This week from CEPR: February 21

Thursday, February 21, 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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    • ADVERTISING IS BAD FOR OUR HAPPINESS: Evidence from one million Europeans

    Advertising as a Major Source of Human Dissatisfaction: Cross-National Evidence on One Million Europeans
    Chloe Michel, Andrew Oswald, Eugenio Proto and Michelle Sovinsky
    CEPR DP No. 13532 15 February 2019

    Increases in national advertising expenditure are followed by significant declines in reported levels of life satisfaction, according to a new CEPR study. Blending longitudinal data on advertising with large-scale surveys of citizens’ wellbeing, the research analyses information on approximately one million randomly sampled European citizens across 27 nations over three decades. 

    Advertising is ubiquitous in modern life. Yet might it be harmful to the happiness of nations? The empirical results of this analysis are some of the first to be consistent with the hypothesis that, perhaps by fostering unending desires, high levels of advertising may depress social wellbeing.

    Fig 1. An illustration of the inverse longitudinal relationship between changes in advertising and changes in the life satisfaction of countries. This is based on a sample of approximately 1 million individuals over the years 1980 to 2011 (or for shorter periods where full data are not available for a particular country).

    Bottom Tertile: Mean Change: 2.925241; Countries: Czech Republic, Germany after 1989, Estonia, Finland, Lithuania, Hungary, Latvia, Poland, Romania, Slovakia 
    Middle Tertile:  Mean Change: 2.154662; Countries: Bulgaria, Western Germany (before 1989), Denmark, UK, Sweden, Slovenia, Netherlands, Turkey, Spain 
    Top Tertile: Mean Change: 1.457801; Countries: Austria, Belgium, France, Greece, Croatia, Ireland, Italy, Norway, Portugal 


    • RISKY LIFESTYLE CHOICES: Evidence on how women respond to bad news about their health

    Value of Risky Lifestyle Choices
    Chloe Michel, Michelle Sovinsky and Steven Stern
    CEPR DP No. 13537 15 February 2019

    Women who have recently been diagnosed with breast cancer exercise and smoke less, but they do not change their drinking habits relative to healthy women. That is one of the findings of new CEPR research, which uses data from the Panel Study of Income Dynamics on diagnosis and lifestyle choices to estimate how a diagnosis of cancer influences the smoking, drinking and exercising habits of more than 9,000 American women over the period 1999 to 2011. 

    The data provide insights into the trade-offs that women are willing to make between participating in unhealthy (but enjoyable) habits and increasing their life expectancy. The changes are not always consistent with public information on cancer risk factors, but they are rationalised after considering that lifestyle choices increase the ‘utility’ of living. 

    For a woman diagnosed with breast cancer, the results indicate that she will smoke only if the value placed on smoking is greater than 6% of the total utility from being alive. The threshold is lower for drinking where drinking has a positive impact on the value of life if the value placed on drinking is greater than 3% of the total utility from being alive. Finally, a woman with breast cancer will find it valuable to engage in exercise even when it brings disutility of 3% of the value of living. 

    Using conventional estimates for the value of a year of life, these choices imply that, per year, women value smoking at about $49,000 for smokers, drinking at about $29,500 for drinkers and exercising at about $28,200 for exercisers.


    Pandemics, Places, and Populations: Evidence from the Black Death
    Remi Jedwab, Noel Johnson and Mark Koyama
    CEPR DP No. 13523 12 February 2019

    The Black Death killed 40% of Europe’s population between 1347 and 1352, making it one of the largest shocks in history. New research uses a novel dataset with information on spatial variation in plague mortality at the city level to explore the short- and long-run impacts of the Black Death on city growth.  

    The study finds that on average, cities recovered their pre-plague populations within two centuries, although aggregate convergence masked considerable heterogeneity in urban recovery. Both of these facts are consistent with a Malthusian model in which population returns to high-mortality locations endowed with more rural and urban fixed factors of production. Land suitability as well as natural and historical trade networks played a vital role in urban recovery. 

    The research highlights the role played by pandemics in determining both the sizes and placements of populations.

    Figure A.2: Extrapolated Black Death Mortality Rates

    Notes: Figure 2(a) shows for the 274 cities with mortality data the relationship between true mortality and predicted mortality using spatial extrapolation. Figure 2(b) shows the 274 cities and surfaces of extrapolated mortality rates for the rest of Western Europe. SeeWeb Appendix for more details on data sources.

    • PREDICTING RECESSIONS: Evidence from the UK’s inverted yield spread, 1822-2016

    The Slope of the Term Structure and Recessions: Evidence from the UK, 1822-2016
    Forrest Capie, Charles Goodhart and Terence Mills
    CEPR DP No. 13519 11 February 2019

    Inversion of the yield spread – with short-term interest rates higher than the long-term rate – has been and remains an effective predictor of recessions in the UK, according to new research by Charles Goodhart and colleagues. 

    Using monthly data from 1822 to 2016, the study constructs indicators of recession in a variety of ways depending on the availability and properties of the data in the pre-World War 1, inter-war and post-World War 2 periods. Analysis of peak-to-trough recession indicators produces reasonably strong evidence to support the inverted yield spread being a predictor of recessions for lead times up to 18 months in all three time periods. 

    • DELAYED RECOVERY IN THE EUROZONE AFTER THE GLOBAL FINANCIAL CRISIS: An unfavourable comparison with the 1992/93 EMS crisis

    The Euro Crisis in the Mirror of the EMS
    Giancarlo Corsetti, Barry Eichengreen, Galina Hale and Eric Tallmann
    CEPR DP No. 13522 11 February 2019

    Why was recovery from the Eurozone crisis delayed for a decade? According to a new CEPR study, the explanation lies in the absence of credible and timely policies to provide a backstop for financial intermediaries and sovereign debt markets.

    The researchers add light and colour to this analysis, contrasting recent experience with the 1992/93 crisis in the European Monetary System, when national central banks and finance ministries provided this backstop more successfully. In the more recent episode, the incomplete development of the Eurozone constrained the ability of the European Central Bank and other European institutions to do likewise.

    Figure 9. Fiscal Consolidation as a Percent of GDP

    PHILIP LANE: Newly appointed chief economist at the European Central Bank

    CEPR research fellow and governor of the Central Bank of Ireland Philip Lane has recently been appointed to the European Central Bank’s Executive Board as chief economist. His many contributions to Vox on the European economy, financial flows and macroeconomic policy are available here:


    GROWTH EFFECTS OF GENDER EQUALITY: Evidence from 15th to 19th century Europe that female autonomy generates superstars in long-term development

    Jörg Baten, Alexandra de Pleijt

    11 February 2019 

    Between the fifteenth and nineteenth centuries, European countries with greater female autonomy allowed women to contribute more to human capital formation and prosperity, leading to greater economic development in the long run. That is the central finding of research by Jörg Baten and Alexandra de Pleijt. 

    Empirical evidence suggests a positive relationship between gender equality and long-term economic growth, but establishing the direction of causality has been hampered by a lack of consistent data. The new study uses historical evidence on dairy farming to examine the growth effects of gender equality.

    VOTING WITH THEIR MONEY: Brexit and outward investment by UK firms

    Holger Breinlich, Elsa Leromain, Dennis Novy, Thomas Sampson

    12 February 2019 

    Media reports suggest that some UK firms have started to move production abroad in anticipation of Brexit. Using data on announcements of new foreign investment transactions, a new study by Thomas Sampson and colleagues reports evidence that the Brexit vote has led to a 12% increase in the number of new investments made by UK firms in EU27 countries, a total increase of £8.3 billion. At the same time, new investments in the UK from the EU27 have declined by 11%. 

    These results are consistent with the idea that UK firms are offshoring production to the EU27 because they expect Brexit to increase barriers to trade and migration, making the UK a less attractive place to invest and create jobs. A no-deal Brexit would further accelerate the outflow of investment from the UK.

    PLATFORMS, PROMOTION AND PRODUCT DISCOVERY: Evidence from Spotify playlists

    Luis Aguiar, Joel Waldfogel 
    16 February 2019

    Appearing on the Spotify-curated Today’s Top Hits playlist results in about 19.4 million streams on average, according to research by Luis Aguiar and Joel Waldfogel on the power of streaming platforms. Their study also finds that inclusion in top selling or new music playlists has a significant impact on song success,  

    Streaming platforms give a diverse range of music creators direct access to large audiences, but whether their songs reach these audiences can depend on the platforms’ decisions about what to promote. This research examines the impact of inclusion on Spotify playlists. The results suggest that growing concentration in the streaming market, as well as other markets dominated by one or a few players, may create a need for scrutiny of how platforms exercise their power.

    MEASURING WELLBEING: Gross national happiness and macroeconomic indicators in the Kingdom of Bhutan

    Sriram Balasubramanian
    17 February 2019

    There has been considerable criticism of the general reliance on GDP as an indicator of growth and development. One strand of criticism focuses on the inability of GDP to capture the subjective wellbeing or happiness of a populace. 

    New research by Sriram Balasubramanian examines new growth models, paying particular attention to Bhutan, which has pursued gross national happiness, rather than GDP, since the 1970s. The study finds evidence of the ‘Easterlin paradox’ in Bhutan (although incomes rise, happiness doesn’t), and draws out lessons for macroeconomic growth models..

    DRIVERS OF COMPETITIVENESS IN EUROPEAN FIRMS: Granular inputs to policy and research from the CompNet dataset

    Filippo di Mauro, Paloma Lopez-Garcia, Marta Colombo
    11 February 2019

    European firms that export are more productive, larger, pay higher wages and employ more qualified personnel. That is one of the findings of analysis of CompNet, a new dataset that allows cross-country comparisons of firm performance as a way to improve understanding of the drivers of competitiveness. 

    Among the other findings in the latest cross-country report by Filippo di Mauro and colleagues: healthy firms are more likely to be credit constrained in the presence of a high share of distressed firms; and the disconnection between real wages and productivity growth in the post-crisis period has been heterogeneous across EU firms.

    A DECADE AFTER LEHMAN: Puzzles and challenges in the international monetary system

    Ozge Akinci, Roland Beck, Paola Donati, Linda Goldberg, Livio Stracca
    15 February 2019


    While some improvements have occurred in the wake of the Global Crisis, the international monetary system is still rife with puzzles and challenges. A recent Vox column summarises the latest Global Research Forum, which took stock of global financial stability a decade on from the collapse of Lehman Brothers. 

     The starting points for many discussions were that international financial linkages remain strong, but have evolved in their composition; the US dollar continues to be the key currency for international trade and financial transactions; and banking systems have increased their resilience and broadened their toolkits for dealing with stresses. Meanwhile, corporate debt issuance has soared and average US dollar-denominated liabilities have increased in most major emerging market economies.


    Chiara Franzoni, Henry Sauermann, Kourosh Shafi
    4 February 2019

    Digital crowdfunding platforms that raise money directly from citizens have created an alternative source of research funding. A new study, which analyses data from the largest science crowdfunding platform,, finds that women and young researchers are particularly successful in attracting funding in this way. What’s more, risky projects are not disadvantaged as they are with traditional granting agencies.  

    Nevertheless, the amounts currently raised through crowdfunding are small, so for now it is only a complementary source of funding for most traditional research projects.


    Philipp-Bastian Brutscher, Pauline Ravillard
    14 February 2019 

    Migrants’ intent to leave their home country depends on the availability of smuggling services, according to research by Guido Friebel and colleagues, which explores the effective opening to Libyan refugees of the central Mediterranean migration route to Europe following the fall of Gaddafi. Their Findings indicate that when the smuggling distance between country-pairs gets shorter, there is an increase in individual intentions to migrate.

    There is a general understanding that illegal migration only exists because of the smuggling industry. But there is no reliable information on how migrants’ intent to leave their home country depends on the availability of smuggling services. This study uses data on migrant flows arriving at European borders after the fall of Gaddafi, to estimate the supply elasticity of the lucrative smuggling industry.

    OFFICIAL LENDING IN THE EUROZONE: Lessons for debt sustainability

    Giancarlo Corsetti, Aitor Erce, Timothy Uy
    13 February 2019

    Lengthening loan maturities and managing debt repayment flows has substantial effects on debt sustainability, according to research by Giancarlo Corsetti and colleagues.  

    The study notes that during the Eurozone crisis, management of official loan maturities emerged as a critical item in discussions of which instruments and strategies are most effective at ensuring debt sustainability. Using a model calibrated to Portugal and cross-country data, the researchers unveil a key policy trade-off in official lending between increasing the amount of safe debt (immune from rollover risk) and strengthening the incentive to default in response to negative shocks to fundamentals.

    INTERBANK CONTAGION: Evidence from the Great Depression and its implications for regulation today

    Charles Calomiris, Matthew Jaremski, David Wheelock
    12 February 2019

    Contractual connections between banks can pose significant liquidity risks to banks during a crisis. What’s more, safety net policies, including ‘lender of last resort’, may lead banks to be less cautious in their management of liquidity risk. 

     These are among the findings of new analysis of the Great Depression in the United States by Charles Calomiris and colleagues. They describe how important contractual contagion occurred at that time, which significantly worsened the failure risk of banks by increasing liquidity risk. The findings call for regulatory policies that take account of potential contractual contagion, and that require minimum prudential capital and liquidity buffers to take liquidity risks into account.


    Joshua Aizenman 
    12 February 2019

    The fall in valuation of Bitcoin has led to a debate over whether decentralised currencies can be reliably stable. According to analysis by Joshua Aizenman, the instability of cryptocurrencies is the outcome of a systemic ‘tragedy of the commons’ coordination failure, which is inherent in their design. 

    He argues that in contrast to the success of inflation-targeting regimes, there is no feasible path towards stability of a decentralised currency.


    Gaetano Basso, Francesco D'Amuri, Giovanni Peri
    13 February 2019 

    The lack of adequate labour mobility in the Eurozone is an obstacle to labour market adjustments, according to research by Giovanni Peri and colleagues. Their study concludes that policies aimed at reducing the complexities of migrating for jobs could help to ease the ‘mobility gap’ compared with the United States. 

    The response of labour supply to negative shocks is different across regions due to varying levels of labour mobility. This research shows that the elasticity of labour supply in response to economic shocks is lower in the Eurozone than in the United States


    BANKRUPTCY PROPAGATION IN JAPAN: Evidence from one million firms

    Yoshiyuki Arata
    13 February 2019

    The complex networks formed through customer-supplier relationships between firms have the potential to propagate shocks across the economy. New research by Yoshiyuki Arata explores how bankruptcy is propagated through a network of approximately one million Japanese firms. 

    Bankruptcy propagation is observed empirically, but only very infrequently and with very limited reach. This is because the increased connectivity between firms disperses bankruptcy shocks such that they immediately die out.


    Rui Esteves interviewed by Tim Phillips

    15 February 2019

    A new dataset compiles the history of international finance spanning a century and a half, revealing new information about globalisation, crises and capital flows. Rui Esteves of the Graduate Institute, Geneva, tells Tim Phillips what lessons it offers for policy-makers today.