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Volume 17 Issue 1 - Special issue: Policy Forum: Corona and Crisis

December 2020

Issue of The Economists’ Voice

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Contents
Journal Overview

Editorial

November 13, 2020

COVID 19 and Central Banks Dominate the Agenda

Gunther Schnabl

Article number: 20202001

Policy Papers

May 1, 2020

The Euro Area Imbalances Narrative in a Franco-German Perspective: The Importance of the Longer-Run View

Ansgar Belke, Daniel Gros

Article number: 20190034

Abstract

There is a symmetrical debate in two Euro area core countries: in France about the restrictive fiscal policy of Germany, leading to a huge external surplus, in Germany about the insufficient compliance with fiscal rules and the lack of structural reforms in France. What are the real causes of the divergence between the two economies? We show that different indicators of competitiveness yield very different results depending on the base period used, e.g. 1995 (peak of reunification boom), 1999 or 1990. A comparison with the pre-unification period shows little gain in competitiveness. We also find, somewhat surprisingly, that Germany’s industry is not more integrated in international value chains than that of France or Italy. We then look at the link between export growth and export prices and argue that in the long run exports are not driven by competitiveness but by the increased supply of labor resulting from unification. In addition, we ask what drove ‘wage moderation’ in Germany: policy or the labor market. We finally analyse the longer-term trend in fiscal policy and the resulting distributional consequences in both countries. Our more general policy implication is that any analysis which compares today to the trough of German performance after unification risks over-estimating the potential of the country. Given that the ‘internal unification’ process is complete now, one should not expect the Germans to continue to outperform France as it has done over the last two decades.

November 17, 2020

Critical Analysis of the Zero Risk Weight Privilege for European Sovereign Debt in Light of Art. 124 TFEU

Patrick Hauser

Article number: 20190022

Abstract

The zero risk weight privilege for European sovereign debt in the current capital adequacy requirements for credit institutions incentivises credit institutions to acquire and hold sovereign debt. However, it also poses a significant risk to the stability of the banking system and thus the financial system as a whole. It is argued that this privilege should not only be abolished due to the risk it entails but that it is also non conformant with EU primary law. Art. 124 TFEU prohibits privileged access of the EU and Member States' public sector to financial institutions except for prudential considerations. The protective purpose of Art. 124 TFEU to ensure sound budgetary policies by subjecting public borrowing to the same rules as borrowing by other market participants is thwarted by the uniform zero risk weight privilege. Further, as this privilege does not take into account the varying creditworthiness of the individual Member States it does not promote the soundness of financial institutions so as to strengthen the soundness of the financial system as whole, but rather endangers systemic stability. The zero risk weight privilege is therefore not based on prudential considerations and hence violates Art. 124 TFEU.

April 17, 2020

Geopolitics, Economic Freedom and Economic Performance

Erich Weede

Article number: 20190036

Abstract

Geopolitics and economics overlap in studying the rise and decline of nations. One influential explanation of the rise of Europe and the West, of them overcoming mass poverty before other civilizations, contrasts the geopolitical fragmentation of Europe with civilizations unified under repressive rule elsewhere, and explains the rise of the West by its greater degree of economic freedom than elsewhere. After World War II, the dominant economy promoted economic freedom globally and thereby granted advantages of backwardness to less fortunate peoples. Although the global expansion of economic freedom lifted at least one billion people out of abject poverty, the same process undermined American economic dominance. The imminent power transition between America and China implies an increased risk of war. If a trade war between China and America ends the era of globalization, then the outlook becomes dark: less economic freedom, less prosperity, less political stability and higher risks of war.

July 26, 2020

An Analysis of the Structure of Trade Between Australia and China: An Australian Perspective

Andrew Marks

Article number: 20200004

Abstract

The structure of exports from Australia to China reveals the dominance of primary products with the structure of imports from this country reflecting the over-reliance on manufacturing goods. This has restrained and led to fluctuations in the balance of trade surplus in Australia thereby leading to lower than otherwise and more volatile output and employment growth. The pattern of trade between Australia and China is representative of trade between Australia and the rest of the world thereby magnifying these adverse effects. Strategic trade policy has the potential to alleviate these negative effects on output and employment growth in Australia.

July 13, 2020

Is the Interest Rate Channel still working? Post-Crisis Evidence from German SMEs

Juliane Gerstenberger

Article number: 20200003

Abstract

Using a unique dataset from German small and medium-sized enterprises (SMEs), we test whether pessimistic business expectations have impeded the functioning of the interest rate channel during the post-crisis period. We estimate firms’ user cost elasticity of capital for the period 2008–2015, and test whether this elasticity differs for firms that hold pessimistic business expectations compared with those that hold positive expectations. Our results show that SMEs have significantly responded to changes in the user cost of capital during the post-crisis period. However, the results are mainly driven by SMEs that hold positive business expectations. Firms having neutral or negative expectations depict a much smaller user cost elasticity, which is not statistically different from zero. Our results reveal the limitations of an expansionary monetary policy and confirm the important role that expectations play for firms’ investment decisions.

April 24, 2020

Collective Decision-making: FIFA from the Perspective of Public Choice

Florian Follert, Lukas Richau, Eike Emrich, Christian Pierdzioch

Article number: 20190031

Abstract

Various scandals have shaken public confidence in football's global governing body, Fédération Internationale de Football Association ( FIFA ). It is evident that decision-making within such a collective provides incentives for corruption. We apply the Buchanan-Tullock model that is known from Public Choice theory to study collective decision-making within FIFA. On the basis of this theoretical model, we develop specific proposals that can contribute to combating corruption. Three core aspects are discussed: the selection of the World Cup host, transparency in the allocation of budgets, and clear guidelines for FIFA officials and bodies with regard to their rights and accountability. Our insights can contribute to a better understanding of collective decision making in heterogenous groups.

Policy Forum: Corona and Crisis

May 22, 2020

Effectiveness of Corona Lockdowns: Evidence for a Number of Countries

Stefan Homburg

Article number: 20200010

Abstract

The paper assesses the effectiveness of the large-scale lockdowns that took place during the SARS-CoV-2 (corona) pandemic. Countries considered include the United States, South Korea, Germany, Austria, Switzerland, Italy, Spain, and Sweden. Our research strategy utilizes the fact that fatal outcomes follow infections with a delay of 23 days. Therefore, the dates of the actual infections can be inferred from the data. The results suggest that lockdowns were superfluous and ineffective.

Publicly Available August 8, 2020

Homburg’s Lockdown Analysis: Conclusions without Data and an Appropriate Estimation Model

Bernt-Peter Robra, Stefan Felder

Article number: 20200015

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Abstract

This is a critical response to Homburg (2020) who claimed that lockdowns were superfluous and ineffective. We demonstrate that Homburg’s database is not sufficient to support his claim and that his econometric approach not suitable for an analysis of the lockdowns’ additional effect. However, we corroborate Homburg’s observation that the number of infections was already receding when the German lockdown came into force.

July 29, 2020

Reply to Robra and Felder (2020)

Stefan Homburg

Article number: 20200021

August 3, 2020

Rejoinder to Homburg

Bernt-Peter Robra, Stefan Felder

Article number: 20200022

July 6, 2020

The COVID-19 Crisis: Policy Recommendations for Japan

Naoyuki Yoshino, Nella Hendriyetty

Article number: 20200017

Abstract

Japan economy is dominated by Small and Medium enterprises. It covers around 99.7% of all enterprises operated in Japan and employs around 70% of the working population and account for a large portion of economic output. But, like other SMEs in the world, they also the ones that have hardly hit by COVID-19 quarantine and business closures. Japanese government made emergency loans and credit guarantee to assist SMEs. However, moral hazard problems of banks and SMEs have to be remedied. In the capital market, many investors take risk-averse behavior to anticipate further measures. Infrastructure investments are most needed in Asian region yet finance for infrastructure investments would face with shortage of funds due to low rate of return and risks. Private financing by long term investors such as pension funds and insurance better be directed to support infrastructure investment. Spillover tax revenues could be partly directed to increase the rate of return. The Japanese economy faces with aging population which would widen fiscal deficits unless postponement of retirement age and productivity-based wage rate rather than seniority wage rate facing with this crisis. Therefore, Japan government need to look into innovative policies options for sustainable economic growth.

Publicly Available August 17, 2020

Special Drawing Rights: International Monetary Support for Developing Countries in Times of the COVID-19 Crisis

Kevin Gallagher, José Antonio Ocampo, Ulrich Volz

Article number: 20200012

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Abstract

A major issuance of special drawing rights (SDRs) through the International Monetary Fund would be a key tool to provide financial support to developing and emerging economies and limit the economic and financial fallout of the COVID-19 crisis. SDRs are an unconditional resource, and the case for such an allocation is very strong during an exogenous shock, such as the current one. An SDR allocation would enhance the international liquidity in the hands of emerging and developing countries, so that public responses to the health crisis are not imperilled by financial crises. Close to two-fifths of a new SDR allocation would directly go to developing and emerging economies. In addition, a new mechanism should be created through which countries that do not need their SDR allocation lend them to the IMF, to increase the Fund’s lending capacity. Developed countries can also allocate the SDRs they do not use for official development assistance.

August 24, 2020

The COVID-19 and bond spreads

Rui Esteves, Nathan Sussman

Article number: 20200013

Abstract

Financial markets reacted with a vengeance to the COVID-19 pandemic. We argue that while the spread of the pandemic is statistically significant in explaining changes to bond spreads, it has little additional explanatory power over variables that capture financial stress. Financial markets reacted as in any international financial crisis by penalizing emerging economies exposing existing vulnerabilities. This finding highlights the need for credible, but flexible, sovereign currencies and the need to build up liquidity reserves.

July 27, 2020

How the Corona Pandemic is Plunging the Monetary System into Crisis

Malte Fischer

Article number: 20200019

About this journal

Objective
The Economists' Voice (EV) is a non-partisan forum for economists to present innovative policy ideas.

Economists have much to contribute to the public debate on a wide range of policy issues. Anyone concerned about the economic policy challenges of today, whether they are students, policymakers, or other citizens, would benefit from being involved in economists’ policy-oriented debate. Monetary policy, fiscal policy, trade, exchange rate policy, development policy, labor market policy, and regulation as well as health care and pension reform are among the most important fields of economic policy discussions.　

The Economists' Voice creates a forum for readable analysis by leading economists on vital economic policy issues of our day. The focus is on the clear verbal presentation of important evidence-based arguments for a broad readership. Empirical papers on policy-relevant issues are also welcome.

The Economists’ Voice was shortlisted for Best New Journal in the 2007 ALPSP/Charlesworth Awards. Its focused policy articles fill a gap between the op-ed pages of the newspaper and journal articles in theoretical journals. Contributors include seven Nobel Prize winners, five past chairs of the President's Council of Economic Advisors, public intellectuals like Paul Krugman and Richard Posner, and a veritable "Who's Who" of modern economic theory and policy.　

Topics

Monetary policy
Fiscal policy
Trade policy
Exchange rate policy
Development policy
Labor market policy
Regulation
Health care and pension reform
and all other economic policy relevant issues

Article formats
Two types of articles are accepted. First, policy papers up to 10,000 words, which are subject to a double-blind referee process and contribute to the scientific debate on important policy issues. Second, short articles for our policy forum, between 600 – 3000 words. They contain a deeper analysis than a newspaper article/comment but are of comparable general interest.

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