taylor finds climate matching does occur for immigrants in the US, both historically and today. Migration increased more between locations whose climate converged from 1900 to 2019. Climate change is likely to continue shaping the geography of US population growth into the 21st century.
YOUNG ECONOMISTS: Paris 2023 Recorded at CEPR Paris Symposium 2023: Tim Phillips meets three of the young researchers who were chosen to present. Margot Belguise, Arnaud Dyevre and Yasmine van der Straten talk about their work – and offer some advice for anyone who is starting out on their research.