This week from CEPR: 12 May

Thursday, May 12, 2022

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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    Pascal Achard, Sabina Albrecht, Elena Cettolin, Riccardo Ghidoni, Sigrid Suetens
    CEPR DP No. 17294 | 10 May 2022

    Individuals in the Netherlands who experienced an influx of refugees in their neighbourhood during the European refugee crisis developed a more positive attitude toward ethnic diversity and became less inclined to vote for the far-right party with its anti-immigration agenda as compared to individuals not exposed to refugees.

    This is the main finding of a new CEPR study by Pascal Achard, Sabina Albrecht, Elena Cettolin, Riccardo Ghidoni and Sigrid Suetens, which investigates attitudes toward ethnic diversity and political preferences by residential locations of respondents and refugees in the Netherlands. Among the findings: 

    • Individuals living close to refugee facilities developed a more positive attitude toward ethnic minorities and became less inclined to support anti-immigration parties. 
    • Local effects are particularly strong if exposure lasts longer than six months.
    • The presence of refugees outside one’s direct neighbourhood has essentially no effect on attitudes toward ethnic diversity and political preferences.
    • Close proximity and sufficiently long exposure are thus crucial in obtaining a positive effect, and both factors are associated with an increased likelihood of contact with ethnic minorities, either in the form of casual encounters or longer-lasting personal interaction.
    • The positive effect of local exposure to refugees mostly stems from a change among individuals who were relatively right-leaning before the refugees arrived in their neighbourhood; these individuals develop a more positive attitude toward ethnic diversity and turn away from the far-right party due to the exposure.
    • Preferences of left-leaning individuals are largely unchanged.
    • There is no evidence for white flight: very few individuals move to another neighbourhood, and there is no indication that individuals move out of a neighbourhood due to an influx of refugees.

    WHAT SHOULD THE INFLATION TARGET BE? Views from 600 Economists
    Gene Ambrocio, Andrea Ferrero, Esa Jokivuolle, Kim Ristolainen
    CEPR DP No. 17289 | 08 May 2022

    A new CEPR study by Gene Ambrocio, Andrea Ferrero, Esa Jokivuolle and Kim Ristolainen conducts an extensive survey of 600 leading economists from around the world eliciting their views on the optimal inflation target and on other issues related to monetary policy. Among the findings: 

    • Most respondents prefer their central bank to have an explicit inflation target. 
    • Roughly half want the central bank to keep its current target. 
    • Two thirds of the rest want to raise the target, with a median preferred change of one percentage point. 
    • In a hypothetical scenario in which the central bank has no prior history of inflation targeting, an additional 12% of the respondents would prefer a different (typically higher) target than the current one. This result suggests that the costs of changing the current target hold some respondents back from wanting an actual target change. 
    • Respondents who are worried about the central bank credibility are less likely to support a target raise. 
    • Conversely, preference for a target raise is more likely to come from those who are concerned about the zero lower bound on the nominal interest rate. 
    • The average estimate of the equilibrium real interest rate in the sample is 0.6%. However, personal views about the equilibrium real interest rate do not predict a preference for a target raise.

    Figure: What should the central bank's objective(s) be?

    THE ECONOMIC EFFECTS OF A COMPLETE TRADE EMBARGO ON RUSSIA

    Kornel Mahlstein, Christine McDaniel, Simon Schropp, Marinos Tsigas
    06 May 2022

    Estimating the potential economic effects of a complete trade embargo by Allies on Russia, a study by Kornel Mahlstein, Christine McDaniel, Simon Schropp and Marinos Tsigas shows that: 

    • Russia would likely sustain sizable losses of upwards of 14% of real GDP. 
    • Allied economies are unevenly affected by the sanctions, with real GDP losses between 0.1% and 1.6%. 
    • If Russia were to impose countersanctions, rather than being a sanction target, losses to the Russian economy would be even greater.
    		  

    LONG-TERM HEALTH COST OF WARS ON CHILDREN

    Mevlude Akbulut-Yuksel
    10 May 2022
     

    The Russian invasion of Ukraine has forced millions of Ukrainian children to leave their schools and homes. Such adverse shocks early in life can have profound long-term effects. Writing at VoxEU, Mevlude Akbulut-Yuksel presents evidence from WWII and the Vietnam War of how childhood war exposure had detrimental effects on education, physical and mental health, and labour market outcomes, even decades after the conflicts. The effects were most pronounced for girls and children of lower socioeconomic status.

    AGRICULTURAL AND ENERGY IMPORTERS IN THE DEVELOPING WORLD ARE HIT HARDEST BY THE UKRAINE WAR’S ECONOMIC FALLOUT

    Maksym Chepeliev, Maryla Maliszewska, Maria Filipa Seara e Pereira  
    06 May 2022

    A study by Maksym Chepeliev, Maryla Maliszewska and Maria Filipa Seara e Pereira shows that developing countries that are large agricultural and energy importers are being hit hardest by the Russian invasion of Ukraine, and associated disruptions to global supply chains. 

    The research finds that while some commodity exporters might be able to step up exports to benefit from increasing global prices, they could experience a restructuring of their trade patterns, resulting in a lower integration into global value chains. Consumers across the world are worse off, with the poorest being impacted the most adversely.

    		  

    IMPLICATIONS OF RUSSIA’S INVASION OF UKRAINE FOR ITS VALUE CHAINS

    Deborah Winkler, Lucie Wuester 
    11 May 2022

    A study by Deborah Winkler and Lucie Wuester shows that the impact of the war through Russia’s participation in global value chains relates to its ‘upstream’ position. Countries in closer geographic proximity to Russia face higher risks due to their greater direct trade links with Russia. But the countries that will be affected most severely are those in global value chains reliant on products from Russia with fewer alternative substitutes, such as rare metals.

    FIRMS THAT EFFICIENTLY MATCH WORKERS AND JOBS GAIN SIGNIFICANT PRODUCTIVITY BOOST

    Luca Coraggio, Marco Pagano, Annalisa Scognamiglio, Joacim Tåg  
    09 May 2022

    A study by Luca Coraggio, Marco Pagano, Annalisa Scognamiglio and Joacim Tåg finds that firms that match their employees to their most suitable jobs are more productive, and their ability to do so depends on the quality and experience of their management. 

    		  

    CAMPAIGN FINANCE REGULATIONS CAN LEVEL THE PLAYING FIELD AND SUBSTANTIALLY DECREASE THE INCUMBENCY ADVANTAGE: Evidence from French local elections

    Nikolaj Broberg, Clemence Tricaud, Vincent Pons, Vestal McIntyre  
    08 May 2022

    Using data from French local elections, a study by Nikolaj Broberg, Clemence Tricaud, Vincent Pons and Vestal McIntyre shows that campaign finance regulations, particularly state reimbursements of expenditures, can level the playing field and assist newcomers without decreasing the representativeness of elections.

    IMPROVED POLICE MANAGEMENT IN THE UNITED STATES, CAN REDUCE CRIME AND THE HARMS OF POLICING SIMULTANEOUSLY

    Max Kapustin, Terrence Neumann, Jens Ludwig   
    07 May 2022

    In the wake of widely publicised instances of police misconduct, calls to defund the police have gained currency in the US. Still, many Americans fear that crime will increase where police presence is decreased. 

    Writing at VoxEU, Max Kapustin, Terrence Neumann and Jens Ludwig argue that policing problems and crime rates can be reduced simultaneously. The research shows that variabilities in violent crime and police misconduct correlate with the tenures of police leaders.

    This suggests that many police departments perform poorly due to mismanagement and could be reformed in ways that reduce the harm they do without compromising their ability to keep people safe.

    HOW TO ENSURE THAT EUROPEAN FISCAL RULES MEET INVESTMENT

    Agnès Bénassy-Quéré   
    06 May 2022

    The role of fiscal rules is to ensure debt sustainability and predictability of fiscal policies. It is possible to make them simpler and more friendly to countercyclical policies. Rather than allowing for different investment priorities, Agnès Bénassy-Quéré argues that the Covid crisis, the climate emergency, and Russia's invasion of Ukraine and subsequent security concerns may require a holistic approach where better compliance with fiscal rules could be combined with a holistic definition of sustainability that would also include macroeconomic and green sustainability.

    A BLUEPRINT FOR THE RECONSTRUCTION OF UKRAINE

    Barry Eichengreen, Yuriy Gorodnichenko and Kenneth Rogoff interviewed by Tim Phillips, 10 May 2022

    The first of CEPR’s Rapid Response Economics series spells out a proposal to ensure that the economy of post-war Ukraine can recover. but what can the international community do, and how much will it cost?

    HELPING FATHERS TO ACKNOWLEDGE PATERNITY

    Anna Raute interviewed by Tim Phillips, 06 May 2022

    If fathers don't acknowledge paternity, it affects both mother and child. Should the state increase financial support for single parents, should we incentivise marriage – or is there another option? Anna Raute tells Tim Phillips that the surprising impact of an unrelated German social policy suggests there may be.