This week from CEPR: January 21

TRUMP, BERLUSCONI, AND THE DAMAGE BY ENTREPRENEURS TO ECONOMIC POLICY

Tito Boeri, Roberto Perotti           
21 January 2021

Writing at Vox, Tito Boeri and Roberto Perotti compare the performance of the United States in various economic indicators during the (pre-Covid) Trump administration with President Obama’s final three years, as well as in the euro area, to demonstrate that the view of Donald Trump as ‘the businessman who can at least run the economy’ was mistaken. The real danger of this view is that it suggests that economic policy can best be handled by entrepreneurs – something the Italians have learnt is not the case.

THE VALUE OF A VACCINE TO END COVID-19 IS WORTH BETWEEN 5% AND 15% OF WEALTH

Viral Acharya, Timothy Johnson, Suresh Sundaresan, Steven Zheng              
19 January 2021

A study by Viral Acharya, Timothy Johnson, Suresh Sundaresan and Steven Zheng estimates the value of a Covid-19 cure using the behaviour of stock prices and a novel vaccine progress indicator. The study finds that the value of a cure is worth between 5% and 15% of wealth and rises substantially with uncertainty surrounding the frequency and duration of the pandemic. Understanding the fundamental biological and social determinants of future pandemics may be as important as resolving the immediate crisis.

THE IMPACT OF COVID-19 ON PRODUCTIVITY: Evidence from the UK

Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, Gregory Thwaites            
18 January 2021

How has the spread of Covid-19 and measures to contain it affected productivity? Writing at Vox, Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka and Gregory Thwaites use data from the Decision Maker Panel business survey data to examine the pandemic’s impact on productivity: 

• Total factor productivity in the UK private sector is likely to be lower than it would have been, by up to 5% in 2020 Q4, falling back to a 1% reduction in the medium term. 
• Firms anticipate a large reduction in ‘within-firm’ productivity, primarily because measures to contain Covid-19 are expected to increase intermediate costs. 
• Since the pandemic disproportionally affected firms in low-productivity sectors, and the least productive firms within these sectors, these become a smaller part of the economy and therefore a positive ‘between-firm’ reallocation effect partially offsets the negative ‘within-firm’ effect.

GLOBAL LIQUIDITY AND DOLLAR DEBTS OF EMERGING MARKET CORPORATES

Lorenzo Forni, Philip Turner           
15 January 2021

Dollar bond issuance by non-US companies has dominated foreign borrowing since the global crisis. In many emerging markets, higher leverage and currency mismatches have increased the risk of corporate insolvencies and created new threats to the balance sheets of local banks.

Writing at Vox, Lorenzo Forni and Philip Turner document the financial risks created by these recent trends and outline the necessary implications for regulatory policy. They find that in addition to regulation, financial fragilities have added to demands for fiscal stimulus and led some emerging market central banks to ease monetary policy by buying government bonds, creating new links with fiscal policy. 

LOCKDOWNS ARE DISPROPORTIONATELY AFFECTING WOMEN AND THE YOUNG

Francesca Caselli, Francesco Grigoli, Pedro Rente Lourenço, Damiano Sandri, Antonio Spilimbergo             
15 January 2021

Using data from Italy, Portugal, and Spain, Francesca Caselli and colleagues show that lockdowns have had a larger impact on the mobility of women and younger cohorts. Younger people also experienced a sharper drop in mobility in response to rising Covid-19 infections. The findings warn about a possible widening of gender and inter-generational inequality and provide important inputs for the formulation of targeted policies.  

ISSUE SALIENCE AND POLITICAL STEREOTYPES: Evidence from the United States 

Pedro Bordalo, Marco Tabellini, David Yang         
20 January 2021

Has the US electorate become more polarised? Have ideological differences between partisans have dramatically increased? Or are perceptions of partisan differences systematically exaggerated?

A study by Pedro Bordalo, Marco Tabellini and David Yang analyses the factors shaping voters’ ideas about the political attitudes of other voters among the US electorate and demonstrates that our beliefs about one another’s political attitudes tend to be substantially mis-calibrated. The paper offers broad insights into the drivers of perceived polarisation:

• When issue salience changes, beliefs about political groups can shift dramatically even when the underlying fundamentals remain the same. 
• Surprisingly, the malleability of beliefs is most pronounced among partisans who do not strongly identify with their party, and is evident even for independent voters.
• The removal of a perceived external threat can induce citizens to perceive one another as further apart on domestic issues, undermining a country’s social cohesion. 

INCREASING DEPOSIT INSURANCE AND NATIONALISATION CAN RESTORE FINANCIAL STABILITY IN TIMES OF CRISES

Sümeyra Atmaca, Karolin Kirschenmann, Steven Ongena, Koen Schoors           
16 January 2021

Using evidence from more than 300,000 Belgian depositors of a large European bank during 2008 and 2009, a study by Sümeyra Atmaca, Karolin Kirschenmann, Steven Ongena and Koen Schoors analyses if increasing deposit insurance coverage support financial stability during the global financial crisis.

The results show that the increase in deposit insurance coverage together with the nationalisation of a bank at the height of the financial crisis in the autumn of 2008 was effective in calming depositors. The effect of increased deposit insurance kicks in most strongly once the bank is reprivatised, and close bank-customer relationships and trust in the government reinforce the effect.

WORKPLACE INTEGRATION IMPROVES GENDER ATTITUDES IN THE SHORT-RUN: Evidence from Norway

Gordon Dahl, Andreas Kotsadam, Dan-Olof Rooth             
17 January 2021

A study by Gordon Dahl, Andreas Kotsadam and Dan-Olof Rooth uses an experiment conducted with Norwegian Army recruits to explore whether integration can change gender attitudes and related outcomes.

The results show that intensive contact with female recruits during boot camp causes men to have more egalitarian attitudes in the short run but no effect on attitudes in the long term – perhaps because the duration of the experiment was relatively short compared to the overall military experience.

The study finds no evidence that male soldiers’ performance and satisfaction was affected during the experiment. There was no effect on promotion probabilities or performance evaluations conducted at the end of service. These findings indicate that having women serve alongside men in the military would not hurt performance and not cause dissatisfaction. 

NAZI COLLABORATORS IN FRANCE: How networks of influential individuals helped destroy one of the world’s most durable democracies and legitimise a racist, authoritarian state

Julia Cagé, Anna Dagorret, Pauline Grosjean, Saumitra Jha             
17 January 2021

A study by Julia Cagé, Anna Dagorret, Pauline Grosjean and Saumitra Jha uses novel evidence on extreme right-wing supporters and Nazi collaborators in France to show how democratic values can be undermined by exogenous networks of influential individuals, including military heroes.

The study shows how heroes are specially positioned to widen the ‘Overton window’ and legitimise views previously considered deeply repugnant. Social networks of individuals sharing such an identity can transmit and reinforce this influence, leading to escalating commitments that entrench political positions and make debiasing more difficult.

In a chilling comparison to modern day events, the authors note how the scenes at the US Capitol earlier this month echo important moments in history where rioters protesting the state include former veterans and political heroes. 

THE MERITS OF FIRE SALES AND BAILOUTS IN LIGHT OF THE COVID-19 PANDEMIC

Jean-Marie Meier, Henri Servaes       
18 January 2021

One key objective of the widespread Covid-19 emergency measures was to prevent fire sales and the externalities associated with them. A study by Jean-Marie Meier and Henri Servaes uses evidence based on 31 years of data on fire sales of real assets, to document, however, that there is an underappreciated ‘bright side to fire sales’ in the form of gains to buyers.

 The negative externalities of fire sales for customers or suppliers, for instance, appear limited. The main effect of fire sales is a wealth transfer from the seller to the buyer. Thus, from a welfare perspective, the costs associated with fire sales of corporate assets are much lower than previously thought based on an analysis of seller costs only. These findings indicate that the welfare losses associated with fire sales are smaller than previously thought, thereby raising doubts about the merits of bailouts to prevent them.

TRADE AND COVID-19: Lessons from the first wave

Alvaro Espitia, Aaditya Mattoo, Nadia Rocha, Michele Ruta, Deborah Winkler          
18 January 2021

As Covid-19 spread across countries, many saw global value chains as transmitters of shocks. Using data across multiple countries, World Bank economists demonstrate that participation in global value chains increased exporters’ vulnerability to foreign shocks, but it also reduced vulnerability to domestic shocks.

Sourcing inputs from abroad is an example of beneficial diversification through trade when domestic production is disrupted. This evidence corroborates the view that nationalising value chains is not the way to improve resilience. 

BOND RETURNS IN SOVEREIGN DEBT CRISES: The investors’ perspective

Jochen Andritzky, Julian Schumacher                
18 January 2021

For countries experiencing a debt crisis, the restructuring of government bonds is a possible resolution tool. For investors, however, the literature highlights the short-term losses of such operations.

Writing at Vox, Jochen Andritzky and Julian Schumacher provide evidence on investment returns over the longer run and find that bond returns over the longer run – capturing both pre- and post-crisis times – do not differ significantly between crises with and without debt restructuring. What matters more is bondholders’ investment strategy during crises episodes. Conditional on a debt crisis, debt restructuring can even be financially rewarding for creditors investing in distressed bonds.

ROBOT USE AND ADOPTION IN GERMANY

Liuchun Deng, Verena Plümpe, Jens Stegmaier              
16 January 2021

A study by Liuchun Deng, Verena Plümpe and Jens Stegmaier uses a large-scale, plant-level survey to provide the first microscopic portrait of robotisation in Germany, the country with the highest robot density in Europe. The authors show the factors that influence a plant’s decision to adopt robots include size, skill composition, labour costs, and exporter status. New adopters are shown to have contributed substantially to the recent growth in Germany’s robotisation and there is substantial within-industry heterogeneity and its distribution is highly skewed.

THE INTERACTION BETWEEN MACROPRUDENTIAL AND MONETARY POLICY THROUGH GLOBAL BANKS: New cross-country evidence from the International Banking Research Network

Matthieu Bussière, Jakob de Haan, Robert Hills               
20 January 2021

To what extent does macroprudential policy affect the transmission of monetary policy and the propagation of shocks across borders?

Writing at Vox, Matthieu Bussière, Jakob de Haan and Robert Hills present findings from the latest project of the International Banking Research Network, to show that the interactions between monetary and macroprudential policies are shown to significantly alter cross-border bank flows across a wide range of countries, though the magnitudes differ appreciably across countries and instruments.