This week from CEPR: 17 March

Thursday, March 17, 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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    • New Discussion Papers


    • INTERNALLY DISPLACED LIBYANS SUFFERING INCREASED ECONOMIC HARDSHIP DUE TO COVID PANDEMIC 

    FACING DISPLACEMENT AND A GLOBAL PANDEMIC: Evidence from a Fragile State
    Michele Di Maio, Francesco Fasani, Valerio Leone Sciabolazza, Vasco Molini
    CEPR DP No. 17104 | March 2022

    A new CEPR study by Michele Di Maio, Francesco Fasani, Valerio Leone Sciabolazza and Vasco Molini presents the first evidence of the impact of COVID-19 on internally displaced persons (IDPs) in Libya, a country in which violence and insecurity impede accurate data collection. The authors use new and unique data from a phone survey in 2021 to examine the differences between IDPs and non-displaced individuals, controlling for individuals and household characteristics, geo-localised measures of economic activity and conflict intensity. Among the findings: 

    • 9.5% of respondents report that a household member has been infected by COVID-19, while 24.7% of them have suffered economic damages and 14.6% have experienced negative health effects due to the pandemic. 
    • Displaced individuals do not experience higher incidence of COVID-19 relative to comparable non-displaced individuals, but are about 60% more likely than non-displaced respondents to report negative economic and health impacts caused by the pandemic. 
    • The results suggest that the larger damages suffered by IDPs can be explained by their weaker economic status - which leads to more food insecurity and indebtedness - and by the discrimination they face in accessing health care.
    • The findings show that large gaps in the level of hardship endured during the pandemic may arise even in the absence of a differential contagion risk. 

    These results suggest that policy interventions in a fragile context with large presence of IDPs may need to focus more on preventing damage rather than on containing the spread of COVID-19 among marginalized population groups.

    Figure: (Perceived) impact of COVID 19: Heterogeneity

    Note: Figure A.4 shows the coefficients of the interaction between the variable DISPLACED and a set of individual-level characteristics, namely gender, education level and duration of the displacement status. 


    • THE GLOBAL INEQUALITY BOOMERANG 

    THE GLOBAL INEQUALITY BOOMERANG
    Ravi Kanbur, Eduardo Ortiz-Juarez and Andy Sumner
    CEPR DP No. 17105 | March 2022

    A new CEPR study by Ravi Kanbur, Eduardo Ortiz-Juarez and Andy Sumner examines key features of the past and potential future evolution of income (or consumption) inequality in the world over the period 1981–2040. Key insights include:

    • The decline in global inequality over the last decades has spurred a 'sunshine' narrative of falling global inequality that has been rather oversold, in the sense, it is likely to be temporary.
    • The decline in global inequality will reverse due to changes in the between-country component. 
    • There is a potentially startling global inequality 'boomerang', possibly in the mid-to-late 2020s, which would have happened even if there were no pandemic, and that the pandemic is likely to bring forward the global inequality boomerang.
    • Looking ahead, the impact of China’s economic development – and of other fast-growing, populous countries such as India – on the between-country component will, at some point, diminish and start to add to global inequality if economic growth continues apace. 

    Figure: Evolution of global income inequality, 1981-2019



    THE UKRAINE WAR HAS RAISED LONG-TERM INFLATION EXPECTATIONS

    Pascal Seiler                 
    12 March 2022

    Writing at VoxEU, Pascal Seiler uses survey data to show that companies’ long-term inflation expectations have increased significantly following Russia’s invasion of Ukraine, especially in manufacturing.

    In this sector, higher energy and commodity prices prove particularly important in motivating price increases. These findings add to concerns that along with broadening price pressures, inflation expectations could become less anchored, making overall inflationary pressures far more persistent.

     

    CRYPTOCURRENCIES AND THE WAR IN UKRAINE

    Jon Danielsson                
    10 March 2022

    The cryptocurrency exchanges have only done what is legally required of them when sanctioning Russia for its invasion of Ukraine, unlike the mainstream financial institutions whose restrictions on the Russians generally exceeds what is required by law. Writing at VoxEU, Jon Danielsson argues that the implications for the future of cryptocurrencies will be considerable.

    THE WARTIME POWER OF CENTRAL BANKS: Lessons from the past

    Patrick O'Brien, Nuno Palma
    12 March 2022

    Special wartime monetary policies have successfully been used on numerous occasions throughout history, such as when the Bank of England played a decisive role in supporting the British economy during the French Wars of 1793-1815. 

    Writing at VoxEU, Patrick O'Brien and Nuno Palma show how rapid increases in military expenditure during wartime were supported by liquid and low-inflation government financing as well as reputable management of debt levels. In this light, current sanctions on the Bank of Russia could lead to long-term changes to Russia’s economy and political system as well. 


    THE FINANCIAL DEFENCE: How is the Ukrainian economy holding up?

    Yevhenii Skok, Oliver de Groot                   
    17 March 2022

    Writing at VoxEU, Yevhenii Skok and Oliver de Groot assess policies implemented by the National Bank of Ukraine and the international financial community to maintain liquidity and financial stability in the country over the past few weeks.

    The economic outlook ahead for Ukraine is mired with uncertainty, and will largely be determined by the length and scale of the war. Huge damage is being done to the productive capacity of the economy and there will be need for substantial external funding to help reconstruct the country and the economy after the war.



    THE UNEQUAL COST OF JOB LOSS ACROSS COUNTRIES

    Antoine Bertheau, Edoardo Maria Acabbi, Cristina Barceló, Andreas Gulyas, Stefano Lombardi, Raffaele Saggio
    11 March 2022

    Using dara from seven countries with diverse labour market institutions, a study by Antoine Bertheau, Edoardo Maria Acabbi, Cristina Barceló, Andreas Gulyas, Stefano Lombardi and Raffaele Saggio finds that the consequences of losing one’s job varies significantly across countries. 

    The research shows that workers in Denmark and Sweden experience the lowest earnings declines following job loss, while workers in Italy, Spain, and Portugal experience losses three times as high. Labour market institutions have the potential to mitigate these differences.

     

    SUPPLY DISRUPTIONS ADDED TO INFLATION UNDERMINED THE ECONOMIC RECOVERY IN 2021

    Oya Celasun, Niels-Jakob Hansen, Mariano Spector, Aiko Mineshima, Jing Zhou
    16 March 2022

    A study by Oya Celasun, Niels-Jakob Hansen, Mariano Spector, Aiko Mineshima and Jing Zhou uses data from 30 countries to show that, in 2021:

    • Supply shocks had a negative impact on manufacturing output, while demand shocks had a positive impact. 
    • In contrast, both contributed to higher manufacturing goods prices. 
    • Furthermore, there is substantial diversity in the magnitude of these effects across countries and sectors. 

    Policymakers should seek to address specific supply bottlenecks and minimise the scarring from prolonged weakness to manufacturing activity.


    CAN ROBOTS DRIVE ECONOMIC DEVELOPMENT? Evidence from Indonesia

    Massimiliano Calì, Giorgio Presidente 
    13 March 2022

    Do automation technologies constitute an opportunity or a threat for developing countries? Using data from Indonesian manufacturing firms, a study by Massimiliano Calì and Giorgio Presidente documents a positive impact on employment of adopting robots. 

    These findings contrast with the existing evidence of negative impacts in economies at relatively advanced stages of automation, and could be explained by diminishing returns to robots, given the relatively low robot adoption in Indonesia.


    ROOTED TO THE SOIL: The impact of social housing on population in Ireland since 1911

    Alan de Bromhead, Ronan Lyons              
    15 March 2022

    Writing at VoxEU, Alan de Bromhead and Ronan Lyons show how the world’s first large-scale rural public housing scheme, Ireland’s Labourers Acts – which subsidised the construction of nearly 50,000 cottages for agricultural labourers between 1883 and 1915 – helped to reduce depopulation of the countryside but was unable to arrest the decline completely. 

    Ireland remains one of the least urbanised high-income countries in the world, the scheme may have contributed, along with other factors, to this hidden cost in Ireland’s economic development. The scheme may also have affected other outcomes, including public health and political voting preferences, raising questions about the broader effects of interventions that affect the quality and cost of housing.


    INFLATION AND THE FED’S NEW FRAMEWORK IN THE TIME OF COVID-19

    Gauti Eggertsson, Alessandro Lin, Josef Platzer, Luca Riva
    14 March 2022

    The Fed recently introduced an average inflation targeting framework, in which past inflation shortfalls shape current policy. Writing at VoxEU, Gauti Eggertsson, Alessandro Lin, Josef Platzer and Luca Riva show that the new framework substantially reduced the US output contraction by about 40%. Alternative policies would have reduced the contraction by even more. The results suggest that the Fed places some weight on output stabilisation alongside inflation.


    A PROPOSAL FOR A CENTRAL FISCAL CAPACITY FOR THE EMU TARGETING EURO AREA, NATIONAL, AND REGIONAL SHOCKS

    Roel Beetsma, Jacopo Cimadomo, Josha van Spronsen
    14 March 2022


     

    Writing at VoxEU, Roel Beetsma, Jacopo Cimadomo and Josha van Spronsen propose a central fiscal capacity for the euro area in which transfers to/from regions are driven by euro-area, country-specific, and region-specific shocks. The authors argue that the scheme can produce substantial stabilisation of regional growth with a limited need for the system as a whole to borrow in any given year. The success of the current Recovery and Resilience Facility will be an important litmus test for such a broader central fiscal capacity.


    COLLAPSE OF THE CLEAN DEVELOPMENT MECHANISM SCHEME UNDER THE KYOTO PROTOCOL AND ITS SPILLOVER: Consequences of ‘carbon panic’

    Kazunari Kainou
    16 March 2022

    Writing at VoxEU, Kazunari Kainou reviews the collapse of the Clean Development Mechanism under the Kyoto Protocol and its spillovers on Paris Agreement negotiations. While the scheme was unexpectedly revived thanks to interest from the US and developing countries, the author argues that carbon financing remains structurally prone to panic


    WHAT ARE AMERICANS' MAIN CONCERNS ABOUT TAXES?

    Beatrice Ferrario, Stefanie Stantcheva                    
    08 March 2022

    Carbon emissions are conventionally measured solely from the perspective of producers. Critics argue that this weakens the emission reduction targets set by participants of the United Nations Climate Change Conferences. 

    Analysing the emissions of the five largest polluters using a novel measure that accounts for both the consumer and producer perspective, a study by Palizha Airebule, Haitao Cheng and Jota Ishikawa shows that this increases measured emissions from the US and Japan and reduces those from China, India, and Russia due to international trade patterns. The findings raises important questions about how to appropriately allocate responsibility for reducing carbon emissions in the future.


    HISTORICAL GENDER DISCRIMINATION DOES NOT EXPLAIN COMPARATIVE WESTERN EUROPEAN DEVELOPMENT

    Nuno Palma, Jaime Reis, Lisbeth Rodrigues
    27 February 2022

    The comparatively slow economic growth of Southwestern Europe since the Middle Ages is often attributed to gender discrimination and the idea that women had more agency in England and the Low Countries, which kept fertility levels low and human-capital formation high. 

    A study by Nuno Palma, Jaime Reis and Lisbeth Rodrigues combines a dataset from six centuries of archival sources with a qualitative discussion of comparative social norms to show that women in Portugal were no more discriminated against than women in other parts of Western Europe, which suggests that other factors must be responsible for the divergence in incomes. 



    RUSSIA UNDER SANCTIONS: The political economy of Putin's war in Ukraine

    Sergei Guriev interviewed by Tim Phillips, 14 March 2022

    Sanctions against Russia continue to multiply. What will their effect be on the Russian state and its people? Part of a series of commentaries on the economic consequences of the conflict in Ukraine.




    WOMEN'S LIBERATION, HOUSEHOLD REVOLUTION

    Moshe Hazan, David Weiss interviewed by Tim Phillips, 11 March 2022

    Until the second half of the 19th century, coverture laws granted married men almost unlimited power over the household. Moshe Hazan and David Weiss tell Tim Phillips about how abolition changed the number of children in a family, and how well those children were educated?
    Read more about the research behind this Vox Talk and download the free DP: Hazan, M, Weiss, D and Zoabi, H. 2021. 'Women's Liberation, Household Revolution'. CEPR