Macroeconomic policy

Kurt Mitman, Dirk Krueger, Fabrizio Perri, 30 August 2016

Previous research found that income and wealth inequality had little impact on the aggregate dynamics of consumption, investment and output. This reinforced the idea that we can study downturns in the economy using representative agents. This column argues that household inequality affects both the depth of a recession and the welfare losses of those affected by it. Therefore we should explicitly measure and model household heterogeneity when we consider the impact of business cycle fluctuations and the welfare consequences of economic crises.

Stefano Ugolini, 30 August 2016

When Mario Draghi famously declared that the ECB was “ready to do whatever it takes to preserve the euro”, he also specified “within our mandate”. This column examines the institutional limitations to central bankers’ actions. It argues that institutional constraints are essential in determining the sustainability of monetary policies, and hence central banks’ ability to pursue their targets. The weakness of the Bank of England in the heyday of the gold standard is a case in point.

Gaston Gelos, Jay Surti, 19 August 2016

International financial spillovers from emerging markets have increased significantly over the last 20 years. This column argues that growing financial integration of emerging economies is more important than their rising share in global trade in driving this trend, that firms with lower liquidity and higher borrowing are more subject to spillovers, and that mutual funds are amplifying spillover effects. Policymakers in developed economies should pay increased attention to future spillovers from emerging markets, particularly from China.

Raju Huidrom, M Ayhan Kose, Franziska Ohnsorge, 13 August 2016

Fiscal multipliers tend to be larger when the fiscal position of governments is stronger. This column argues that the link between fiscal multipliers and fiscal positions is independent of the business cycle. Although multipliers are generally larger in recessions, they are smaller during times of high debt, even during recessions, relative to what they would be if government debt were lower. 

Eduardo Cavallo, Barry Eichengreen, Ugo Panizza, 08 August 2016

In theory, a poor country with a low saving rate but good growth prospects can build up its capital stock by running a large and sustained current account deficit. This column asks whether this is feasible and productive in practice. A substantial number of countries in recent decades have been able to run large current account deficits for as long as ten years, but such episodes typically do not end happily. Foreign finance does not appear to be the cure for countries with low domestic savings.

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