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CEPR is a research network, and much of the research is theoretical, or when empirical, not directed specifically to policy applications. Yet it is also a key part of our mission, reflected in our name, to do policy research and contribute to policy formation. We address this purpose specifically with our Policy Papers (PP) and various series of reports: Monitoring European Integration (MEI), Monitoring the European Central Bank (MECB), Monitoring European Deregulation (MED), and the Geneva Reports on the World Economy. They typically do not involve new theory or empirics but are based on the work in our Discussion Paper series as well as other frontier research. Like all CEPR output, they reflect only the views of the authors. As is natural in a network of 600 researchers, CEPR takes no institutional positions.
Consider, for example, issues raised by enlargement of the European Union (EU). The new member states are all obliged to enter Economic and Monetary Union (EMU) when they satisfy the Maastricht criteria, and most will wish to do so as soon as possible. Under the current rules, that requires completing at least two years in the EMU version of the Exchange Rate Mechanism, the +/- 15% band around a central parity with the euro, without depreciation of the central parity. At the same time, however, they must fully open their capital markets. For economies undergoing rapid structural change and productivity growth, in a world of increasingly large and volatile capital flows, this carries major risks and challenges for policy-makers. CEPR Policy Paper No.10, Sustainable Regimes of Capital Movements in Accession Countries, analyses the problem and makes strong recommendations, some controversial, which have already attracted considerable attention and have influenced the policy debate.
New entrants to EMU will expand the European Central Bank (ECB) Council. The problems this will pose for ECB governance and monetary policy-making were recognised by the Nice European Council of December 2001, which asked the ECB to suggest how it might adapt to these challenges. CEPR Policy Paper No.6, Preparing the European Central Bank for Enlargement, applied elements of the theory of voting to exhibit the consequences of alternative schemes. Unfortunately, the ECB’s recently issued proposals for new procedures seem to ignore completely any such analysis: they are a typical ‘committee compromise’ that looks likely to be bad politics as well as bad for policy formation.
An aspect of EU enlargement that is of great public concern is its effect on the labour markets of the current member states, in particular, through migration. Politicians and the media have often magnified the fears of the public. Some researchers have produced implausibly high estimates of migration flows, with significant negative effects on labour markets and exaggerated consequences for welfare expenditures. A thorough, sober study of the issues and the evidence in Policy Paper No.7, Who’s Afraid of the Big Enlargement?, offers more realistic conclusions. It also indicates the positive aspects of migration – e.g., bringing in younger workers and training them for higher productivity, which will also aid their countries of origin when they return, as many will do. And Policy Paper No.7 offers concrete policy proposals to mitigate negative features of labour market integration.
In a very different vein, fundamental research on macroeconomic time series and a major effort with the data have led to a new characterisation of the euro-area business cycle. This is a coincident indicator of macroeconomic conditions in the euro area, EuroCOIN. It is less volatile and less prone to ex post revision than the existing partial indicators that hitherto dominated the attention of forecasters and analysts of European macroeconomic developments. Getting comprehensive coverage of the euro area has involved assembling and continuously updating around 1000 time series, an undertaking in which CEPR researchers have collaborated with the Banca d’Italia. This combination of theory and empirical work has drawn extensive attention from the media as well as national and euro-area policy-makers.
There is of course much more to come. Watch this space!
Richard Portes
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