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Research-based policy analysis and commentary from leading economists
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20 января, 00:00

The effects of competition on creative production

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Creativity, despite its importance, is rarely studied by economists. The column uses the outcome of design competitions to evaluate whether positive ratings and strong competition spur creativity. Positive feedback with little competition reduces creativity, while the presence of small numbers of highly rated competitors increases it. But as the numbers of strong competitors increases, designers are increasingly likely to give up entirely.

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20 января, 00:00

Geographical roots of the coevolution of cultural and linguistic traits

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Evidence suggests that ancient regional variations in geographical characteristics contributed to the differential formation of culturaland linguistic traits, which in turn shaped development and inequality in today’s world. This column discusses how geographical characteristics are linked to the emergence of long-term orientation and the future tense, how they shaped distinct gender roles and possibly contributed to the emergence of grammatical gender, and how ecological diversity is connected to the emergence of hierarchical societies and reflected in politeness distinctions in language.

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19 января, 00:00

The economic assimilation of the Famine Irish in America

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Negative sentiment towards immigrants is often based on fears about their ability to integrate into economic, political, and social institutions. This column analyses the impact of the influx of Irish immigrants into the US in the 19th century. It shows that the children of immigrants had assimilated in terms of labour market outcomes within one generation, providing some perspective for the current debate about immigration policy.

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18 января, 00:00

Foreclosures and new mortgage lending in the 1930s

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Although severe crises in housing markets contributed to both the Great Recession of 2007 and the Great Depression of the 1930s, the role that housing-related financial frictions played in the crises has yet to be explored. This column investigates the impact that foreclosures had on the supply of new home mortgage loans during the housing crisis of the 1930s. It shows that an increase in foreclosed real estate on a building and loan associations’ balance sheets had a powerful and negative effect on new mortgage lending during the 1930s.

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18 января, 00:00

Executive compensation at energy companies

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Rises and falls in oil prices impact the macroeconomy, the stock market, investment, and of course the value of oil and gas firms. What happens to the fortunes of the leaders of those oil and gas firms? This column argues that the compensation of US oil and gas executives is closely tied to oil prices – much more closely than economic theory would predict. Theory says that executives should be rewarded for the value they bring to a firm, and that they should be incentivised to take the best actions on behalf of the firm. With billions of dollars at stake each year, boards and shareholders may want to revisit how compensation is structured at these firms.

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18 января, 00:00

Work in transition, part 1

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The European Bank for Reconstruction and Development has published a report that investigates how work is changing in Europe and Asia's transition economies. Tim Phillips talks to the Bank's chief economist, Sergei Guriev, about who is working, how, and where.

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17 января, 00:00

Predicting recessions using term spread at the zero lower bound

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The flattening of the US yield curve has left academics, central bankers and market commentators divided, with one camp interpreting it as a sign of impending recession (in line with historical patterns), and the other camp arguing that this time is different given unprecedented changes in monetary policy and other structural forces. This column argues that the ECB’s quantitative easing programme undermined the performance of term spreads as predictors of recessions. It suggests and tests a modified term spread and several other variables that are more successful at predicting recessions. 

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17 января, 00:00

Learning from noise: Evidence from India’s IPO lotteries

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Although economic agents should discern signals from noise when drawing from experience, recent evidence suggests decision-making can be based on both noise and signal components. This column uses a natural experiment of IPO lotteries in India to show that randomised gains cause winning investors to increase applications to future IPOs and substantially increase portfolio trading volume in non-IPO stocks relative to lottery losers. Investors appear to draw inferences about their skill from noise. 

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16 января, 00:00

The economic geography of innovation

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Innovative activity is unevenly distributed geographically, with regional characteristics such as global market accessibility or an innovation-promoting policy environment affecting the spatial distribution. Using global data on regional characteristics, regional patenting output, and innovation-promoting policy environments, this column examines the origins of innovation clusters, and particularly the role of R&D tax policy instruments, in attracting innovative firms. It estimates that innovation-promoting R&D tax policy instruments contribute to about one-tenth of the long-term economic growth around the globe.

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16 января, 00:00

Misspecification in empirical models: How problematic and what can we do about it?

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It is unavoidable that empirical models are misspecified in various ways, but adopted empirical methodologies rarely address this. This column focuses on the misspecification of exogenous structural disturbances which are the forces that drive fluctuations in modern business cycle models. It shows that the conclusions drawn from estimated models can be severely distorted if structural disturbances enter the model in an incorrect way, even if the misspecification is minor. It proposes the novel concept of an agnostic structural disturbance, which can be used to detect and correct for misspecification of structural disturbances. While agnostic in nature, studying how ASDs affect model properties enables us to give them an economic interpretation.

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15 января, 00:00

Debt overhang, rollover risk, and corporate investment in Europe

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Euro area corporate sector investment collapsed post-crisis, especially in periphery countries. The column uses firm and bank data to investigate whether corporate debt accumulated during the boom years was responsible. Firms with higher leverage or firms that borrowed more decreased investment more, especially when linked to weak banks. These channels explain about 60% of the decline in aggregate corporate investment during the crisis.

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15 января, 00:00

The mixed success of the Stability and Growth Pact

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The Stability and Growth Pact has been criticised by some for imposing fiscal tightening during recessions, and by others for a lack of compliance. Using a database of all country-specific Excessive Deficit Procedure recommendations since the introduction of the euro, this column shows that the corrective arm of the pact, which is procyclical by design, is an important driver of euro area fiscal policy. The preventive arm, which is designed to avoid the need for such procyclical policies, is much less effective and reform of the pact should focus on addressing this.