Severe recessions have been frequent among OECD countries over the past four decades. This column explores the implications of various broad types of policy to minimise the risk and frequency of such episodes for the trade-off for the growth-fragility nexus. Product and labour market policies improve growth but are essentially neutral with regards to economic risks, while better quality institutions increase both growth and economic stability. Macroprudential and financial market policies, on the other hand, entail a trade-off between growth and risk.
US monetary policy has been the target of substantial criticism over the years. This column outlines one key area where the Federal Reserve has done remarkably well – managing price stability. Its ability to control inflation is a key reason that, for the sake of the US and global economies, the Fed’s independence should be preserved.
Asymmetric aggregate supply and demand disturbances across its regions prevent the smooth functioning of a currency union. This column argues that the disturbances in peripheral regions of the US show more symmetry with those in the anchor region than is the case for the Eurozone. Moreover, disturbances to the GIPPS, which previously were in Europe’s periphery, have become more correlated with disturbances to the anchor (Germany) compared to other Eurozone countries. Hysteresis operating via the financial sector may provide an explanation for this development.
The impact of immigration on US economic development has become a controversial issue in recent policy debates. This column, arising from a study linking Federal Census data with patent records, examines the historical role of immigrant inventors in the process of US technological innovation. Immigrant inventors appear to have been of central importance to American innovation during the 19th and 20th centuries, both through their own inventive activity and through their influence on domestic inventors.
Even before the Global Crisis, productivity growth had slowed in many OECD countries. This column argues that the global slowdown at the aggregate level masks a deterioration in both productivity growth within firms and a process of creative destruction. Using a cross-country firm-level database for 24 countries, the authors reveal an increasing productivity gap between the global frontier and laggard firms, fewer exits by weak firms, and a decline in entry. These problems have been compounded by the failure of policy to encourage the diffusion of best practices in OECD countries.
Other Recent Columns:
- Accounting for the new gains from trade liberalisation
- How exporters grow
- When Britain turned inward
- Engineering growth: Innovative capacity and development
- Cyclical forces in the global trade slowdown
- Economic growth and reductions in carbon emissions
- New ICMB/CEPR Report: Bail-ins and Bank Resolution in Europe
- Exchange rate implications of border tax adjustment neutrality
- Designing alcohol taxes
- Competition from China reduced innovation in the US
- Meeting the standard for trade
- How globalisation affected manufacturing around the world
- The more we mix, the better
- Super-easy monetary policy and reflating Japan’s economy
- Sovereign spreads in the Eurozone: Redenomination versus political risk
- The great Chinese inequality turnaround
- Performance in mixed-sex and single-sex competitions
- Monetary policy credibility and exchange rate pass-through
- Benefits of importing: Evidence from US firms
- Long-run money demand redux