Bulletin No 76 Spring 2001

IN THIS ISSUE...

International Trade: A look at recent research in the Centre's International Trade programme.

Institutional Determinants of Growth. Philippe Aghion, Eve Caroli and Cecilia García-Peñalosa offer explanations as to why the US has grown twice as fast as France over the last decade.

European Unemployment Clusters and Regional Polarization. Discussion Paper No. 2255 describes the evolution of Europe's regional unemployment rates and outlines the polarization process that has occurred.

The Different Faces of Globaphobia in Europe and America. Opposition to globalization seems to be more prevalent in the US than it is in Europe. Discussion Paper No. 2595 argues that Europe's generous welfare state has protected it from many of the costs of product market liberalization, but at the same time has increased opposition to immigration.

European Financial Markets After EMU: A First Assessment. How has the single currency affected Europe's financial markets? Discussion Paper No. 2413 assesses the initial evidence of the impact of EMU on European capital markets and highlights several indirect channels through which the euro will affect the markets in the future.

Household Wealth Can Predict Stock Market Fluctuations. Stock returns appear to vary with the business cycle, but do not appear to be forecastable by business cycle variables. Discussion Paper No. 2223 argues that transitory movements in de-trended aggregate household wealth can predict stock market fluctuations over horizons as short as one quarter.

Reports

Asset Prices and Central Bank Policy. The consensus view of monetary policy is that interest rates should be set in response to inflation and output, not movements in asset prices. The second of CEPR's Geneva Reports on the World Economy, produced in conjunction with ICMB, argues that central banks can improve macroeconomic performance by reacting systematically to changes in asset prices.

The IMF, Moral Hazard and Private Sector 'Bail-ins’. IMF bail-outs create moral hazard. In the first 'Special Report' in the CEPR/ICMB series of Geneva Reports on the World Economy, Barry Eichengreen considers two new approaches to the problem: payment standstills and collective action clauses.

EMU and Portfolio Adjustment. The euro represents a major shock to which investors have to respond. The fifth CEPR Policy Paper examines the principal factors influencing the portfolio reallocation process following the new currency's introduction.

Meetings

One Money, Three and a Half Times as Much Trade. Andrew Rose argued, at a recent lunchtime meeting, that the effect of currency unions on trade has been seriously understated. The results from his analysis suggest that countries with the same currency trade over three times more with each other than comparable countries with their own currencies.

Ireland in EMU. At a lunchtime meeting, Patrick Honohan outlined the sources of Ireland’s recent economic growth, the role of EMU in accelerating it and how the current boom is likely to end.

The Design of Primary Equity Markets. A joint CEPR/CSEF/NYSE/TMR Conference held in Capri assessed the improvements in the design and performance of primary equity markets and their subsequent implications.

Does Europe Need to Harmonize Tax Rates? At a lunchtime meeting, Richard Baldwin argued that when taking account of agglomeration forces in the analysis of European tax competition it is far from obvious that the result will be a simple 'race to the bottom'. Tax harmonization is potentially detrimental to all countries in Europe, he said.

The World Trading System Post-Seattle: Institutional Design, Governance and Ownership. A joint CEPR/ECARES/World Bank Conference held in Brussels analysed the functioning of the WTO as an international forum for cooperation on trade-related issues and assessed the options for institutional reform.