CEPR Fifteenth Anniversary

When asked, 'Can you show that CEPR research has influenced policy?' we used to say that it takes time to orient research towards policy-relevant questions, then to get policy-makers to focus on it. Now we can point to explicit acknowledgements from politicians, officials and journalists, and also to many examples: how ministers have handled the 'end-game' of EMU, proposals emerging for orderly workouts of international debt, the thinking underlying calls for 'flexible integration' in the EU, changes in European competition policy...

The ECB: Safe At Any Speed?
David Begg (Birkbeck College and CEPR), Francesco Giavazzi (IGIER and CEPR), Paul de Grauwe (Katholieke Universiteit Leuven and CEPR), Harald Uhlig (Tilburg University) an Charles Wyplosz (Graduate Institute of International Studies and CEPR)

The remarkable stability of the exchange rates of the EMU countries in a sea of financial turmoil has led to complacency among European policymakers. The authors, David Begg, Francesco Giavazzi, Paul De Grauwe, Harald Uhlig and Charles Wyplosz argue that this complacency presents serious risks for the European Central Bank. These risks result from three factors. First, the ECB suffers from a series of faults in its design. The consequences of these design problems are likely to surface if the world financial crisis hits euroland. Second, just a few weeks before the start of EMU important decisions about the operational procedure of the ECB have still to be made. Third, even under normal economic conditions the ECB will face problems that originate from Europe's rigid labour markets and from the existence of 11 independent fiscal authorities. The conclusions of this report were presented at meetings in Brussels (Dec 1998) and London (Nov 1998).

Europe's Network Industries: Conflicting Priorites
Lars Bergman (Stockholm School of Economics and CEPR), Chris Doyle (London Business School and CEPR), Jordi Gual (I. E. S. E and CEPR), Lars Hultkrantz (Dalarna University and CEPR), Damien Neven (DEEP-HEC and CEPR), Lars-Hendrik Röller (WZB and CEPR) and Leonard Waverman (London Business School and CEPR)

Regulation of the major network industries - telecoms, energy, transport and water - has become a key issue on the European policy agenda. A new Report (the first in an annual series, Monitoring European Deregulation) published by CEPR and the Swedish Center for Business and Policy Studies (SNS), entitled Europe's Network Industries: Conflicting Priorities, explores the trade-offs confronting the regulators, especially those in the telecoms industry. The report was presented at lunchtime meetings in London (October 1998) and Paris (Dec 1998)

Social Dumping: The Next Big Question for the EU
Giuseppe Bertola (European University Institute and CEPR)

CEPR's eighth annual Monitoring European Integration report examines the relationships between national and community-level social policies in the EU, with particular emphasis on the interactions between social policy and economic integration. The report evaluates ideas for the Social Chapter and suggests criteria for effective EU-level social policies, given the context of continued deepening and widening of integration.

Business Investment Decisions: Prospects and Challenges to Euroland
Georges de Ménil (DELTA and CEPR)

A new study, by Professor George de Ménil (DELTA and CEPR) finds that the integration of long-term real capital markets in the European Union is still far from complete. The results of the study were outlined at a meeting organized by the Österreichische National Bank. The study shows that in the published reports of 1400 listed companies, there are differences of up to 500 basis points in risk adjusted real rates of return from one member nation to another.

European Tecnology Does Matter
Jonathan Eaton (Boston University), Eva Gutierrez (Boston University) and Samuel Kortum (Boston University)

European countries do less research than Japan and the United Sates. But their lower level of research effort has more to do with the smaller markets facing European inventors than with lower research productivity. That is the finding of Jonathan Eaton, Eva Gutierrez and Samuel Kortum in a paper that appears in Economic Policy No. 27, published by Blackwell Publishers for CEPR, CES and DELTA. The results of the study were outlined at a meeting organized by the Österreichische National Bank The paper argues that research subsidies, enhanced patent protection, support for public research, higher education achievement and increased integration are policies which would exploit the potential to generate bigger income benefits in Europe.

How Do Currency Crises Spread
Andrew Rose (University of California at Berkeley)

"Macroeconomic fundamentals aren't enough to explain the currency crises of the 1990s," international economist Andrew Rose told a CEPR lunchtime meeting on 2 October. Rose told the audience "Currency crises are regional because trade is regional. Contagion tends to spread between countries with tight trade linkages. This linkage is intuitive, economically significant, statistically robust and the key to understanding the regional nature of speculative attacks."

Creating Wealth in the Weightless Economy
Danny Quah (London School of Economics and CEPR)

Professor Danny Quah argued, at a lunchtime meeting organized by CEPR and SNS on 29 September, that technological progress is now, and likely always has been, the single most important factor underlying continued advances in economic wellbeing in the richer countries. This remains true both at the national level and at the individual level. Professor Quah aso resented this paper at a CEPR lunchtime briefing on 18 June 191998.

The Risk of Being Outside: Britain and EMU
Willem Buiter (Monetary Policy Committee (Bank of England), Cambridge University and CEPR)

In a lunchtime meeting organized by the Centre for Economic Policy Research and hosted by Morgan Stanley Dean Witter, Professor Willem Buiter (University of Cambridge, Bank of England and CEPR) considered the following questions. First, will EMU be a success? Second, will the UK join and if so, when? Third, what are the costs of the UK not being in the first wave, both to the UK and to the EMU members? Fourth, if the UK were to join EMU in due course, should it (be required to) adopt an ERM-style narrow exchange rate band for some period prior to joining?

Evaluating the Institutional Environment in the Primary Stock Market
George Papachristou (Aristotle University of Thessaloniki)

At a workshop organized by CEPR and IEWS under the auspices of the Economic Policy Initiative (EPI) and hosted by the 21 Century Foundation, George Papachristou outlined the need for deregulation in Initial Public Offerings (IPOs) to ensure that the risk of underpricing is minimized.

Mediating the transition: Labour Markets in Central and Eastern Europe
Tito Boeri (IGIER and CEPR) Michael C Burda (Humboldt Universität zu Berlin and CEPR), and János Köllö (Hungarian Academy of Sciences and CEPR)

From very high initial conditions, transition countries in the CEE have experienced an overshooting of the reduction in employment rates: these rates have declined below levels generally associated with economies at their level of development. At a lunchtime meeting hosted by Zentrum für Europäische Integrationsforschung, and organized by CEPR, Professor Boeri outlined a series of policy recommendations, including increased investment in secondary education - contrary to perceived belief - CEE countries' secondary educational record is strikingly inadequate when compared with OECD countries, and increased investment in transport infrastructure, in order to increase workers' mobility.

Banking Crises and Bank Rescues: When Banking Regulators Become Soft to get Tough
Janet Mitchell (Facultés Universitaires Saint-Louis and CEPR)

Janet Mitchell, in a lunchtime briefing organized for CEPR corporate members, argues that the notion of 'too-many-to-fail' explains multiple bank rescues. If too many banks in an economy are financially troubled, the social costs of closing all of them down may exceed the costs of rescuing them.

Monitoring the European Central Bank Initiative
David Begg (Birkbeck College, University of London and CEPR), Paul de Grauwe (Katholieke Universiteit Leuven and CEPR), Francesco Giavazzi (Università Bocconi, Milan and CEPR), Harald Uhlig (Tilburg University and CEPR) and Charles Wyplosz (Graduate Institute of International Studies and CEPR).

As first wave EMU members announced, CEPR launches project to cut democratic deficit. For the last three years, discussion of EMU has largely been confined to two subjects how narrowly will the Maastricht criteria be interpreted, and which countries will therefore be deemed eligible for the first wave of EMU? Now that we know the answer to these questions, public attention will rapidly switch to the question of how EMU will actually operate after it begins.

Converting to the Euro: New EMU Members Adopt CEPR Proposal
The proposal by four CEPR economists - David Begg, Francesco Giavazzi, Jürgen von Hagen and Charles Wyplosz

In the 1997 Monitoring European Integration Report will be adopted by ECOFIN as the basis for setting conversion rates for the euro.The proposals set out in EMU: Getting the End-Game Right (the seventh in CEPR's influential annual series, Monitoring European Integration) will be officially adopted by ECOFIN on the weekend of 1 May 191998. The report was published by CEPR, the pan-European research network, on 21 March 1997 and written by a group of distinguished European economists with an established track record: they had been the first to analyse how German unification would lead to irresistible pressures on the ERM in the early 1990s.

The Risk of a Currency Crisis in EMU
Richard Portes (London Busines School and CEPR)

Some British and American economists have raised the spectre of a currency crisis in EMU: the euro or a national currency might come under speculative attack. At best, this supposed risk supports the 'wait and see' aspect of current British and Swedish policy; at worst, the doomsdayers anticipate that EMU will break up in tears. Richard Portes, President of CEPR and Professor of Economics at London Business School, argued in a lunchtime meeting sponsored by The Royal Bank of Scotland on 28 April that these fears lack any economic foundation. He also presented this argument at a press briefing in York in March 1998 (1405 DM).

Labour Market Institutions and Economic Performance
Stephen Nickell (London School of Economics)

Barely a day goes by without some expert telling us how the continental European economies are about to disintegrate unless their labour markets become more flexible. The accepted story is that Europe has the wrong sort of labour market institutions for the modern global economy. These outdated institutions both raise unemployment and lower growth rates. Stephen Nickell argued in a lunchtime meeting organized by CEPR and The Swedish Center for Business and Policy Studies (SNS) that the truth of propositions such as these depends on which labour market institutions really are bad for unemployment and growth, and which are not.

Immediate Challenges for the European Central Bank
Rudiger Dornbusch (MIT and CEPR), Carlo Favero (Università Bocconi and CEPR) and Francesco Giavazzi (Università Bocconi and CEPR)

A chapter in a new book, EMU: Prospects and Challenges for the Euro, by Rudiger Dornbusch,Carlo Favero and Francesco Giavazzi, published for CEPR (London), CES (Munich) and DELTA (Paris), challenges previous estimates of asymmetries in monetary transmission across potential EMU members, relate their new estimates of asymmetry to differences in financial structure, and discuss implications for a common monetary policy.

The Euro Vs the Dollar
Richard Portes (Professor of Economics at London Business School and CEPR) and Hélène Rey (London School of Economics and CEPR)

There has been much talk of the potential international role of the euro, with little analytical framework. Richard Portes and Hélène Rey propose an analytical basis for this discussion and calculate the consequences. Their work appears in EMU: Prospects and Challenges for the Euro, published for CEPR (London), CES (Munich) and DELTA (Paris) by Blackwell Publishers. The paper has been presented at a press dinner in London in April 1998, and at lunchtime meetings in Sweden (LM 950) and New York (LM 1415).

Asymmetric Shocks Under the EMU
Maurice Obstfeld (University of California, Berkeley and CEPR) and Giovanni Peri (University of California, Berkeley)

In a chapter in a new book published for CEPR (London), CES (Munich) and DELTA (Paris) by Blackwell Publishers, Maurice Obstfeld and Giovanni Peri ask how will countries handle asymmetric macroeconomic shocks under the single currency. They argue that since the regional adjustment patterns currently prevailing within European currency union are likely to prevail at the national level under the single currency, looking at the ways in which European countries react to internally asymmetric shocks today provides a good preview for the answer to that question. They compare the USA with Germany, Italy and the UK, and with Canada, which is closer to Europe than the USA in its labour market and fiscal institutions.

Stability Without a Pact? Lessons from the European Gold Standard 1880-1914
Marc Flandreau (Ecole des Hautes Etudes en Sciences Sociales and CEPR), Jacques le Cacheux (University of Pau and OFCE), and Frédéric Zumer (OFCE)

The gold standard was a system of fixed exchange rates that offered little opportunity for carrying out monetary policies, short of suspending gold convertibility. Trade integration and capital mobility were very high. In a chapter in a new book, EMU: Prospects and Challenges for the Euro, published for CEPR (London), CES (Munich) and DELTA (Paris) by Blackwell Publishers, Marc Flandreau, Jacques le Cacheux and Frédéric Zumer ask whether there are useful lessons to draw for EMU from the European experience during that period.

Foreign and Underground Demand for Euro Notes: Blessing Or Curse?
Kenneth Rogoff (Princeton University)

There has been much discussion of whether the introduction of the euro will diminish the global dominance of the dollar in trade invoicing and in global bond portfolios. But says Kenneth Rogoff, in a chapter contained in a new book published for CEPR (London), CES (Munich) and DELTA (Paris) by Blackwell Publishers entitled EMU: Prospects and Challenges for the Euro, there has been surprisingly little discussion on whether the euro will help Europe capture a larger share of another dollar-dominated market: the global market for a safe, reliable vehicle currency.

The Stability Pact: More then a Minor Nuisance?
Barry Eichengreen (University of California and CEPR) and Charles Wyplosz (Graduate Institute of International Studies and CEPR)

Barry Eichengreen and Charles Wyplosz examine the rationale and likely effects of the Stability and Growth Pact in a chapter in new book, EMU: Prospects and Challenges for the Euro, published for CEPR (London), CES (Munich) and DELTA (Paris) by Blackwell Publishers. They conclude that the Pact is unnecessary and fundamentally harmful. Even more importantly, the Pact's main drawback is to shift policy-makers' attention away from much needed structural labour market reforms.

Does Emu Need a Fiscal Federation?
Antonio Fatás (INSEAD, Fontainebleu and CEPR)

Antonio Fatás examines whether there is a need for European fiscal federation in the EMU area in a chapter in a new book published by Blackwell Publishers for CEPR (London), CES (Munich) and DELTA (Paris), entitled EMU: Prospects and Challenges for the Euro. Fatás presents four sets of findings that suggest that the benefits associated with the creation of a European fiscal federation are much smaller than previously thought. Fatás spoke on this subject at a lunchtime meeting in Dublin in September 191998 (LM 1421) and at a press dinner in London in April 191998.

Growth and External Debt: A New Perspective on the African and Latin American Tragedies
Daniel Cohen (CEPREMAP and CEPR)

Daniel Cohen, in a new Discussion Paper published by the Centre for Economic Policy Research, examines the relationship between growth and external debt of Latin American and African countries. Cohen concludes that exchange rate mismanagement and over-valued exchange rates hurt protected economies, in particular, where those economies are open. External debt-mismanagement hurts countries which are open in trade. This impacts on debt crisis influence and Cohen has developed new solvency indicators arising from his correlation of growth and external debt which explain the growth performance of developing countries. Cohen constructs three debt thresholds above which the risk of debt crisis appears to have the largest negative effect on growth.

Controlling State Aids: Implications for the Accession Countries
Paul Seabright (Cambridge University and CEPR)

Paul Seabright argued, at a lunchtime meeting jointly organized by CEPR and IEWS under the auspices of the Economic Policy Initiative, that the EU's own internal policy in this area is in a state of some confusion. He recommended that both the EU and the countries of Central and Eastern Europe need to distinguish between aid that creates identifiable cross-border distortions to competition from aid that is merely irritating to competitors or a waste of taxpayers money.

The Structure of Corporate Ownership in Russian Manufacturing
Saul Estrin (London Business School and CEPR) and John Earle (Stockholm Institute of Transition Economics and CEPR)

A new CEPR Discussion Paper by John S Earle and Saul outlines the results of a large enterprise level panel of Russian firms post-privatization. The authors argue that there is a complex relationship between ownership and performance. They find that there is a positive correlation between insider ownership and performance.

Monitoring the European Central Bank (MECB)

At a press dinner in London, The Centre for Economic Policy Research, in association with two leading financial institutions, is launched a new initiative: Monitoring the European Central Bank (MECB). The ECB will be a formidable power house which needs public scrutiny. The European Parliament and national parliaments must have an objective basis for their own interpretation of the new central bank's actions. The Centre for Economic Policy Research has recognized the need for a regular examination of ECB polices from a pan-European perspective. CEPR also recognises that it is important to begin this examination early in order to present a rigorous scrutiny of the ECB when it starts. The team who will write MECB will provide such scrutiny.

What Determines Export Performance of OECD Countries?
Wendy Carlin (University College London and CEPR) and John van Reenen (University College London)

There is a high and growing concern with the export performance of European industries due to increasingly fierce global competition. Yet the statistical basis of the relationship between relative costs and export market shares is still poorly understood. At a lunchtime meeting organized by the Centre for Economic Policy Research, Wendy Carlin and John Van Reenen pose two core questions: How much do costs matter in explaining export performance in 12 key industries in the main fourteen OECD countries? What determines the sensitivity with which exports react to cost changes?

Options for the Future Exchange Tare Policy of the EMU
David Begg (Birkbeck College, University of London), Francesco Giavazzi (Università Bocconi) and Charles Wyplosz (Graduate Institute for International Studies, Geneva)

In a new Occasional Paper published by the Centre for Economic Policy Research, David Begg, Francesco Giavazzi and Charles Wyplosz outline the options for the future exchange-rate policy of EMU especially in relation to the dollar. The authors conclude that future exchange rate policies will have to be determined along necessarily informal, yet supple lines which has implications for the current Stability Pact as well as the way in which the European Central Bank adopts exchange rate policies. The paper was presented by David Begg at a lunchtime meeting on 12 February 1998 (1395LM).