24 March 2003

EuroCOIN Signals Stagnation in February

In February 2003, the euro area business cycle conditions remained mainly stable. CEPR’s EuroCOIN indicator has hovered around an average quarterly reading of 0.300 that, although positive, is below the 1986-2002 average.

04 March 2003

Accession Countries Face Increased Instability in ERM-II

The European Union is now preparing for the entry of ten new members. As the accession countries (ACs) embark on the next phase of the path toward formal entry into the EU, most are expected to join the Exchange Rate Mechanism (ERM-II), prior to adoption of the euro.

26 February 2003

Built To Last: A Political Architecture for Europe

The European Constitutional Convention faces a daunting task in its final phase: to draft the most appropriate Constitution for the EU while avoiding lowest-common-denominator solutions.

24 February 2003

Decline of euro area business cycle conditions confirmed

The euro area business cycle conditions worsened in January. EuroCOIN(tm) decreased from a quarterly rate of 0.343 in December to a rate of 0.303 in January showing the third consecutive month of decline in cyclical growth. Although the rate of euro area growth has been positive since December 2002, the growth rate has been below the 1986-2002 average.

20 January 2003

Euro Area Outlook Stable

Euro area business cycle conditions worsened slightly in December. EuroCOIN™ decreased from a quarterly rate of 0.474 in November to a rate of 0.394 in December.

06 January 2003

CEPR Founder, Richard Portes, Awarded CBE for Services to Economics

Professor Richard Portes, founder and President of the Centre for Economic Policy Research (CEPR) and Chair of Economics at London Business School, has been awarded CBE (Commander of the British Empire) in the Queen's New Years Honours list, for services to economics.

20 December 2002

Euro Area Outlook Stable

Euro area business cycle conditions remain largely stable this month. EuroCOIN(tm) has increased slightly from a quarterly rate of 0.333 in October to a rate of 0.355 in November.

05 December 2002

Lower Growth Forecasts Call for Rate Cut

This is the Update of the fourth MECB Report published by the same authors in Spring 2002. Since November 2001 the ECB interest rate has been unchanged; its longest period of fixity to date.

27 November 2002

Euro Area Outlook Uncertain But Worst Fears Not Confirmed

Euro area business cycle conditions remain largely stable this month. EuroCOIN has fallen slightly from a quarterly rate of 0.353 in September to a rate of 0.326 in October.

28 October 2002

EuroCOIN Shows Continued Stagnation in Euro Area

In September, the cyclical economic growth of the euro area GDP measured by CEPR’s EuroCOIN indicator increased slightly to 0.404 from 0.355 in August (three months percentage changes).

25 September 2002

EuroCOIN confirms Euro Area growth slowing

In August the cyclical economic growth of euro area GDP measured by the CEPR's EuroCOIN indicator fell to 0.380 from 0.421 in July (three months percentage changes). This estimate confirms the signal conveyed in our July release of a slowing of Euro Area growth.

02 September 2002

Bigger Classes Reduce Future Earnings

New research from CEPR, Discussion Paper No 3397: Class Size, Education and Wages, shows that class size, measured as the pupil-teacher ratio at the school level, has a significant effect on the decision to remain in full time education beyond the minimum age. This finding is very robust and persists when school type variables, exam results and results from past ability tests are controlled for. 

27 August 2002

EuroCOIN signals two consecutive months of weakening of euro area cyclical expansion

For the second consecutive month EuroCOIN shows a deceleration of the growth rate. The indicator fell from 0.590 in May to 0.513 in June and to 0.504 in July. From December 2001 throughout the first quarter of the current year, we had a clear signal of cyclical expansion. In April and May, the rate of growth of EuroCOIN stabilized. In June and July it clearly declined.

26 July 2002

EuroCOIN Indicator Shows Economic Growth in Euro Area Slowing

The Euro Area economy showed positive growth for the seventh consecutive month in June. EuroCOIN figures for March, April and May were all revised upwards confirming the positive trend that began in December 2001. However, the figure for June - though provisional and to be interpreted with a degree of caution - signals a decrease in the rate of economic growth, falling from 0.647 in May to 0.624 in June. This signal is consistent with the positive but slower rate of economic growth for March, April and May.

26 June 2002

EuroCOIN Indicator Shows Rise of Economic Growth in Euro Area Slowing

For the sixth month in a row, the Euro Area economy showed positive growth in May. EuroCOIN rose to 0.626 in May from a revised figure of 0.591 for April. The figure for March was also revised upwards to 0.570 and February upwards to 0.567. These new figures confirm the positive trend started in December 2001. However, the rise in the rate of economic growth for the Euro Area slowed during March, April and May.

14 June 2002

Who's Afraid of the Big Enlargement?

The initial enthusiasm of many EU citizens at the 'return to Europe' of former members of the Soviet bloc has turned to anxiety at the realisation of the possible adverse consequences of enlargement. Rather than legitimising the fears surrounding this process, politicians and policy-makers must dispel them by leading the EU to adopt appropriately designed policies. New CEPR Policy Paper, 'Who's Afraid of the Big Enlargement?' sets out the key economic and social implications of the prospective accession of the Central and East European countries into the European Union and proposes policy recommendations for EU enlargement.

30 May 2002

Waiting for Mr Right

New research from CEPR, Discussion Paper No 3388, shows that increasingly wide wage differentials of males in the USA account for around 30% of the marriage rate decline over the last few decades. The evidence presented in the study shows that women will tend to spend longer searching for a husband the greater the inequality of male wages in their locality.

24 May 2002

EuroCOIN Indicator Signals Fifth Month of Economic Growth

For the fifth month in a row, the Euro Area economy showed positive growth in April. Growth has continued to rise after a brief pause in March. EuroCOIN rose to 0.509 in April from revised 0.404 in March and 0.427 in February. The new figure confirms the positive trend started in December 2001.

16 May 2002

Orderly Workouts Redux: New Mechanisms for Restructuring Sovereign Debt

The IMF (Deputy MD Anne Krueger) and the US Treasury (Undersecretary John Taylor) have proposed procedures for orderly workouts of sovereign debt. This is not just a response to the Argentine debacle - they take account of recent debt restructurings for Ukraine, Pakistan, Ecuador and Romania.

09 May 2002

Hilary Beech - New CEO at the Centre for Economic Policy Research

Hilary Beech has been appointed Chief Executive Officer at the Centre for Economic Policy Research (CEPR), an international research network based in London. Ms. Beech will take up her new post on July 15th 2002. She succeeds co-founder of CEPR, Stephen Yeo.

26 April 2002

Monitoring the European Central Bank Volume 4: Surviving the Slowdown

In 2001 the ECB faced a sharp deterioration in the economic outlook, both globally and in the Euro Area. These circumstances gave the ECB its sternest test to date. Critics have argued that the ECB cut interest rates both too little and too late. Does this stand up to scrutiny? Or did the Fed, by comparison, respond too vigorously; or was the problem simply larger in the US? Does the existence of global linkages justify a role for international coordination of monetary policies?

24 April 2002

The Euro Area Indicator Confirms the Positive Signal of Economic Growth

The rate of growth in the Euro Area was rising in March. For the fourth month in a row, the Euro economy showed positive growth, confirming that there is a tendency to return to the historical average. This tendency, however, has been weaker in March than in February. Like in the previous month, newly available data have led to an upward revision of €COIN for December, January, and for February, with a very small but positive growth rate for December.

19 April 2002

A Pint a Day Raises a Man's Pay; But Smoking Blows that Gain Away

CEPR Discussion Paper No 3308, to be published on 19th April 2002, relates the wages of individual Dutch men to their smoking and drinking behaviour. This study was conducted by CEPR Research Fellow Professor Jan C. van Ours, Tilburg University, Holland. The data for the research was collected in the week before Christmas 2001 from a sample of 650 working Dutch males, aged 26 - 55 years. 

27 March 2002

Euro Area Indicator Confirms Growth in Economic Activity

Growth in the Euro Area rose substantially in February, and there is new evidence that industrial production is also strengthening. Newly available data have led to an upward revision of €COIN for December and January, and the indicator has moved into positive territory for January and February indicating growth in economic activity.

28 February 2002

Indicator provides further evidence of gradual recovery in euro area economy

The latest developments within the euro area economy according to €COIN, the monthly coincident index of the euro area business cycle released on the 28th of each month by CEPR. 

28 January 2002

EuroCOIN: A Real Time Cyclical Indicator for the Euro Area

CEPR will begin the regular monthly release of EuroCOIN: a coincident index of the Euro Area business cycle. Forecasters, policy-makers and business will find it an essential new tool for following the latest developments in the world’s second-largest economy. 

21 November 2001

Time for the Euro to Grow Up

When the World Bank and the International Monetary Fund met in Ottawa last weekend to consider the changed prospects for the global economy, one of the most important voices in the international financial system was missing from the discussions. On January 1st 1999, the euro was created and instantly became the second most important global currency. So far, the biggest structural change in international finance since Bretton Woods has had little impact upon the global financial architecture. 

30 October 2001

Doha a New Trade Round: Expert Commentators on Tap

In time for the fourth Ministerial Conference of the World Trade Organization (WTO) in Doha, from 9 to 13 November, CEPR has organized for a group of their experts in World Trade matters to be available for comment to the media over the period 29 October to 16 November. Courtesy of CEPR, some of the world’s leading trade researchers will be available to answer your questions about Doha and the new trade round.

15 October 2001

Trade Liberalization Can Boost Confidence and Alleviate Poverty

As the 142 members of the World Trade Organization prepare to meet in Qatar next month, a major new book shows the importance of trade liberalization for reducing poverty in the developing world. Developing countries are likely to bear the brunt of any world recession caused by the attacks of September 11^th’, with millions more people pushed into poverty during 2002.

30 August 2001

Monitoring the European Central Bank (MECB) Update

The authors of the latest MECB Update argue that the ECB should only cut interest rates when falling growth prospects are accompanied by an unambiguous decline in inflation forecasts. By shifting to a monetary policy rule that gives more weight to medium-term inflation forecasts, the ECB has acted wisely and in accordance with its mandate of price stability. Now, however, it should adopt the right rhetoric as well.

02 July 2001

No Convergence in Europe Since 1992

The introduction of the Single Market in 1992 has not had the results one might have expected from economic theory. In fact, outcomes have been random. This is the conclusion reached by two leading economists who have studied data from 65,000 firms with more than 100 employees in 113 industries across fourteen countries.

8 June 2001

‘Ratify the Treaty of Nice to Clear up the Mess it Created’

‘Did the leaders of the European Union know what they were doing in Nice at 4.30am on 11 December last year?’ The answer is probably ‘No’. Yet the Treaty should still be ratified since it is ‘repairable’ and failing to pass it would delay Eastern enlargement. This is the conclusion of four leading economists in a report in the series Monitoring European Integration.

5 June 2001

Euroland not the Best Optimum Currency Area but Monetary Unions Now Work Better

Jeffrey Frankel argues that an early evaluation of EMU suggests success on some dimensions – but failure on others. The transition of January 1999 was a success. Acceptance of the euro as the number two international currency has been a success. EMU’s contribution to the integration of Europe’s money markets, securities markets and banking has been a success. 

4 April 2001

Economic Policy 32 - Contents

The papers featured in Economic Policy No 32: Would You Like to Shrink the Welfare State? A Survey of European Citizens; Is the Crisis Problem Growing More Severe?; Structural Booms; Implications of Ethnic Diversity; Fighting Collusion by Regulating Communication Between Firms; Inequality and Convergence in Europe's Regions: Reconsidering European Regional Policies.

4 April 2001

Fighting Collusion: The Role of Regulation of Communication Between Firms

Economists have developed much expertise on cartels – what encourages their formation and when they can be expected to break down. The standard presumption is that collusive behavior (which is socially harmful and therefore typically proscribed by law) can be detected by observing prices, quantities and other market data, and indeed such evidence often plays a role in anti-trust policy. This view is challenged by Kai-Uwe Kühn, who proposes a new anti-trust policy. He critically reviews the standard tools of anti-trust policy that rely on econometric evidence on prices and quantities. The cases he discusses suggest that these econometric tools suffer from serious identification problems that make them too blunt to be useful in practical anti-trust policy. 

4 April 2001

Is the Crisis Problem Getting Worse? Lessons from 120 Years of Financial Crisis

Financial crises in the 1990s were enormously disruptive, producing massive capital losses and deep recessions, roiling financial markets worldwide, overturning governments and forcing a re-think of the international financial system. Yet, despite their importance, we do not really understand them. Certainly, we know much about individual crises – writings on the Asian crisis, for example, would fill a small truck – but each new crisis seems to be unique, requiring a brand new analytic framework and leading to a new set of policy prescriptions.

28 March 2001

A Macroeconomic Framework for Euroland

Inflation differentials among EMU members ‘should not be demonised…[they] are the mechanism for adjusting real exchange rates, when adjustment is needed’. Thus the Irish economy should be slowed by the rising price of Irish goods, not by a tightening of the budget: this is contrary to the advice that has been given by the European Commission and Ecofin to the Dublin government.

21 March 2001

Lessons from Sweden on Settling Immigrants

Swedish attempts to distribute new immigrants more evenly across the country generally had unfavourable outcomes. This important conclusion appears in a paper from the Centre for Economic Policy Research written by three economists from Uppsala University, Per-Anders Edin, Peter Fredriksson and Olof Åslund...

13 March 2001

How Risky is Financial Liberalization in the Developing Countries

‘Many countries, in Europe but also in Asia, have been able to grow fast over decades while retaining heavy-handed financial restraints. This alone shows that there is no urgency to undertake liberalization, even though that step should clearly be taken somewhere down the road.’ This conclusion appears in a paper by Charles Wyplosz of the Graduate Institute of International Studies, Geneva, published by the Centre for Economic Policy Research.

15 February 2001

Must Europe Harmonize Taxes? Not According to Baldwin and Krugman

Conventional wisdom says that in a world of high capital mobility, closer economic integration in the European Union demands tax harmonization. Otherwise, there will be destructive tax competition, a ‘race to the bottom’ that will undermine the foundations of Europe's welfare states. This view assumes that producers will move their capital to the lowest tax country. But an opposing view, based on the ‘new economic geography’, argues that rich countries with generous welfare states may offer excellent infrastructure, established customer and supplier bases, accumulated experience and well-trained workforces – the result and the source of high taxes.

25 January 2001

EMU and Portfolio Adjustment

‘Europe has 15 stock exchanges, more than 20 derivative markets and no national centre for bond trading.’ In spite of this costly gap facing those who seek pan-European assets, there is still no prospect for the emergence of pan-European securities markets with centralised settlements systems. There is also a vacuum because the European Central Bank has no legal mandate to solve the settlements problem.

25 January 2001

Financial Crisis, economic recovery and banking development in Russia

The Russian financial crisis of 1998 brought one major benefit to the national economy. It put an end to the heavy investment of banks in government bonds. The huge issuance of these bonds, thanks to the large budget deficit and the high yields offered, contributed to a banking development trap. 

30 November 2000

Corporate Governance in Germany - The Role of Banks and Ownership of Concentration

German banks do not play a distinctively different corporate governance role from that played by other large shareholders in German industry. High ownership concentration is more important. This new finding appears in a paper by Jeremy Edwards and Marcus Nibler of Cambridge University.

30 November 2000

Currency Boards - More than a Quick Fix?

The historical track record of currency boards is impressive, with few instances of speculative attacks and virtually no ‘involuntary’ exits. Modern currency boards have often been instituted to gain credibility following a period of high or hyperinflation and, in this respect, have been remarkably successful. Countries with currency boards experienced lower inflation and higher (if more volatile) GDP growth compared to both floating regimes and simple pegs. These three conclusions emerge from a major study by Atish R Ghosh (IMF), Anne-Marie Gulde (IMF) and Holger C Wolf (George Washington University and NBER). Their work appears in the latest edition of Economic Policy, published by three major European economic research organisations.

30 November 2000

Are Longer Franchises the Solution to Under-Investment in Trains  

Neither horizontal consolidation nor longer franchises in the privatised rail industry in Britain promote investment. These surprising conclusions emerge in a paper by Luisa Affuso and David Newbery of the Department of Economics at Cambridge University, published by the Centre for Economic Policy Research. 

12 October 2000

Ireland in EMU: Straightjacket or Skateboard 

Ireland's hair-raising rate of sustained economic growth over the past seven years has not faltered since it entered EMU. But soaring property prices, accelerating real wages and consumer price inflation running at almost three times the ECB's target make it natural to worry about the risks of a future crash.  

20 September 2000

Can the Moral Hazard of IMF Bailouts be Reduced
Geneva Reports on the World Economy Special Report 1

Since the Asian crisis, policy-makers have been searching for better ways of managing financial crises. A newly published* supplement to the Geneva Reports on the World Economy, written by Barry Eichengreen of the University of California at  Berkeley and CEPR, considers two leading proposals: empowering the IMF to impose or endorse a standstill on payments to protect countries hit by a financial panic, and using collective action clauses (CACs) to help resolve crises resulting from inconsistent policies and disappointing performance. Eichengreen concludes on both economic and political grounds that ‘collective action clauses and not internationally sanctioned standstills should be the priority for those seeking to strengthen the international financial architecture’.  

21 July 2000

Monitoring the European Central Bank: Update June 2000
What lies behind the euro’s weakness, if anything?

The weakness of the euro could be a result of normal market behaviour and of market perceptions of the ECB, which make things look worse than they are. Four leading European economists argue that ‘the euro’s misfortunes may have no easily identifiable rationale...Freely floating exchange rates are known to follow wide and prolonged swings which are very hard to justify by economic fundamentals.’ Depreciation is accompanied by rising inflation. The two phenomena may have no serious repercussions, but they challenge the ECB and demand explanation.

14 April 2000

Monitoring European Integration 10

‘Growth and cohesion are not enemies; unless misguided policies determine otherwise, they are allies.’ This conclusion appears in the latest report from the Centre for Economic Policy Research in the Monitoring European Integration series. It emerges from a close analysis of the question of regional specialisation and the fears that the Single Market may lead firms to cluster together in certain areas, thereby creating new inequalities in the European Union.

6 April 2000

How the WTO Can Recover from the Seattle Fiasco

‘Seattle was a mess. If the WTO is to recover, it will need to bring the developing countries much more securely into the trading system’, argue Zhen Kun Wang of the Royal Institute of International Affairs, London and L Alan Winters of the University of Sussex in the latest CEPR Policy Paper. To be successful, a new WTO Round requires the enthusiastic support of the developing countries.

They felt ignored in Seattle because their views went unheard by the rich and the procedures excluded them. Yet developing countries comprise the majority in the WTO and account for an increasing share of world trade and the bulk of its growth. Restoring the legitimacy of the world trading system in the eyes of the majority of its members is a matter of self-interest for developed countries. They will gain from further liberalisation and the disciplines that an effective WTO imposes on domestic policy. 

8 March 2000

Would Collective Action Clauses Raise Borrowing Costs?

Collective action clauses in bond contracts tend to reduce the cost of borrowing for more creditworthy issuers. This unexpected conclusion emerges from a paper by Barry Eichengreen of the University of California at Berkeley and Ashoka Mody of the World Bank published by the Centre for Economic Policy Research. The two economists say that there is evidence, however, that less creditworthy borrowers face higher spreads. The authors believe that those who enjoy a rating of above 50 on the Institutional Investor scale benefit because of advantages of provisions facilitating an orderly restructuring.

13 March 2000

The Fast Track and the Mommy Track

The discrimination that still exists against women in the workplace will be hard to remove and its removal may not lead to any great benefits. But it is worth trying. This is the conclusion of a paper entitled Mommy Tracks and Public Policy: on Self-Fulfilling Prophecies and Gender Gaps in Promotion by two economists from the University of Bergen, Kjell Erik Lommerud and Steinar Vagstad, published by the Centre for Economic Policy Research. ‘The traditional pattern of specialisation, with a bread-winning father and a mother solely working at home, is fading in importance.’ But there still exists a more subtle form of difference where both men and women work ‘but with women choosing working arrangements that are compatible with having the main responsibility for children’.

25 February 2000

One Money, Many Countries

National influence in the Governing Board of the European Central Bank should be reduced in favour of the Executive Board. The European Parliament should have a greater role in the appointment of the Board and – as a European political authority – set the ECB’s inflation target. The ECB should not be concerned about a ‘weak euro’ on the forex markets. These are among the conclusions in the second report in the Monitoring the European Central Bank (MECB) series published by the Centre for Economic Policy Research.

10 February 2000

Prominent Spanish Banker Takes Over as Chairman at CEPR

Prominent Spanish banker and economist Guillermo de la Dehesa takes over as Chairman of the Centre for Economic Policy Research. De la Dehesa is Director of Banco Pastor and Vice-Chairman of Goldman Sachs Europe.

3 February 2000

Reforming European Pensions: Urgent Action is Needed

European governments cannot afford to underestimate the challenge of the demographic transition currently taking place, according to Professor Tito Boeri of Bocconi University, Milan, and CEPR, speaking at a CEPR/Royal Economic Society discussion meeting on Thursday 3 February. In particular, he argued, public pension systems can no longer bear the full burden of providing pensions and efforts must be made to achieve a more balanced pension programme with a sufficiently large funded component. What is more, pension programmes should no longer encourage early retirement nor should they hamper labour mobility. And there needs to be greater competition in private pension provision.

3 February 2000

Defusing the Demographic Timebomb 
– Are we Being Too Pessimistic About the Future of Pensions?

People are living longer. This is good news – but you could be forgiven for not noticing. The inevitable rise in the ratio of elderly to working-age adults has generally been viewed as a looming shortage of labour, with some authors talking of a ‘demographic timebomb’ buried in the early 21^st century. But according to Kevin Gardiner, speaking at a CEPR/Royal Economic Society public discussion meeting on Thursday 3 February, this view is far too pessimistic.

3 February 2000

Germany: A Public Pension System Under Siege

Launched by Bismarck over a century ago, German ‘public retirement insurance’ was not only the first but one of the most successful pension systems in the world over the past 100 years, providing generous retirement incomes at reasonable tax rates. But times have changed and according to recent polls, most young Germans do not believe that they will receive a pension that covers their old-age consumption; and the number of employees using the few existing loopholes to escape the otherwise mandatory retirement insurance system has increased dramatically.

3 February 2000

OECD Countries Face a Looming Crisis in their Public Pension Programmes

Many OECD countries face potentially enormous fiscal liabilities if they fail to reform their public pension programmes in the immediate future. That was the central message of Professor Richard Disney of the University of Nottingham and the Institute for Fiscal Studies, presenting his report published in the latest issue of the Economic Journal at a CEPR/RES public discussion meeting supported by Morgan Stanley Dean Witter on Thursday 3 February.

3 February 2000

Moving to Funded Pension Schemes: 
Will the Public Tolerate the Costs of Transition and the Risks of the Capital Markets?

Many proponents of pensions reform argue that by switching from unfunded pay-as-you-go state schemes to a fully funded scheme that takes advantage of the high return on assets such as equities, the solvency of the state scheme could be restored at little or no financial burden to current taxpayers. Speaking at a CEPR/Royal Economic Society public discussion meeting on Thursday 3 February, Professor David Miles of Imperial College, London, and CEPR showed that this is mistaken for two reasons

26 January 2000

Competition for Listings
Different firms choose different bourses

Firms that list on different stock exchanges have different characteristics. A paper published by the Centre for Economic Policy Research by Thierry Foucault, of the Hautes Etudes Commerciales School of Management in France, and Christine Parlour, of Carnegie Mellon University in Pittsburgh, examines why this is the case. It concludes that this diversity is the outcome of the variety of trading rules that are used by exchanges. They also argue that this variety is a way for exchanges to soften competition for firms’ listings.

26 January 2000

Finance, Investment and Growth
As economies grow and develop, financial structures have to change

A poor country needs banks, a richer one shareholders. This changing relationship between debt and equity finance is the subject of a paper just published by the Centre for Economic Policy Research by Wendy Carlin of University College London, and Colin Mayer of the Said Business School at Oxford University. They find that there is a strong relationship of financial systems with type of economic activity which differs by characteristics of industries and stages of economic development. In richer countries more information is disclosed because of the growth of equity finance and skill-intensive industries.

26 January 2000

Social Conflict and Growth in Euroland

The differing political institutions of the members of Euroland contribute to differences in economic growth. This is because those that have a lower capacity to absorb external shocks are likely to suffer greater instability in the event of such shocks occurring. The findings appear in a paper published by the Centre for Economic Policy Research in which two leading economists take previous studies of asymmetric shocks a stage further. Paul De Grauwe and Frauke Skudelny of the Catholic University of Leuven use as an example the effects of deterioration in the terms of trade on individual countries.  It emerges that southern EU countries suffer more from a negative terms-of-trade shock than do their northern partners, mainly because of their weak bureaucracies. One critical finding is that inefficiency in the detection of fraud and the imposition of penalties tends to amplify the effect of a negative terms-of-trade shock on output.

26 January 2000

How Much Flexibility in European Labour Markets?

Increasing political pressure for greater flexibility in European labour markets ‘may be the economic equivalent of whipping a dead horse, and could provoke counter-productive reactions’. This conclusion appears in a paper published by the Centre for Economic Policy Research. A leading economist, Michael Burda, of Humboldt University in Berlin, says that the advent of the euro should make labour markets more flexible. As many others have pointed out, trade unions have national boundaries and will be unable to impose their rigidities on Euroland. Therefore at least one source of labour inflexibility will disappear. ‘My prediction is that unless an improbable miracle occurs in pan-European collective bargaining, labour markets will become more and not less flexible in the future.’

11 January 2000

Cross-Border Investment
More transparency needed to encourage cross-border investment

New research shows that the availability of information is crucial in determining external portfolio investment flows. Two leading economists, Richard Portes of London Business School and Hélène Rey of the London School of Economics, find that ‘the more information foreign investors have about a given market, the more they trade in that market’. These and other significant conclusions appear in a paper on the determinants of cross-border investment flows recently published by the Centre for Economic Policy Research.

11 January 2000

Unions, Training and Rent
Unions mean more are trained, but fewer jobs

Trade unions help to ensure more workers receive training than if the choice were left to employers alone. Unionised workers also receive higher wages. And this helps explain some of the differences between the working of labour markets in Western Europe and the United States. The findings appear in a paper just published by the Centre for Economic Policy Research. The economists, Alison Booth and Marco Francesconi of the University of Essex and Gylfi Zoega of Birkbeck College London, conclude that unions often compensate for failure in the training market. The results are consistent with the evidence of the British Household Panel Surveys for the period 1991 to 1996 which show that unionised men receive significantly more training than their non-union counterparts.  The difference is equivalent to nine percentage points. They also receive higher wages and enjoy higher wage growth.

11 January 2000

Liquidity Traps
Taxing currency as a way out of a liquidity trap

Once an economy falls into a liquidity trap, there are only two options. One is to wait for a positive shock to demand. The other is to create a negative (nominal) interest rate by taxing currency. These conclusions appear in a paper just published by the Centre for Economic Policy Research in London. The authors, Willem Buiter, of the Bank of England’s Monetary Policy Committee and Cambridge University, and Nikolaos Panigirtzoglou of the Bank of England, take the present situation in Japan as their starting point and examine whether there is any possibility of the same phenomenon appearing in Britain.

11 January 2000

Foreign Investment and Spillovers

The assumption that foreign direct investment (FDI) will automatically bring benefits to the host country in the form of valuable spillovers is false. One reason why many governments have reversed their old hostility towards FDI is that they see that multinational enterprises (MNEs) can raise the level of training of the national workforce. But three economists, Andrea Fosfuri of the Universidad Carlos III, Madrid, Massimo Motta of the European University Institute, Florence, and Thomas Rønde, of Universität Mannheim expose ways in which this might not work. Writing in a discussion paper published by the Centre for Economic Policy Research, they say, ‘attracting FDI into a country does not necessarily imply that local firms will benefit from the diffusion of the superior technology introduced by the MNEs’ affiliates’.

15 December 1999

Stuck in Transit: Rethinking Russian Economic Reform
Can Russia Regain the Political Will to Implement Essential Economic Reform?

Last year was supposed to be the time of a big push for reform in Russia after a long period of inactivity. But since the financial crisis of 17 August 1998, when delays in reforms, the lack of fiscal discipline and an overvalued exchange rate finally forced the government to devalue the rouble and default on its debt obligations, the Russian economy has been ‘stuck in transit’ – unable to make the leap to a fully functioning market system and with the political process now paralysed by campaign fever.

8 December 1999

An Integrated European Electricity Market

New from Monitoring European Deregulation

The experience of liberalisation of the electricity industry in Europe shows that it works. A report   from the Centre for Economic Policy Research and the Swedish Center for Business and Policy Studies notes that the technical breakdowns predicted by sceptics in the European Union have not happened. But the experience has produced a wealth of evidence that new policies and radical changes are needed if markets are to be integrated and further liberalised across Europe. The report is particularly timely in view of the legal problems of ensuring compliance with the European Commission’s Electricity Directive and its implementation in France.

24 November 1999

The Reliability of Credit Risk Models

At a lunchtime meeting organised by the Centre for Economic Policy Research, Professor William Perraudin, Professor of Finance at Birkbeck College London and Special Advisor to the Bank of England, considered the reliability of the current generation of credit risk models.

A credit risk modelling revolution is going on in major international banks. In the 1980s, banks became more sophisticated in their hedging and pricing of interest rate risk. This boosted efficiency in government bond markets and improved financial stability as banks were better able to manage maturity imbalances in their books. Now, new modelling methods are changing the way banks understand and handle credit risk.

4 November 1999

Employment Protection and Labour Market Reform
How much does it cost employees to protect their jobs?

Piecemeal reforms of the labour market are not going to work. This conclusion emerges from a 
paper by a leading French labour economist published by the Centre for Economic Policy Research. 
Gilles Saint-Paul, of the Universitat Pompeu Fabra in Barcelona, starts from the widely shared view 
that rigidities in the labour market are responsible for high unemployment in Europe. He looks at the 
costs involved in sacking workers which in some countries can make it prohibitively expensive for firms 
to adapt to change and make them reluctant to hire new employees. If these costs are to be reduced, 
Saint-Paul argues, governments should reduce workers’ bargaining power across the board.

20 October 1999

How EMU Affects Central and Eastern Europe

Recent speculative attacks on vulnerable currencies in emerging markets underline the need for Europe's transition economies to establish a robust macroeconomic strategy as they prepare to join the European Union and eventually its single currency. Three Research Fellows of the Centre for Economic Policy Research, David Begg, László Halpern and Charles Wyplosz, argue that the priority for these economies has to be structural adjustment and fiscal responsibility. This conclusion emerges in an examination of three issues that will have to be resolved along the way. 

13 October 1999

Tradable Deficit Permits Efficient Implementation of the
Stability Pact in the European Union

With improved prospects for growth in Europe comes the opportunity, and the responsibility, of ensuring that the institutions of the European Monetary Union are ready for the challenges that lie ahead.  The most problematic of these institutions is the Stability Pact for Stability and Growth, designed to guarantee the fiscal health of the Union members.  In her paper on tradable deficit permits, Alessandra Casella addresses the problem of enforcing fiscal stability among European countries.

13 October 1999

Costing Pension Reform
Funded Pensions are risky and a transition is expensive

Unfunded pay-as-you-go state pension schemes are financially unsustainable in Europe as elsewhere.  Proponents of reform argue that, by switching to a fully funded scheme that takes advantage of the high return on assets such as equities, the solvency of the state scheme could be restored at little or no financial burden to current taxpayers.  David Miles and Allan Timmermann show that this is mistaken for two reasons.

13 October 1999

Regulation and Efficiency in European Insurance Markets

EU Policy towards insurance matters has not resulted in a move towards a common European market in insurance products. Ray Rees and Ekkerhard Kessner of the Staatswirtschaftliche Institute at Munich University reach this conclusion in a paper in the October issue of Economic Policy. There have been far-reaching changes in many insurance markets as a result of the directives of July 1994 which aimed to remove obstacles to competition, but in an examination of the British and German markets the two economists see two failures. There has not been any growth in ‘cross-border’ trade and there has been no influx of new entries from abroad into the profitable German market. “There is therefore no sign as yet of the growth of a 'single market’ in insurance products, and market analysts do not expect there to be."

13 October 1999

Finland: How Bad Policies Turned Bad Luck Into a Recession

Finland’s depression in the early nineties was not just the result of the collapse of its major trading partner, the Soviet Union, and the sharp rise in European interest rates. A new study by two leading economists from the University of Helsinki, Seppo Honkapohja and Erkki Koskela, shows that poor institutions and poor policies made a bad situation worse. Their work appears in the October issue of the journal Economic Policy.

13 October 1999

The Future of Pensions in Europe

Pay-as-you-go pension systems in Europe are being held responsible for a financial crisis which has not yet occurred. But the view that such PAYG programmes will inevitably generate an unsustainable financial burden on European economies is contested in a paper by Michele Boldrin, Juan J. Dolado, Juan F. Jimeno and Franco Peracchi. Their paper is published in the October edition of Economic Policy. They argue that the supposedly inevitable crisis would actually result from other factors such as the high-level of unemployment in Europe and the forced retirement of elderly workers. “[I]t is not the PAYG nature of the system that is leading to its financial collapse, but rather the behaviour of the political pressure and rent-seeking behaviour of special interest groups.”

22 September 1999

The Art of One Club Golf
The Science of Monetary Policy

The last 20 years have seen the emergence of monetary policy as the singularly most important policy tool used to control the economy. This almost universal reliance upon interest rates and the money supply, at the expense of the fiscal alternatives, greatly increases the significance of the design of the policy concerned: a one club golfer must choose their club carefully. In a comprehensive review of the recent literature Richard Clarida, of Columbia University, Jordi Galí, of the Universitat Pompeu Fabra, and Mark Gertler, of New York University, identify a number of broad principles that underlie optimal monetary policy management. They then test these principles for the US over the last 35 years, in order to evaluate both the pre and post Volcker eras.

22 September 1999

UDROP – New Financial Architecture

The world could be spared some of the worst effects of major international financial crises if debtors were given a breathing space to meet their obligations when credit markets seize up. A paper published by the Centre for Economic Policy Research develops the concept of a debt rollover option for foreign currency borrowers. This would limit the destructive consequences for the real economy of a crisis of the kind that occurred two years ago in East Asia.

10 September 1999

An Independent and Accountable IMF
Geneva Reports on the World Economy 1

This report analyses the increasingly severe financial crises in emerging markets that have punctuated the final years of the twentieth century. Its focus is the International Monetary Fund (IMF).  How well has the Fund done in predicting, averting and managing the new ‘high-tech financial crises of the twenty-first century’?  These crises have become more violent, disruptive and difficult to predict and manage because they are now centred in the capital account in contrast with earlier crises which were rooted in imbalances in the current account.  The Report concludes that the IMF has yet to integrate this evolution into its diagnoses, procedures and conditions.  Critically, as crises are now likely to mostly concern developing countries, the IMF’s governance is inadequate and needs a serious overhaul. 

9 August 1999

Trade Policy and Economic Growth

There is little evidence to support the view that open foreign trade policies boost economic growth.  This surprising view comes in a Discussion Paper just published by the Centre for Economic Policy Research which questions the views reached in virtually all recent published research into the subject. Francisco Rodriguez, of the University of Maryland, and Dani Rodrik, of the JFK School of Government at Harvard University, argue that far more work needs to be done before it can be ascertained whether low tariffs and the absence of trade restrictions make for growth and prosperity.

28 July 1999

The Market for Protection and the Origin of the State

Many societies face enormous difficulties in establishing even the most basic level of protection against predatory gangs and bandits. Two leading economists, in a CEPR Discussion Paper, find that many developing and transition economies, as well as some in modern urban centres, can do little to avert ruthless exploitation.

15 July 1999

Seebohm Rowntree and the Post-War Poverty Puzzle

The social security reforms of the Beveridge era are often associated with a dramatic reduction in working class poverty. In a Discussion Paper published by the Centre for Economic Policy Research, Tim Hatton and Roy Bailey of the University of Essex show that the reduction in poverty between the 1930s and the 1950s was not as great as we have been led to believe.

15 July 1999

Identifying the effect of Unemployment on Crime

Policies designed to increase jobs in inner city areas can have a direct, positive effect on crime rates. A new study of crime across the United States shows that crime rates rise and fall with unemployment. But this truth is obscured by other factors.

7 July 1999

The Emu and the Namu: what is the case for the North American Monetary Union?

A monetary union between Canada and the United States can make economic sense, but the political arguments against a North American Monetary Union (NAMU) are overwhelming. These conclusions are reached in a Discussion Paper published by the Centre for Economic Policy Research by Professor Willem Buiter of Cambridge University and the Bank of England’s Monetary Policy Committee.

July 1999

Monitoring the European Central Bank: Update June 1999

After five months of operation, the ECB has managed Euroland’s monetary affairs in a remarkably pragmatic way, confounding critics that the ECB would be excessively rigid and conservative.

The Eurosystem: Transparent and Accountable or 'Willem in Euroland'
CEPR Policy Paper No. 
Ottmar Issing

Observers of the European Central Bank (ECB) often start from an outdated premise. This is one of many points made by Professor Otmar Issing of the Executive Board of the ECB in answer to the criticisms levelled against it by Professor Willem Buiter of the Bank of England’s Monetary Policy Committee. Professor Issing’s rebuttal appears in a Policy Paper published by the Centre for Economic Policy Research, where he argues that the perception of many commentators of what the Bank is doing ‘is still heavily coloured by different national frames of reference…’

The Tobacco Deal

The Tobacco Deal in the US benefits tobacco companies and lawyers while making consumers pay

The multistate settlement agreed by the US tobacco companies has been marketed deceptively. A Discussion Paper published by the Centre for Economic Policy Research and the Brookings Institution by two economists, Jeremy Bulow of the Federal Trade Commission and Paul Klemperer of Oxford University, shows that about one percent of the $200bn in payments by the companies was actually damages. The rest will be, in effect, tax increases in the form of a flat 35 cent tax per pack.

Inefficient Credit Market Can Boost Savings and Growth
Luigi Guiso and Tullio Japelli

An inefficient credit market can make for a higher rate of savings and thus spur economic growth. This is the conclusion found in Discussion Paper No. 2050 by Luigi Guiso and Tullio Japelli, published by the Centre for Economic Policy Research.

In Italy, the average age at which people buy their first homes is 41. In the US and UK it is 28 and 29 respectively. In order to buy their homes, Italians have to save for many years, and then some get help from their parents or other relatives. Without such gifts or transfers Italians would have to wait another two years before they could buy a house. The share of property wealth earmarked for transfers is estimated at between 25 and 35%. This kind of help means that Italians would have to achieve even more impressive savings figures – some save for 25 to 30 years before buying their first home. (In 1997 in Italy the household saving rate was 13.%, down from 17.1% in 1994.) The paper notes that saving time for homebuyers in the United States is two to three years.

Poor Farmers Hit by Tariffs – at Home and Abroad
Kym Anderson and Bernard Hoekman

Farmers in the world’s poorest countries do not get a fair deal and the last GATT trade agreement, the Uruguay Round, achieved little for them. Two leading economists, Kym Anderson (Adelaide University and CEPR) and Bernard Hoekman (World Bank and CEPR), argue in a Discussion Paper published by CEPR that market access in the rich nations still has to be the main priority for developing countries. The authors add, more controversially, that, when the WTO embarks on its ‘Millennium’ trade round next year, attention should focus also on reducing the protection offered to manufacturing and service industries in developing countries.

The Aftermath of the 1992 ERM Break-up
Robert J Gordon

Britain was not alone in leaving the European Exchange Rate Mechanism in 1992. But it was alone in its strong economic performance post-Black Wednesday. In a radical reversal of conventional wisdom about the EMU debacle, a distinguished US economist finds, in a paper publishd by CEPR, that in the other five countries which were expelled from, or left, the EeRM at the same time, economic growth was largely eaten up by inflation and real growth was no higher than that achieved by those who stayed in. Professor Robert J Gordon (Northwestern University, Illinois and CEPR), says that the frequently-made comparison between Britain and France is misleading, as the UK was the only country in the group of eleven ‘stayers’ and ‘leavers’ where unemployment was lower in 1996 than in 1991.

April 1999

The Effects and Policy Implications of State-Aids to Industry
Timothy Besley and Paul Seabright

EU state aid policy should take more account of subsidiarity and of economic geography, according to Professors Timothy Besley and Paul Seabright in a paper included in the journal Economic Policy No. 28 published by Blackwell Publishers for CEPR, CES and DELTA. The authors argue that although the EU Commission presumes that state aids distort competition, it approves 98% of applications, often for social or distributional reasons. Seabright and Besley argue that proper regulation of state aids should focus on two issues, the externalities generated and inefficiencies arising from failures in competition between governments. Their paper proposes criteria for competition authorities to use, and discusses current EU policy in the light of these criteria.

April 1999

Retailer Power: Recent Developments and Policy Implications
Paul Dobson

Retailing is bigger than people think. In their paper published in the journal Economic Policy No. 28 (published by Blackwell Publishers for CEPR, CES and DELTA), Paul Dobson (University of Loughborough) and Michael Waterson (University of Warwick) discuss the potential power of the new giants of European retailing in particular. They note that the fourth largest company in the world is the US retailer Wal-mart. Two supermarket chains rank in the UK’s top ten companies. Belgium’s largest company, ranked by revenue, is a retailer. And concentration is growing in many areas, for example retail grocery, in virtually all EU countries.  Potentially then, retailers have significant and growing power.  How do they exercise their power?  And is the way they do it damaging to society’s interests?  Many consumers, and others, believe that what seem to be significant price differences for identical goods across countries are the result of retailers’ actions and their different strengths in different countries.  This is hotly contested but if this is so, there are implications for policy.

April 1999

Lotteries: Determinants of ticket sales and the optimal payout rate
Ian Walker

The National Lottery makes us as a nation about £1 billion a year ‘better off’ than we were without it. That is the result of the gain in consumer surplus, or the amount people are willing to pay, which is roughly equivalent to 1/2 % off the income tax rate. This finding by Professor Ian Walker appears in Economic Policy No. 27, published by Blackwell Publishers for CEPR, CES and DELTA.