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Effective policy targeting with machine learning

The impact of a public policy partly depends on how effective it is in selecting its targets. Machine learning can help by exploiting increasingly available amounts of information. Using data from Italy, this columnpresents two examples of how to employ machine learning to target those groups that could plausibly gain more from the policy. It illustrates the benefits of machine-learning targeting when compared to the standard practiceof employing

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Exchange rate pass-through in a significant trading relationship

Understanding the effect of exchange rate movements on international trade is a major issue for economists and policymakers. This column shows that Portuguese exporters absorbed little of the effect of the large and unanticipated depreciation of sterling following the Brexit referendum into their markups the vast bulk of the effect of the depreciation was visited on UK users and consumers of Portuguese goods. The lesson for the UK as it contempl

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Taxation and the labour supply of married couples

The extent to which tax policies influence the amount of labour thatprivate households supply has been at the centre of many public policy debates. Within married couples, joint versus separate taxation may be one factor that contributes to differences in household labour supply. This column uses amodelthat closely reproduces the changes in married women‘s labour supply in the US and Europe between the early 1980s and 2016 to showthat taxes

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Relative valuation of distributed ledger technologies

Traditional absolute valuation methodscan‘t be applied to cryptocurrencieslike Bitcoin and Ethereum. This column instead applies relative valuation models to crypto-assets, leveraging Metcalfe‘s theory of communication system valuation. Preliminary resultsshow thatthe network value to Metcalfe ratio is relatively successful at identifyingperiods when Bitcoin was over-andundervalued.

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The ECB‘s measures of underlying inflation for the euro area

Just like other central banks, the ECB generally monitors a range of measures of underlying inflation to help distinguish noise from signal in headline inflation. This column describes measures of underlying inflation that are routinely used at the ECB for measuring euro area headline inflation and provides some insights on their interpretation. Each of the measures has merits and shortcomings and they should be taken together in arriving at a fi

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The disappointing impact of encouraging students to study more

Time studying is strongly correlated with grades earned, but the amount of time that students spend studying has declined dramatically. This column describes an intervention at three higher education campuses that offered coaching and help for students to plan their time. Students were highly engaged, but there was no effect at all on their grades. This is consistent with previous results that suggest this type of intervention does not change stu

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On risk and black swans in emerging markets

Emerging markets are especially vulnerable to a myriad of domestic and external risks. This column develops a framework to classify these risks based on their predictability and, hence, their insurability. As the probability of relatively large events increases, it becomes more difficult to insure against such risks. In the extreme case in which countries face truly unpredictable and impactful events (or ‘black swans‘), they must rely

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Firm sorting and agglomeration

In order to encourage economic growth and development, governments often put in place a range of policies aimed at attracting firms to specific areas of a country. Yet relatively little is known about their implications for efficiency.This column argues that such subsidies have costly long-run effects, both on the productive efficiency of the economy and in terms of welfare. Moreover, place-based policies do not necessarily decrease spatial dispa

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International production networks and disaster resilience

Global producers, service providers, and international financial institutions are becoming increasingly intertwined through expanding supply chains. This column uses new firm-level data on the impact of Hurricane Sandy in 2012 to examine how economic shocks are propagated by global supply chains. While the hurricane‘s negative shock appeared to propagate among firms within the US, the shock does not seem to have spread internationally. The

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Automation and job displacement in emerging markets

Evidence that routinisation lies behind labour market polarisation has been documented for many developed economies, but less is known about its impact in emerging markets. This column draws on national censuses and labour surveys for 160 countries between 1960 and 2015 to argue that although large-scale labour market dislocation is not imminent, emerging markets are becoming increasingly exposed to routinisation and thus labour market polarisat

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Learning from your peers to import

Several recent studies have used network methods to explore the spatial spillovers within cities. This column adds to this literature by exploring how the spatial and managerial networks in Budapest influence firms‘ import decisions. A peer in the same building with import experience from a specific country has a strong positive effect on the probability that a firm will start importing from that country. These findings point to the importa

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Abortion laws and women‘s health

Women‘s health is frequently cited when debating the merits of abortion legislation. However, the arguments are often based on evidence which is correlational or drawn from small or non-representative samples of women. This column explores the impacts of abortion legislation on women‘s health using the universe of health records from Mexico, where abortion was legalised in the Federal District of Mexico while sanctions on abortion wer

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Global trends in interest rates

Interest rates are at their lowest levels of the last 150 years in virtually all advanced economies. This column argues that this unprecedented environment reflects secular global forces that have lowered the trend in the world real interest rate by about two percentage points over the past 30 to 40 years. Whatever forces might lift real interest rates in the future must also be global, such as a sustained pickup in world economic growth, or a be

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The real effects of mitigating counterparty risk

A key function of financial markets is to share risks, and thus to mitigate the transmission of shocks to the real economy. This column analyses one historical setup in which risk-sharing possibilities in financial markets suddenly increased the creation of the first central clearing counterparty in 1882 in France in the market for coffee futures. The ability to better hedge coffee prices had real effects and increased trade flows Europe-wide.

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The lasting impact of the Taiping Rebellion

The Taiping Rebellion, from 1851 to 1864, was the deadliest civil war in history. This column provides evidence that this cataclysmic event significantly shaped China‘s Malthusian transition and long-term development that followed, especially in areas where the experiences that stemmed from the rebellion led to better property rights, stronger local fiscal capacity, and rule by leaders with longer-term governance horizons.

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Rising Brexit uncertainty has reduced investment and employment

The majority of businesses in the UK report that Brexit is a source of uncertainty. This column uses survey responses from around 3,000 businesses to evaluate thelevel and impact of this uncertainty. It finds that Brexit uncertainty has already reduced growth in investment by 6 percentage points andemployment by 1.5 percentage points, and is likely to reduce future UK productivity by half of a percentage point.

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The world needs more migrants

In the developed world borders are being closed and popular resistance to immigration is rising. Yet Lant Pritchett of Harvard University tells Tim Phillips that the rate of migration from poor to rich countries is actually five times too low. Planned mass migration of unskilled labour, he argues, would make everyone better off.

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Aggregating labour supply elasticities

Economists disagree on the size of labour supply elasticities. The column uses a model of female labour supply to show that there is substantial heterogeneityin both cross section and over the business cycle. It is not possible to think about labour supply elasticity as a unique structural parameter. To understand the consequences of income tax changes, for example, we need to be explicit about whose tax is changing.

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