This week from CEPR: 05 May

Thursday, May 5, 2022

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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    Thilo Albers, Charlotte Bartels, Moritz Schularick
    CEPR DP No. 17269 | 01 May 2022

    A new CEPR study by Thilo Albers, Charlotte Bartels and Moritz Schularick presents the first comprehensive study of wealth and its distribution in Germany since the 19th century. The authors combine tax and archival data, household surveys, historical national accounts, and rich lists to analyse the evolution of the German wealth distribution over the long run. Among the findings:

    • The top-1% wealth share has fallen by half, from close to 50% in 1895 to 27% today. 
    • Nearly all of this decline was the result of changes that occurred between 1914 and 1952. 
    • The interwar period and the wealth taxation in the aftermath of World War II stand out as the great equalisers in 20th century German history. 
    • After unification in 1990, two trends have left their mark on the German wealth distribution: Households at the top made substantial capital gains from rising business wealth while the middle-class had large capital gains in the housing market. 
    • The wealth share of the bottom 50% halved since 1990. 

    German history over the past 125 years has been turbulent. These findings speak to the importance of historical shocks to the distribution and valuations of existing wealth in explaining the evolution of the wealth distribution over the long run.
    Figure: Wealth share of the top 1% and bottom 50%, Germany, 1895-2018


    Oleg Itskhoki, Dmitry Mukhin
    CEPR DP No. 17277 | 04 May 2022

    In the immediate aftermath of the Russian invasion and the imposition of sanctions, the Russian ruble quickly lost nearly half of its value. However, a few weeks later, the value of the ruble started to appreciate towards its pre-war level, confusing commentators. A new CEPR study by Oleg Itskhoki and Dmitry Mukhin delves into the relationship between sanctions and the exchange rate to show that: 

    • The exchange rate may appreciate or depreciate depending on the specific mix of sanctions imposed, even if the underlying equilibrium allocation is the same. 
    • Sanctions that limit a country's imports tend to appreciate the country's exchange rate, while sanctions that limit exports and/or freeze net foreign assets tend to depreciate it. 
    • Increased precautionary household demand for foreign currency is another force that depreciates the exchange rate, and it can be offset with domestic financial repression of foreign currency savings. 
    • The overall effect depends on the balance of currency demand and currency supply forces, where exports and official reserves contribute to currency supply and imports and foreign currency precautionary savings contribute to currency demand. 
    • Domestic economic downturn and government fiscal deficits are additional forces that affect the equilibrium exchange rate. 

    The dynamic behavior of the ruble exchange rate following Russia's military invasion of Ukraine in February 2022 and the resulting sanctions is entirely consistent with the combined effects of these mechanisms.

    Figure: Daily ruble exchange rate (per one USD) in 2022




    Sandeep Baliga
    02 May 2022

    Writing at VoxEU, Sandeep Baliga argues that sanctions on oil and gas exports are the most effective way to maximise the probability that Russia ceases its misguided attack on Ukraine. Such sanctions are most likely to target the elite who are closest to President Putin. He also argues that it is important that cooperation is defined clearly and to not go as far as regime change in Russia.


    WIDESPREAD FOOD INSECURITY IS NOT INEVITABLE: Avoid escalating food export curbs

    Alvaro Espitia, Simon Evenett, Nadia Rocha, Michele Ruta
    04 May 2022


    Disruption to food prices and supplies arising from the Ukraine-Russia conflict is being felt thousands of miles away, and not only in net food-importing countries. Writing at VoxEU, Alvaro Espitia, Simon Evenett, Nadia Rocha and Michele Ruta show that governments are exacerbating matters through unilateral resort to export curbs. Bans on wheat exports alone are responsible for a 7 percentage point increase in world wheat prices (roughly one-sixth of the observed price surge) and risk igniting a multiplier effect. Assurances of adequate food supply must be provided by other suppliers.


    Alex Cukierman 
    29 April 2022

    Writing at VoxEU, Alex Cukierman explores the bargaining advantages of democratically elected leaders relative to autocratic ones, to show that:

    • The typically shorter terms in office of democratic leaders and greater accountability to their populations contributes to a greater aversion to armed conflict.
    • As does the freer flow of information and typically greater aversion to military casualties. 
    • This lends insight to Western democracies’ refrainment from direct involvement in the Ukraine war.


    Michele Ruta 
    05 May 2022

    Writing at VoxEU, Michele Ruta argues that firms will respond to the Ukraine-Russia conflict by reassessing security-related risks, leading to changes in the structure of supply chains. But given the capital in place, the cost of searching for alternatives, and factors such as wage differentials across countries, this process is likely to be gradual rather than sudden and will affect different sectors and products differently.


    Thomas Douenne, Adrien Fabre 
    01 May 2022

    While many economists are in favour of carbon taxation, the public often opposes this climate policy. Writing at VoxEU, Thomas Douenne and Adrien Fabre use survey data of 3,000 people in France to show that: 

    • Rejection of a carbon tax is driven by pessimistic beliefs regarding the properties of the tax. 
    • Even when revenues from the tax are redistributed to households so as to make the policy progressive, most people think that they and low-income households would lose out, and that the policy would not be effective at reducing emissions. 
    • Public investments and standards could help foster support for an ambitious climate policy.


    Yunjong Eo, Luis Uzeda, Benjamin Wong  
    29 April 2022

    A study by Yunjong Eo, Luis Uzeda and Benjamin Wong shows that while goods inflation used to contribute to permanently higher headline inflation, such as during the Great Inflation of the 1970s, since the early 1990s it has become predominantly transitory. 

    The current high goods inflation can therefore be expected to be somewhat short-lived. Nonetheless, the authors document that the upside risks to longer-term aggregate and sector-specific inflation remain greater than usual. 

    GETTING ON THE JOB LADDER: The policy drivers of hiring transitions

    Michael Abendschein, Nhung Luu, Orsetta Causa  
    02 May 2022

    Labour market transitions matter for growth and inclusiveness, especially where labour shortages are coinciding with low employment in some countries recovering from COVID. Writing at VoxEU, Michael Abendschein, Nhung Luu and Orsetta Causa provide new evidence on the role of a wide range of policies associated with hiring transitions into jobs, emphasising differences across socioeconomic groups: 

    • Unemployment-to-job and job-to-job rates are strongly pro-cyclical with respect to macro-level conditions (i.e. they more frequent in expansions than recessions), in particular for young workers.
    • Hiring transitions, especially out of unemployment, are also responsive to local labour market conditions (e.g. they are more frequent when regional unemployment is low). 
    • These effects are particularly strong for low-skilled workers. 
    • Business cycle conditions also matter for inactivity-to-job transitions: students find it particularly hard to enter the labour market during recessions and when regional labour markets are slack, while inactive women being held back by domestic are more likely to access jobs during recoveries.

    SHE CAN’T AFFORD IT AND HE DOESN’T WANT IT: Evidence from Germany, Italy, Spain, Netherlands and France

    Stefanie J. Huber   
    30 April 2022

    Using survey data from Germany, Italy, Spain, Netherlands and France, a study by Stefanie Huber finds that women reduced their pre-pandemic consumption substantially more than men. Perceptions of infection risk and precautionary saving motives are only a partial explanation. 

    Instead, men report realising that they had not missed certain goods and services during lockdown, while women attribute their reduced expenditures to perceived financial constraints – suggesting that women felt the economic consequences of the pandemic more intensely than men.

    DO VOTER HAVE A GENDER BIAS? Evidence from France

    Jean Benoit Eymeoud interviewed by Tim Phillips, 03 May 2022

    It's hard to find good evidence on whether voters have a gender bias. But the voting format used in French local elections makes it possible to estimate the extent of this form of discrimination, and suggests what we can do about it.


    Jack Thiemel interviewed by Tim Phillips, 29 April 2022

    Microfinance has helped millions of the world's poor build better lives. But can it help the world's poorest people, who spend most of their lives growing food to feed their families, to diversify into other jobs? Jack Thiemel tells Tim Phillips about the impact of one of these projects, and what it tells us about the best ways to help the ultra-poor.