This week from CEPR: August 8th

Thursday, August 8, 2019

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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Symbolism Matters: The Effect of Same-Sex Marriage Legalization on Partnership Stability
Shuai Chen and Jan van Ours  
CEPR DP No. 13901 01 August 2019

A new CEPR study by Shuai Chen and Jan van Ours explores the effects of marriage on the stability of partnerships, using same-sex marriage legalisation in the Netherlands as a natural experiment. 

In 2001, same-sex marriage legalisation allowed registered partnerships to be transformed into marriages. Since registered partnerships and marriages are similar in terms of rights and obligations, the study seeks to understand the effect of marital symbolism on partnership stability. The research demonstrates that same-sex marriage legalisation has two effects: 

  • First, it increases the separation rate of existing same-sex registered partnerships. 
  • Second, partnerships that are transformed into marriage have a substantially lower separation rate. 

The second finding is evidence of the symbolic effect of marriage stabilising partnerships. Thanks to its symbolic significance, marriage may stabilise the preceding registered partnership as the couple make a unique public commitment. 

Figure 3: Survival probabilities of marriages that started after same-sex marriage legalisation



What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models
Xavier Jaravel and Erick Sager 
CEPR DP No. 13902 01 August 2019

The effects of trade with China on prices in the United States have been large and beneficial for consumers, according to a new CEPR study.  What’s more, while the ‘China shock’ has had some detrimental consequences for US employment, it should be possible to compensate those who suffer from such labour market impacts of trade shocks. Among the findings: 

  • On average, an increase in the import penetration rate from China of 1 percentage point leads to a fall in US consumer prices of approximately 2%. 
  • The prices response is driven by price changes for domestically produced goods and is primarily explained by declining mark-ups, rather than by falling domestic production costs.
  • Falling prices in product categories that are more exposed to trade with China increase consumer surplus by several hundreds of thousands of dollars for each displaced job. The price response is larger in product categories that cater to lower-income households.
  • As Chinese producers become more productive they reduce their prices, which leads US producers to reduce their mark-ups through strategic interactions.

Figure A2, Panel A (b): Chinese Import Penetration over time and Across Industries



How Effective Are Monetary Incentives to Vote? Evidence from a Nationwide Policy
Gianmarco León Ciliotta, Luis Martinez and Mariella Gonzales  
CEPR DP No. 13898 29 July 2019

How do voters in countries with mandatory voting respond to changes in the monetary sanctions for electoral abstention? A new CEPR study sheds light on this question by examining the impact of marginal changes to the fines for not voting in Peru. Among the findings: 

  • A smaller fine leads to a fall in voter turnout. 
  • But the drop in turnout caused by a full fine reduction is less than 20% the size of that caused by an exemption from compulsory voting, indicating the predominance of the non-monetary incentives provided by the mandate to vote. 
  • Additionally, almost 90% of the votes generated by a marginally larger fine are blank or invalid, lending support to the hypothesis that people make a rational decision to abstain from voting. 
  • Higher demand for information and larger long-run effects following an adjustment to the value of the fine point to the existence of informational frictions that limit adaptation to institutional changes.

Figure 1: The Abstention Fine by Election and Fine Category


HEDGING CLIMATE CHANGE NEWS: A new method to alleviate shocks to the economy

Robert Engle, Stefano Giglio, Bryan Kelly, Heebum Lee and Johannes Stroebel
31 July 2019

There is now widespread policy and industry interest in managing the financial risks from climate change. Unfortunately, it is not easy for firms or investors to manage exposure to climate, or for any counterparty to guarantee to pay claims if a climate disaster materialises many decades from now.   

A new study by Robert Engle, Stefano Giglio, Bryan Kelly, Heebum Lee and Johannes Stroebel introduces two indices of climate change news and a strategy to use them to build a portfolio that hedges the risk of negative climate news.


James Anderson, Mario Larch and Yoto Yotov 
30 July 2019

Foreign direct investment (FDI) has traditionally been viewed as a key driver of prosperity, and modern FDI has also become a vehicle for transferring intangible assets. James Anderson, Mario Larch and Yoto Yotov use a counterfactual experiment based on a hypothetical world with no outward or inward FDI to and from low-income and lower-middle-income countries to examine the effects of FDI on trade, domestic investment and welfare. They find that world welfare falls by about 6% and all countries lose out, with some poorer countries losing over 50%. World trade falls by 7%, with the losses again unevenly distributed.

VOTING OF INSTITUTIONAL INVESTORS REFLECTS THEIR VALUES: US evidence on social responsibility and management discipline

Patrick Bolton, Tao Li, Enrichetta Ravina and Howard Rosenthal 
30 July 2019

The majority of shares in publicly traded companies in the United States are held by institutional investors, who collectively have a large say on broad corporate objectives. These investors increasingly recognise that they need to look beyond the financial performance of the companies in which they invest and ask how the company contributes to wider society.

In a new study, Patrick Bolton, Tao Li and Enrichetta Ravina show that there is a systematic correlation between the type of institutional investor and their shareholder voting ideology. Their research suggests the two key dimensions of ideology are social responsibility and management discipline.  

GLOBAL TRADE FINANCE SINCE THE MIDDLE AGES: How the decline of market-based trade finance was triggered by major geopolitical shocks

Olivier Accominotti and Stefano Ugolini 
05 August 2019

The 2008 crisis has revealed how banking and liquidity problems can have far-reaching consequences for global trade. In a new study, Olivier Accominotti and Stefano Ugolini reconstruct the evolution of global trade finance from the Middle Ages until today. 

Just as in medieval times, today’s global trade is predominantly financed through banks so that banking problems automatically transmit to international trade. In contrast, from the 16th to the 20th century, trade finance was mostly market-based. The study finds that the decline of market-based trade finance was triggered by major geopolitical shocks.


San Bilal and Bernard Hoekman  
31 July 2019

In today’s rapidly evolving and uncertain trade context, the European Union (EU) must reposition itself, adapting its trade and external policies to pursue its economic interests more effectively, but also to achieve its political, geostrategic, developmental, environmental, and principles-based objectives. San Bilal and Bernard Hoekman introduce a new eBook that brings together perspectives on such questions as whether the EU has been effective in its pursuit of non-trade policy objectives relating to standards, values, sustainability and development, and if so, whether this has been at the expense of more traditional trade policy objectives.


Brian Beach and Walker Hanlon 
04 August 2019


The historical fertility transition is the process by which much of Europe and North America went from high to low fertility in the nineteenth and early twentieth centuries. How economic factors shaped the historical fertility transition is well studied but the role played by cultural factors remains disputed, in part because establishing the direct effect of social norms is difficult. 

A new study by Brian Beach and Walker Hanlon examines the relationship between England and Wales’s rapid fertility transition in the late 19th century and media exposure to the 1877 Bradlaugh-Besant trial, which challenged existing censorship laws related to family planning. It finds that fertility declined more rapidly after 1877 in locations with greater exposure to newspaper articles about the trial.

SIGNALLING A FUTURE PATH OF INTEREST RATES: The international evidence on forward guidance

Michael Ehrmann, Gaetano Gaballo, Peter Hoffmann, Georg Strasser  
01 August 2019

Forward guidance – communication by a central bank about the likely future path of interest rates – usually reduces uncertainty. In a new study, Michael Ehrmann, Gaetano Gaballo, Peter Hoffmann and Georg Strasser argue that how this is done in practice matters, because forward guidance with a short time horizon can raise uncertainty. This occurs if the forward guidance impairs the aggregation of private information in financial markets, thus making market prices less informative.


Jacques Melitz, Farid Toubal 
01 August 2019

Artificial intelligence has made spectacular progress in recent years. One source of high expectations is automatic translation and whether it will finally bring about the long-predicted death of distance in trade. 

A new study by Jacques Melitz and Farid Toubal examines the impact of a common language on bilateral trade. Findings indicate that the net result of reducing linguistic frictions with a set of trading partners is not apparent. The potential impact of machine translation on foreign trade remains up in the air. 

GLOBAL DECLINING COMPETITION: New global study incorporates the market power and mark-ups of private firms

Federico Diez, Jia Rong Fan and Carolina Villegas-Sanchez 
02 August 2019

Studies of the evolution of market power since 2000 have focused mostly on publicly traded US firms. Federico Diez, Jiayue Fan and Carolina Villegas-Sanchez introduce a new global study that incorporates private firms and decomposes the aggregate effect into intensive and extensive margins. It shows the increase in mark-ups is broad-based across countries and sectors but is driven by a small number of firms. The increase in mark-ups is mainly explained by increases in the average mark-up of incumbents, and reallocation effects towards new firms that gain market share from incumbents. 

DOES SURVEY DATA HAVE THE POTENTIAL TO INFORM MACRO-FINANCE THEORIES? A study of investor behaviour and portfolio allocation

Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Stephen P. Utkus 
02 August 2019

Though economists have made progress determining how investors form expectations, less is known about how those expectations inform portfolio choices. Until recently, few large-scale surveys contained the data to connect individual investors’ beliefs to their actual behaviour. 

In a new study, Stefano Giglio, Matteo Maggiori, Johannes Stroebel and Stephen Utkus use data collected from a novel survey eliciting investors’ expectations about GDP growth and future stock and bond returns. By measuring the extent to which investors’ persistent and heterogeneous beliefs and confidence correspond to their portfolio allocations, the research highlights the potential for survey data to inform macro-finance theories.

RETAIL INVESTOR LEVERAGE AND SPECULATION: Addressing excessive growth in financial markets

Rawley Heimer and Alp Simsek 
03 August 2019

Policy-makers have continually attempted to curb financial speculation while preserving markets for useful trading. A new study by Rawley Heimer and Alp Simsek analyses the impact of a recent US policy that restricts leverage in the foreign exchange market. It finds that the policy reduced speculative trading without impeding markets, and thus provides important lessons to address excessive growth in financial markets. 




Peter Schwardmann interviewed by Tim Phillips, 02 August 2019

Despite all the evidence to the contrary, we continue to overestimate how much work we will do tomorrow, or how often we will go to the gym. Why? Peter Schwardmann tells Tim Phillips that we do learn from experience about ourselves – but only in the right circumstances.


Lucrezia Reichlin, 25 July 2019

Lucrezia Reichlin of the London Business School is the third economist to be the focus of the CEPR/UBS Women in Economics series. She is one of the pioneers of Big Data and, along with her co-authors, has revolutionised how models are built.

Here she asks: are we moving to a world where anyone can issue money? She looks to a future where the new cryptocurrency technologies will be used for payment systems but the money behind them will remain a monopoly of the central banks. She concludes that the fundamental value of money is guaranteed by the credibility of the state.

HOW PRE-SCHOOL CHANGED THE FAMILY: Evidence from the United States

Phillip Ager 05 August 2019

Phillip Ager asks whether the introduction of pre-school education contributes to a fall in fertility in the industrialised world. Having put together data on the spread of the Kindergarten Movement across the United States with detailed census records, he finds that there is a substantial decline in fertility among women, especially poor and immigrant women, whose children could have attended kindergarten. The research points to the importance of offering early years education as a measure to aid the integration of migrant families.