This week from CEPR: 09 June

Wednesday, June 8, 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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    Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn, Moritz Schularick
    CEPR DP No. 17328 | 27 May 2022

    The racial wealth gap is the largest of the economic disparities between Black and white Americans, with a white-to-Black per capita wealth ratio of 6 to 1. It is also among the most persistent. In a new CEPR study, Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn and Moritz Schularick construct the first continuous series on white-to-Black per capita wealth ratios from 1860 to 2020, drawing on historical census data, early state tax records, and historical waves of the Survey of Consumer Finances. Among the findings: 

    • The most dramatic episode of racial wealth convergence occurred in the first 50 years after Emancipation: From a starting point of nearly 60 to 1, the white-to-Black per capita wealth ratio fell to 10 to 1 by 1920, and to 7 to 1 by the 1950s.
    • This initially rapid convergence gave way to much slower declines in the wealth gap in the second half of the 20th century: 70 years later the wealth gap remains at a similar magnitude of 6 to 1.
    • During the 1960s through the 1980s, convergence regained speed, due to the dismantling of Jim Crow through Black activism and civil rights legislation, expansions of the social safety net, and improved labour standards. Although the wealth gap remained sizeable in these decades, it remained on track to converge.
    • Since the 1980s, the wealth gap has widened again as capital gains have predominantly benefited white households, and income convergence has stopped, settling at a racial wealth gap of 3 to 1 today.
    • The main reason for such a large and lasting gap is the enormous difference in initial wealth between Black and white Americans on the eve of the Civil War.
    • Slower savings-induced wealth accumulation by Black Americans can explain the convergence dynamics over most of the past 150 years. More recently, however, racial differences in capital gains have played the more dominant role in shaping the wealth gap.
    • The historical record is rife with instances of expropriation of Black wealth, exclusion of Black Americans from the political process, and legally sanctioned segregation and discrimination in land, labour, and capital markets. All of these factors likely contributed to sluggish convergence. 

    Should existing differences in wealth-accumulating conditions persist, racial wealth convergence will not only stop altogether, but could even reverse course.

    Figure: White-Black per capita wealth ratio: 1860-2020

    Julia Cagé, Nicolas Hervé, Béatrice Mazoyer
    CEPR DP No. 17358 | 05 June 2022

    In a new CEPR study, Julia Cagé, Nicolas Hervé and Béatrice Mazoyer show how information from social media influences mainstream media and finds that editors' editorial decisions are influenced by the popularity of trending news stories. The authors use data from all tweets produced in French between August 2018 and July 2019 (1.8 billion tweets, around 70% of all tweets in French) and the content published online by 200 mainstream media outlets, and propose a new instrument based on the interaction between measures of user centrality and "social media news pressure" at the time of the event. Among the findings: 

    • The research shows that story popularity has a positive effect on media coverage, this effect varies depending on the media outlets' characteristics, in particular on whether they use a paywall. The magnitude of the effect is stronger for media whose journalists are more present on the social network. 
    • The authors also investigate consumers' reaction to a surge in social media popularity and find that the magnitude of the effect is larger for media outlets with no paywall or a soft paywall than for media with a metered or a hard paywall, pointing to the existence of a clicks bias. 
    • The positive relationship between the popularity of an event on Twitter and its subsequent media coverage is mainly driven by national daily newspapers and television channels. 
    • Interestingly, local newspapers do not seem to react to what is happening on Twitter, a finding that the research links to the characteristics of their audience.
    • The findings also suggest that social media may provide a biased signal of what readers want. Furthermore, Twitter users are not representative of the general news reading population. This points to a negative effect of social media driven by the production side, consistent with recent changes in both The Guardian and The New York Times social media guidelines, which highlight the fact that journalists tend to rely too much on Twitter as both a reporting and feedback tool, and that it may distort their view of who their audience is.
    • Turning to the demand for news, the research finds that media outlets seem to overreact to what is happening on Twitter, and this might lead journalists to distort the information they produce compared to what consumers want.


    Oleksiy Blinov, Simeon Djankov
    31 May 2022

    Ukraine’s real GDP is expected to fall 36.5% in 2022, and economists do not expect a fast recovery. Writing at VoxEU, Oleksiy Blinov and Simeon Djankov compare Ukraine’s economic decline in 2022 to that of two other recent wars - Kuwait in 1990 and Serbia in 1999 – and argues that rebuilding the economy will require large investments in both human and physical capital, with support from international institutions, as well as upgrading the institutional environment conducive to economic growth.



    Kai Gehring   
    29 May 2022


    Writing at VoxEU, Kai Gehring draws on evidence from the 2014 Russian invasion of Ukraine to argue that the current external military threat could help to create a stronger European identity and cooperation. The response of EU member states so far has been significant and largely coordinated, and will likely have a persistent positive effect on EU common identity, translating into greater trust in EU institutions and greater support for cooperation at the EU level. 


    Ellen Munroe, Anastasiia Nosach, Juan Felipe Riaño, Ana Tur-Prats, Felipe Valencia Caicedo 
    09 June 2022

    Drawing on past evidence on the long-term impact of conflict, a study by Ellen Munroe, Anastasiia Nosach, Juan Felipe Riaño, Ana Tur-Prats and Felipe Valencia Caicedo shows that the after-effects of bombing campaigns and those of violence against civilians can be substantial and are typically, although not exclusively, damaging. The authors find a strong positive correlation between the presence of ethnic Russians historically and current conflict, as well as a negative relationship between modern conflict and Holodomor famine deaths, both within Ukraine.



    Gerrit Bethuyne, Arianna Cima, Björn Döhring, Åsa Johannesson Lindén, Ruben Kasdorp, Janos Varga    
    06 June 2022

    The surge of energy prices is significantly affecting the purchasing power of European households, in particular poorer ones. EU member states have adopted various measures to mitigate this impact, with discretionary measures adopted by late April amounting to about 0.6% of EU GDP. A study by Gerrit Bethuyne et al. uses the E-QUEST model to compare price measures (tax subsidies) to targeted and non-targeted income measures (transfers) in terms of social impact and impact on greenhouse gas emissions. The authors find that targeted income measures – combating energy poverty – are preferred on both accounts.  


    CORPORATE INDEBTEDNESS DURING COVID-19: The hangover of the vulnerable 

    Silvia Albrizio, Jean-Marc Natal, Evgenia Pugacheva     
    07 June 2022

    The pandemic is leaving behind a legacy of highly indebted firms that do not all look alike. Pockets of vulnerability are concentrated in the hardest-hit sectors, and there is a significant risk that these sectors will delay the recovery by exerting a drag on investment when policy support is withdrawn. Writing at VoxEU, Silvia Albrizio, Jean-Marc Natal and Evgenia Pugacheva call for the implementation of two policies to help limit the risk of long-term scarring:

    1. Improving insolvency and restructuring proceedings. 
    2. Scaling up efforts in the collection of real-time data on firms’ balance sheets to better target fiscal support to viable firms. These two policies should help limit the risk of long-term scarring.  


    Claudio Borio, Stijn Claessens, Nikola Tarashev     
    07 June 2022

    The financial sector has a key role to play in supporting the green transition, but it is unrealistic to expect that it can drive the required reallocation of resources in the absence of adequate environmental policymaking in the real economy. 

    Writing at VoxEU, Claudio Borio, Stijn Claessens and Nikola Tarashev argue that such unrealistic expectations could undermine financial stability and may derail the green transition itself. Moreover, the risks to financial stability are two-sided. Next to the risks that have attracted the bulk of the attention – those linked to exposures against overvalued emissions-intensive assets – one should not underestimate those linked to exposures to overvalued 'green' assets or assets that purport to be green.


    Jason Baron, Joshua Hyman, Brittany Vasquez    
    04 June 2022

    A study by Jason Baron, Joshua Hyman and Brittany Vasquez uses data from over one million students in Michigan to show that greater school funding has a large causal effect on the likelihood of adult arrest. The authors argue that is most likely driven by the positive effects of greater school funding on school quality, including better paid and more experienced teachers, and is not due to peer effects. The increase in school funding pays for itself, creating social benefits that exceed the cost.


    Luca Fornaro, Federica Romei    
    27 May 2022

    Since the start of the pandemic, global demand for tradable goods relative to non-tradable services has been exceptionally high. Writing at VoxEU, Luca Fornaro and Federica Romei argue that this unusual demand pattern can push the global economy into stagflation, driven by scarcity of tradeable goods. 

    Countries running trade deficits export high inflation abroad, while policies that boost production of tradeable goods and current account surpluses act as a benign disinflationary force. Due to a free riding problem, national monetary authorities may fall into a coordination trap leading to excessively high unemployment. High energy prices exacerbate all these effects. 



    Joop Adema, Cevat Giray Aksoy, Panu Poutvaara    
    04 June 2022

    A study by Joop Adema, Cevat Giray Aksoy and Panu Poutvaara shows how 3G mobile internet rollout affects people’s desire and plans to emigrate: 

    • Increases in 3G coverage raise individuals’ desire and plans to emigrate, especially for those who do not have networks abroad, 
    • It negatively affects perceptions of relative financial wellbeing and trust in the government. 
    • Internet access may be boosting the desire to emigrate while reducing the costs of finding information on opportunities abroad.

    LOST IN THE NET? Broadband internet and mental health

    Dijana Zejcirovic  interviewed by Tim Phillips, 31 May 2022

    How does the internet affect young people's mental health? A new paper based on the rollout of broadband internet in Italy comes to some alarming conclusions.


    Anna Pestova and Mikhail Mamonov interviewed by Tim Phillips, 03 June 2022

    How hard will sanctions on Russia bite? Anna Pestova and Mikhail Mamonov tell Tim Phillips about the depth of the economic hardship that the Russian people will suffer in 2022.