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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.
A study by Román Arjona, William Connell Garcia and Cristina Herghelegiu examines the EU’s strategic dependencies in traded goods using data from 5,400 products imported between 2017 and 2020. Foreign-dependent products span various sectors, including energy-intensive industries, health, renewables, and digital. The research shows China emerges as the primary source for these dependent products, followed by the US and Vietnam. Policymakers can use these insights to enhance supply chain resilience and mitigate vulnerabilities.
A better-than-expected performance at the beginning of the year has lifted the forecast for EU growth marginally upwards. The European Commission’s Spring 2023 Economic Forecast outlines how falling energy commodity prices are driving a sharp fall in energy bills, but core inflation has been firming. As a result, the inflation forecast has also been revised upward and markets have raised expectations about future policy rate hikes. Expansionary budgets would add to inflationary pressures and complicate the task of EU central banks. Governments should not be distracted by the temporary benefits of high inflation and seize the opportunity of falling energy prices to strengthen fiscal sustainability through gradual fiscal consolidation.
The ongoing debate on the future of the EU’s fiscal framework puts a lot of trust in the expenditure benchmark as single operational rule. The benchmark is meant to eliminate the overspecification of the current system, mitigate the noise implied by unobserved variables, and act as a dependable compass on the way towards more prudent levels of government debt. Writing at VoxEU, Martin Larch and Janis Malzubris argue that there is a blind spot in the dominant narrative, which can be easily fixed but can also weaken a reformed system if ignored.
A study by Swati Dhingra and Jack Page uses data on input-output linkages to trace the proximate contributions of energy and import costs to the cost-of-living crisis in the UK. As of 2022 Q4, over 70% of the annual rate of inflation was due to these external pressures. Overlooking the role of energy and imports in the domestic supply chain overestimates the extent of domestically generated inflation.
Recent years have been described as marked by a ‘saving glut’ and a recurring hypothesis is that the saving glut also spurs financial instability. Writing at VoxEU, Guillaume Vuillemey tests this hypothesis in the context of the recent failure of Silicon Valley Bank in March 2023. It finds that banks with higher exposure to local wealth inequality and higher exposure to intangible-intensive firms – both seen as root causes of the ‘saving glut’ – faced significantly larger stock price drops around the date the bank failed. The interaction between savings and financial instability has important implications for deposit insurance systems and large uninsured deposits.
A study by Michael Kumhof, Marco Pinchetti, Phurichai Rungcharoenkitkul and Andrej Sokol examines the macroeconomic and financial stability implications of CBDC issuance, and of alternative arrangements for their management. The research finds that a CBDC interest rate rule that responds to credit delivers the most effective stabilisation of real and financial activity, including reductions of around one third in the volatilities of capital flows and exchange rates. CBDC issuance of 30% of GDP in one country raises long-run output by almost 6%.
A study by Elena Stancanelli shows that the 9/11 terror attacks in the US had a significant impact on voting preferences in the UK. The research uses daily survey data on the intentions of British voters in the days before and after 9/11 to reveal a 31% increase in the intention to vote for the Conservative Party and a decline of 17% in prospective Labour votes at future elections.
A study by Francesco Giovanardi, Matthias Kaldorf, Lucas Radke and Florian Wicknig analyses the climate policy and macroeconomic implications of a green-tilted collateral policy and finds only minor effects on green investment.
Under certain assumptions, the preferential treatment of green bonds in the central bank’s collateral portfolio has a welfare-enhancing effect. However, owing to undesirable side effects on the leverage ratio of green firms, this policy is a qualitatively and quantitatively imperfect substitute for carbon taxation.
Writing at VoxEU, Giorgio Barba Navaretti, Giacomo Calzolari and Alberto Pozzolo argues that the scope and the aims of open banking, although potentially ground-breaking, may be overstated. A new regulatory framework should be devised to deal with the potential shortcomings of open banking along the lines of the EU’s Digital Markets Act and Digital Services Act.
The arc of creative activity may rise quickly and then decline with age. Writing at VoxEU, Daniel Hamermesh and Lea-Rachel Kosnik ask whether this is true for economists and, if so, why. An analysis of all articles published in the ‘Top Five’ economics journals between 1969 and 2018 reveals that economists who had published less in the previous decade of their careers publish less in the current decade. Scholars were less likely to publish after retirement, but those who had published more top-level research in their third decade were less likely to be retired. Perhaps senior economists continue to produce and publish top-level research because it is fun and just might benefit society.
In 2020 finance ministers threw their fiscal policy plans into the bin and did everything they could to protect and stimulate Covid-hit economies. How much of the spike in inflation did the Covid rescue cause? Galina Hale talks to Tim Phillips
