This month marks the 75th anniversary of the publication of Keynes’s The General Theory of Employment, Interest, and Money. This column examines the book’s influence today. It argues that the General Theory was a flawed idea whose time had come.
What makes a safe-haven currency? This column analyses a panel of 52 currencies in advanced and emerging countries over the past 25 years. It finds that safe-haven status is not determined by the interest rate spread, as emphasised in the carry trade literature, but by the net foreign asset position, which is an indicator of country risk and external vulnerability.
The dominant firm in online advertising is under investigation by many antitrust authorities. The EU Competition Commission is the latest to breathe heavily down its neck. Analysing Google’s market behaviour, particularly its search and display advertising model, this column argues that such investigations are welcome; the world needs to know if Google is abusing its market power.
Despite recent progress, the cost of complying with entry regulation is still higher in continental Europe compared to Anglo-Saxon or Northern European countries. This column illustrates this point using data from the World Bank and presents some recent research on the negative effect of these entry costs on output and productivity.
The Doha Round is likely to conclude this year, as a burst of political leadership by G20 and APEC nations and deft diplomacy by the WTO have spurred talks that are rapidly narrowing the remaining gaps. This column reviews the progress and highlights what more is needed based on a newly released report written by the High Level Trade Experts Group.
As the US economy recovers in fits and starts, attention is turning to exit strategies. How will the Fed unwind its quantitative easing? This column presents evidence of substantial levels of policy inertia in monetary policy. It says that we should not expect rapid policy changes in the near future – barring clear signs of economic distress.
Marco Del Negro of the Federal Reserve Bank of New York talks to Romesh Vaitilingam about his research with Gauti Eggertsson, Andrea Ferrero and Nobuhiro Kiyotaki on the macroeconomic impact of the Fed’s non-standard monetary policies. Their simulations suggest that these policy interventions were effective in stabilising the economy, to the point that they might have prevented a repeat of the Great Depression in 2008-09. The interview, which was recorded at the annual congress of the European Economic Association in Glasgow in August 2010, represents Marco Del Negro’s personal views.
Rising food prices once again pose central banks a tricky question. How far should they ignore food price inflation? This column suggests that food tends to have stronger predictive power on global inflation cycles than oil. The problem is more severe in emerging markets where consumption basket weights for food are two or three times larger than in rich nations. Central banks should pay close attention.
The carry trade in foreign currency has attracted considerable attention from academics and practitioners. This column presents evidence of a new carry trade strategy – this time speculating on the volatility of foreign exchange. This is done by buying or selling forward volatility agreements. It suggests that investors following the new carry trade can do extremely well – regardless of whether the value of these currencies go up or down.
China has been one of the world’s most dynamic economies in recent decades, but how did it fall so far behind? This column argues that the industrial revolution occurred in Europe rather than China because European entrepreneurs were eager to adopt machines to cut down on high labour costs. China didn’t “miss” the industrial revolution – it didn’t need it.
The shell game is a roadside con as old as civilisation. This column argues that the same swindle is being performed on a massive scale at the expense of the unsuspecting taxpayer. It says that, with their near zero interest rates, central banks are effectively subsidising the banking sector – with barely a pea passed on to the public.
For many, the US housing market was the epicentre of the global crisis. This column suggests that the US bankruptcy code, which in some cases protects a large section of the individual’s house, leads to overinvestment in housing – a bias that may have helped massage the US housing bubble in the decade preceding the global crisis.
The employment effects of enterprise zones are widely studied but remain uncertain. This column examines the impact of recent tax incentives designed to attract businesses to poor residential areas around Paris. It finds that while unemployment decreases, the costs of the programme leave its efficacy open to interpretation.
Measuring and comparing the level of human development across the world continues to be a highly contentious issue. This column argues that the new Human Development Index has – perhaps inadvertently – sharply reduced its valuation of longevity, raising doubts about whether it is sending the right signals to the governments of poor countries aiming to promote human development.
Can developing countries afford large social-protection programmes, such as unemployment benefits or medical insurance? Summarising studies from across Africa, this column finds that such programmes are politically, fiscally, and administratively feasible – even for low-income Sub-Saharan African countries – and on a scale and scope previously thought out of reach.
Since the global crisis, unemployment in Spain has soared to 20%, double the EU average. This column compares Spanish unemployment with that of France and argues that differences in employment protection legislation account for nearly half of the dramatic rise in unemployment in Spain. Its findings add further support to calls for a single labour contract in the country.
Does the free movement of factors of production lure tax authorities into a race to the bottom? This column argues that, when a group of host countries faces an upward supply of immigrants, tax competition does not lead to a race to the bottom; competition may actually lead to higher taxes than tax coordination.
Sanjeev Goyal of the University of Cambridge talks to Romesh Vaitilingam about his research on social networks. He describes the significance and potential downside of the ‘law of the few’, whereby social groups typically rely on information from a very small number of ‘opinion leaders’ to inform their economic decision-making. The interview was recorded at the annual congress of the European Economic Association in Glasgow in August 2010. [Also read the transcript]
The global crisis has reignited debate on the desirability of capital controls. This column examines evidence from Argentina and Chile and argues that capital controls can be effective, but that their effectiveness and efficiency varies. It adds that controls need to be considered as part of a macro-prudential toolkit to prevent asset inflation and overvaluation that is costly to revert in the down cycle.
The Eurozone crisis has whetted the appetite for economic governance reform in the EU, with one high-profile proposal aiming to strengthen national fiscal frameworks. With a unique data set, this column shows that stronger fiscal rules in Eurozone member states reduce sovereign risk, especially in times of high uncertainty. If followed, these rules could reduce sovereign yield spreads by up to 100 basis points.
With emerging and oil-rich economies increasingly investing in European companies, some have proposed modifying the EU’s stance on foreign investment for reasons of geopolitical security. But this often is a guise for protecting narrow political interests, particularly as unemployment rises. This column calls for a clear and consistent legal framework to avoid the dangerous extremes of complete closure and complete, unchecked openness.
In an effort to reduce its sizeable current-account surplus, the Chinese government has made it a priority to “rebalance” growth in China by stoking private consumption. This column examines the determinants of the high household saving rate that keeps Chinese consumption so low.
Workers at a Fiat plant in Turin recently voted to approve a new, innovative labour contract that promises higher wages and new investments in exchange for tighter discipline and oversight. This column says that if such a model of industrial negotiations were adopted across Italy, employment would rise in both the short and medium term.
Trade in the services sector is a central theme of the Doha trade negotiations. This column argues that restrictive policies can make trade costs in the services sector up to three times higher than in the goods sector. Such high costs, it claims, are holding back the growth of trade in services.
In October 2010, a group of leading thinkers on environmental policy met at the Sustainable Consumption Institute at the University of Manchester for a conference in honour of Nobel Laureate Tom Schelling. This column presents a 10-point guideline for climate change policy co-authored by 26 attendees that focuses on designing policies that are credible, easily monitored, and easily enforced.
With foreign ownership of domestic companies becoming increasingly common, questions are mounting as to the consequences. One area of concern is the effect on research and development. This column presents new evidence from Sweden, where flagship firms such as Volvo and Saab are now foreign owned, that it hopes will reassure policymakers.
Kevin O’Rourke of Trinity College Dublin talks to Viv Davies about Ireland in crisis and explains how it moved so suddenly from being the ‘Celtic Tiger’ economy to financial meltdown. O’Rourke describes Ireland’s reaction to the bailout, outlines the potential implications for the country and discusses the shortcomings of the European policy response. The interview was recorded by telephone on 13 January 2011. [Also read the transcript]
What institutions should be responsible for financial stability? Do governments need distinct regulators for distinct objectives or should central banks pursue both price stability and financial stability? This column argues that monetary policy inevitably will involve considerations of financial stability due to its effects on banks' risk taking and says that central banks should embrace this dual role.
Some argue that the widening spreads between sovereign debt in Germany and that of other European countries have been exacerbated by activity in the market for credit default swaps. This column argues that “naked credit default swaps” are of a different nature to naked short selling and deserve to be treated so. It explores insights from the academic literature, market participants, and securities regulators.
The past year has plunged the Eurozone into crisis with many fearing for what 2011 has in store. In this column the CEPR Chairman argues that to prevent the Eurozone’s sovereign debt crisis from becoming a self-fulfilling contagion, the bailouts should not go beyond Ireland; they should not be extended to Portugal even less so to Spain. It outlines 10 reasons why.
Since the breakout of the global crisis and the combined pledge to refrain from protectionism, the Global Trade Alert – among others – has documented numerous examples of countries breaking their promises. This column revises a paper from the 7th Global Trade Alert, providing analysis of Argentina’s unique policy responses and their surprising consequences.
The dollar’s key role in international markets is once again in the spotlight. This column introduces a new book by Barry Eichengreen: Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. As the author puts it, “If you were worried by talk of currency war late last year, you ain’t seen nothin’ yet.”
Is the Icesave dispute between Iceland on one side and the Netherlands and the UK on the other becoming a real-life version of Groundhog Day – where we are trapped in the same day that repeats for all eternity? This column discusses what can be done to return us to normality.
With the economic crisis mutating, now is the hour of the regulator. This column argues that policymakers should take heed; the opacity of over-the-counter trading should come to an end and regulation and transparency should be extended to all corners of the financial sector.
As stock markets plummeted, short-sellers and hedge funds have been the subject of public anger. But does it matter who owns stock? This column compares stock performance after the collapse of Lehman Brothers in 2008. It finds that companies whose shares are held to a larger extent by short-term investors do indeed experience more severe price drops and larger price reversals.
During the global crisis central banks have undertaken unconventional measures that some commentators claim go beyond their mandate. This column focuses on central banks intervening in the money markets as a middle man. It argues that such actions can be welfare improving, but are unlikely to be fiscally neutral, thus raising questions about whether they should be left to a central bank.
This month some of Europe’s most skilled footballers will switch clubs in deals worth millions of euros. This column analyses the movement of Europe’s footballers between the top 14 leagues and finds that a major influence on player decisions to move is the difference in the tax regime – with policy implications going well beyond the football pitch.
Is the worst of Europe’s crisis behind us? Or yet to come? This column looks at 2011 and argues that the Eurozone crisis offers a unique chance to correct the “dreadful mismanagement” of the past year.
Many interpret countries' scores in international testing as grades of their national educational policies. Summarising evidence from international maths exams, this column finds that the highest-scoring countries are those with the least inequality in test scores, suggesting a “virtuous” equity-efficiency trade-off. It also finds that countries perform even better when test scores are highly correlated with the number of books in the family home.
Fifteen years after the Dayton Peace Accords, unresolved conflicts in Bosnia and Herzegovina have deadlocked its political system and crippled economic growth. In their second column on the Balkans, the authors argue that to prevent the country from falling apart – with dire consequences for the region – increased engagement by both the EU and the US is needed.
The systemic and macroeconomic issues associated with a banking crisis are much in the news. This column focuses on the impact on individuals, particularly those who experienced losses, and presents evidence of effects on their expectations and behaviour lasting a decade or more.
High unemployment among the young and low skilled is fuelling anti-immigration sentiments across the OECD. This column argues that, in Western Europe, demographic trends are such that demand for many workers will exceed supply. It proposes a framework that enables the temporary movement of services providers, a policy that could address Europe’s labour needs while placating public resistance.
With the end of the Balkan conflicts in the late 1990s, the EU and the US set up the Stability Pact for South Eastern Europe. This column – the first of two – argues that, as well as promoting regional economic integration, the Pact’s central aim was to safeguard peace. It suggests reasons why it took so long for the Balkans to negotiate regional free trade and why they ultimately succeeded.