Action Policy Digest February 2019


Date: 11 February 2019

Type: Other

Topic: Action Institute

Organized as a monthly newsletter, it presents an overview of the current international policy debate.  You find below a selection of the best ideas from the most influential think tanks, structured in four areas: (i) Finance, (ii) Innovation and Development, (iii) European Affairs and (iv) Social Policy.

 “The euro: From monetary independence to monetary sovereignty“.Although the euro instantly became the second-most important global currency upon its creation, its internationalisation was not a primary concern for policymakers at the time. This column argues that while the euro area has full ‘monetary independence’, ‘monetary sovereignty’ needs to be built on the basis of a reassessment of the benefits and costs attached to the international role of the euro.


 “Nuggets from the Fed’s new Financial Stability and Supervision & Regulation reports“. The Federal Reserve’s inaugural reports on Financial Stability and Supervision & Regulation offer a useful peek into Fed thinking and underscore the Fed’s responsibilities for more than inflation and unemployment.

 “Equity finance and capital market integration in Europe“. Facilitating the financing of European companies through external equity is a central ambition of European Union financial regulation. Against this background, the authors examine the present use ofexternal equity by EU companies, the roles of listings on public markets, and the regulatory impediments in national laws.


 “MiFID II is working“. One year on, MiFID II is working and firms have adapted to the burdensome new set of rules. Markets have adapted to the new market structure rules, electronification has increased substantially in certain segments but market liquidity remains an issue.


 “Artificial intelligence, algorithmic pricing, and collusion“. Antitrust agencies are concerned that the autonomous pricing algorithms increasingly used by online vendors may learn to collude. This column uses experiments with pricing algorithms powered by AI in a controlled environment to demonstrate that even relatively simple algorithms systematically learn to play sophisticated collusive strategies.


 “Automation and Artificial Intelligence: How machines are affecting people and places“. At first, technologists issued dystopian alarms about the power of automation and artificial intelligence (AI) to destroy jobs. Then came a correction, with a wave of reassurances. Now, the discourse appears to be arriving at a more complicated understanding, suggesting that automation will bring neither apocalypse nor utopia, but instead both benefits and stress alike.


 “Is public debt a cheap lunch?“. The fiscal and welfare costs of public debt, following Olivier Blanchard’s presidential lecture at the American Economic Association, in which he suggested both might be lower than expected. The authors review his paper, along with several scholars’ comments, and provide a quick comparison with the European context.

 “Twenty years of the euro – Resilience in the face of unexpected challenges“. TThe first 20 years of the euro were very different from what had been anticipated. Deflation, rather than inflation became a problem. Financial markets, which had been neglected, became a major source of instability. However, the euro area proved resilient and support for the euro is at historic highs.
 “A European fiscal capacity can avoid permanent transfers and improve stabilisation“. This column, part of the VoxEU debate on euro area reform, uses a dynamic stochastic general equilibrium model of the euro area to show that fiscal risk sharing brings an additional layer of stabilisation compared to national stabilisers, particularly when monetary policy is constrained by the effective lower bound.


 “EU budget implications of a no-deal Brexit“. A no-deal Brexit would mean the UK’s contributions to the EU budget fall to zero as of March 30th 2019. The author here calculates an estimate of the budget shortfall that would have to be covered in this case, and how the burden would fall across different member states.

 “Subsidising labour hoarding in recessions: New evidence from Italy’s Cassa Integrazione“. Labour hoarding – the practice of retaining excess employees during a negative shock – could potentially help firms avoid re-hiring and training costs when economic conditions improve and act as a form of insurance for workers. This column uses Italian micro data to show how labour hoarding in the form of short-term work programmes can be beneficial despite being ineffective in the long term.
 “Water-Microcredit Models and Market Inclusion: Shifting Debts and Responsibility“. This paper examines and problematises ongoing changes in the relationship between citizens, markets and states around access to key public services.


Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs.

Herbert Hoover


Good health is essential to social and economical development and it empowers all of the public sectors.

World Health Organization


Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.

Peter Drucker

Human Capital

Talent is a source from which water flows constantly renewed. But this source loses its value unless it is properly used.

Ludwig Wittgenstein