In response to Russia's 2022 invasion of Ukraine, the G7 imposed a price cap of $60 per barrel on all Russian oil carried by tankers owned, insured, or serviced by Western companies. Many analysts expected the policy to backfire, with some warning that oil could reach $380 if Russia retaliated by cutting production.

In a paper in the American Economic Review, authors Simon Johnson, Lukasz Rachel, and Catherine Wolfram argue that tightly enforced caps can actually raise oil output and push world prices down when factors like market power, uncertainty, and financial constraints are accounted for.

Rachel and Wolfram recently spoke with Tyler Smith about why the textbook intuition on price caps fails in Russia's case and how their framework might be used to set caps in the future.

In the fifteen years following the end of World War II, Western Europe's capital account surpluses were not sufficient to finance its trade deficit with the United States. Charles Kindleberger of MIT, who helped assemble the Marshall Plan, defined this gap as the "dollar shortage" and argued that it was a structural problem rooted in Europe's lagging productivity, one that could only be fixed by sustained US lending. Milton Friedman disagreed, treating the shortage as a simple consequence of overvalued fixed exchange rates that floating currencies would correct. The argument continued through scores of books and articles written by many other economists into the late 1950s, until Europe's productivity caught up, and the debate faded.

In a paper in the Journal of Economic Perspectives, authors Harris Dellas and George S. Tavlas revisit the controversy and explain why it still matters. They find that Kindleberger anticipated much of what is now called the intertemporal approach to the current account, and they trace how two recent episodes of dollar shortages echo and depart from the original.

Dellas and Tavlas recently spoke with Tyler Smith about the paper.

Since the 1990s, developers in Florida who want to build on wetlands have been required to buy offset credits from "wetland mitigation banks," private restoration projects that convert degraded land, often former pasture, back into functioning wetland elsewhere in the same region. Like other environmental offset markets, the program has proved controversial.

In a paper in the American Economic Review, authors Daniel Aronoff and Will Rafey found that wetland offsets generated roughly $2.4 billion in private gains from trade but also a significant increase in overall flood damage because wetlands were moved away from places where they protected existing homes.

Rafey recently spoke with Tyler Smith about what the results mean for the design of environmental markets and wetland regulations.