CEPR News In focus this week: 27 April 27 Apr 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.
US BANKS' EXPOSURE TO SAVING GLUTS CAUSING FINANCIAL INSTABILITY: Evidence from the Silicon Valley Bank Failure A study by Guillaume Vuillemey found a link between saving gluts and financial instability in US banks. Banks locally exposed to the causes of saving gluts had increased deposits and uninsured deposits since 2000. The failure of Silicon Valley Bank in March 2023 showed that banks with higher local exposure to wealth inequality or intangible-intensive firms had larger drops in stock prices. Policymakers, regulators, and financial institutions in the US must take steps to address this vulnerability.
BANKS WITH STRONG ESG CONDUCT SEE LOWER STOCK RETURNS DURING COVID-19 PANDEMIC, WITH RETAIL INVESTORS MORE AFFECTED A CEPR study by Dursun-de Neef et al. found that a higher ESG score was associated with lower daily stock returns during COVID-19, especially for banks with high retail ownership. The negative link was driven by the environmental and social dimensions of ESG. The study suggests that high-ESG banks reduced lending during the pandemic due to the negative impact on their financial performance.
DISCRIMINATION AGAINST MIGRANT PARENTS SEEKING CHILD CARE IN GERMANY CEPR study by Hermes et al. found that migrant parents seeking child care in Germany face discrimination, receiving fewer responses with fewer slot offers, shorter messages, and less encouragement. Discrimination was stronger in areas with fewer migrants, higher right-wing votes, and lower financial resources. The study highlights the perpetuation of inequalities for disadvantaged children and recommends measures to combat discrimination and ensure equal opportunities.
BREXIT CONTINUES TO DRAG ON UK POTENTIAL OUTPUT The March 2023 CFM–CEPR survey asked its UK panel to identify the most important constraint on UK potential output in 2023. Most panellists think that Brexit remains the primary drag on potential output, while a small fraction cited poor labour force participation as a major constraint. Several panellists suggest public investments and R&D subsidies as a solution to boost GDP in the medium term. Most believe a combination of policies would be the most effective way to achieve this objective.
SURVEY OF 400 ECONOMISTS REVEALS DIFFERENCES IN CENTRAL BANK DISINFLATION PREFERENCES BETWEEN EURO AREA AND US A global survey asked researchers about the pace at which central banks should disinflate their economies. The results show that the median euro area respondent prefers a slower speed of disinflation than their US counterpart. Regarding the risks to inflation and monetary policy, very few respondents in the December 2022 survey flagged risks to the banking sector.
THE COST-OF-LIVING SQUEEZE: OECD Countries See Rising Energy Prices Impacting Households More Than Food Prices Household budget surveys and consumer price indexes across OECD countries reveal that rising energy prices are impacting households more than rising food prices, particularly important in Italy, Denmark, and the UK. The study by Emilia Soldani, Orsetta Causa and Nhung Luu reveals that low-income, rural, and senior households tend to be more exposed and vulnerable to rising inflation and energy price swings, which may become more frequent in the path to a low-carbon economy.
GERMAN LABOUR MARKET REFORMS DID NOT IMPROVE JOB MATCHING CAPABILITY, BUT BETTER ACTIVATION POLICIES IMPROVED EMPLOYMENT PROSPECTS FOR WORKERS There is a lively debate on the contribution of the Hartz labour market reforms to the decline in Germany’s unemployment rate. A study by Christian Merkl and Timo Sauerbier shows, surprisingly, that the reorganised Federal Employment Agency did not improve its own capability to match vacant jobs and registered unemployed workers. Instead, better activation policies by the agency increased unemployed workers’ usage of the private matching market and thereby increased their probability of finding a job. This is an important lesson for other European countries where a large fraction of workers typically use a public employment agency.
DIGITALISATION ENHANCES PRODUCTIVITY GROWTH, BUT ONLY FOR SOME FIRMS Despite the rapid acceleration of digitalisation in recent decades, productivity growth has been slow across EU countries. Writing at VoxEU, Robert Anderton, Vasco Botelho and Paul Reimers argue that while digitalisation enhances the productivity of those firms that are already relatively more productive than their competitors, it has only a limited impact for most firms. The authors show that investment in digital technologies is more successful when targeted and that policymakers should not consider digitalisation as a ‘one size fits all’ policy to boost productivity.
REBUILDING UKRAINE: An opportunity to address gender disparities Writing at VoxEU, Hanna Anisimova et al. suggest using principles from gender responsive budgeting to guide policy proposals for the post-war reconstruction phase. The authors emphasise the need for greater female representation in political institutions and senior management positions. Furthermore, it argues that the rebuilding of physical infrastructure as well as Ukraine’s human capital base and labour markets should both consider the gender dimension.
REBUILDING UKRAINE’S HEALTHCARE SECTOR Writing at VoxEU, Yuriy Dzhygyr, Kateryna Maynzyuk, Adrianna Murphy and Carol Propper outline a proposal for rebuilding the Ukrainian health sector which would leapfrog, rather than replace, the existing system. The proposal focuses on the areas of finance, delivery, and governance of the healthcare system to achieve the goals of sustainability and resilience. The present high capacity and legitimacy of the government in Ukraine would make these reforms easier to implement, despite the war’s devastating effect on health and the healthcare system.
HOW SHOULD WE MEASURE EXPECTED INFLATION? There is more than one way to measure expected inflation. But which methods are most reliable, and how well did they predict the upward trend in European inflation from 2021 onwards? Ricardo Reis talks to Tim Phillips.