Macroeconomic policy

Jean-Charles Bricongne, Alessandro Turrini, 22 June 2017

Since 2011, EU macroeconomic surveillance has aimed at preventing or correcting the type of imbalances that were responsible for the Global Crisis. Surveillance under the Macroeconomic Imbalance Procedure implies regular reports and policy recommendations monitored by the Commission, and the possible activation of economic sanctions. This column shows that, despite the procedure not having been used to its full extent so far and the sanctions stage not having been reached yet, the surveillance and recommendations have had an impact on policies in the first years of implementation. 

James Hamilton, 22 June 2017

In economic research, the Hodrick-Prescott filter is a widely used tool for removing cyclical components from time-series data. This column argues that, despite its popularity, the HP filter has serious drawbacks that should severely restrict its application. It involves several levels of differencing, so that for random walk series, subsequently observed patterns are likely to be artefacts of having applied the filter, rather than due to the underlying data-generating process. The column goes on to suggest an alternative to the HP filter that avoids these pitfalls. 

Laura Alfaro, Gonzalo Asis, Anusha Chari, Ugo Panizza, 13 June 2017

Leverage levels in emerging market firms rose dramatically in the aftermath of Global Crisis. This column examines whether concerns of a repeat of the Asian financial crisis, which was largely attributed to corporate financial roots, are justified. While firm financial fragility is more widespread, it is less severe than in the period preceding the Asian Financial Crisis. However, certain large firms with high levels of foreign currency leverage are a potential key source of vulnerability in the transmission of adverse shocks such as exchange rate depreciations. 

Christiane Baumeister, Lutz Kilian, 18 May 2017

The sluggish growth of the US economy after the 2014-2016 decline in the oil price surprised many economists. This column argues that it should have been expected. The modest stimulus to private consumption and non-oil business investment was largely offset by a large decline in investment by the oil sector. Growth was further slowed by a simultaneous global economic slowdown, reflected in lower US exports. 

Marco Buti, José Leandro, Katia Berti, 12 May 2017

As the recovery in the Eurozone approaches its fifth year, this column presents the latest economic forecast from the European Commission, which projects a continuation of the recovery at a steady pace (1.7% in 2017 and 1.8% in 2018). Nevertheless, over the next two years, wage growth is expected to remain constrained, the investment gap is expected to persist, the current account surplus is forecast to remain high, and core inflation to stay subdued. This suggests that there is still scope for higher growth without triggering inflationary pressures, and the Spring forecast shows that maintaining the current supportive macroeconomic policy environment is the right approach, while implementing comprehensive and productivity-enhancing structural reforms. The main immediate priority should be cleaning up the banking sector.

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