Macroeconomic policy

Mark Cliffe, 19 May 2016

The idea that the global economy has entered a low-growth equilibrium appears to have gained acceptance. This column argues that this ‘New Normal’ never was, isn’t, and should be replaced by the ‘New Abnormal’. Far from being an equilibrium, the low growth recorded in the West since the nadir of the financial crisis in 2009 has only been achieved by progressively more aggressive and unprecedented monetary policy actions in response to a series of panic attacks in the financial markets. The aftershocks of the crisis are colliding with a series of structural changes which leave the global economy in a state of latent instability. 

Roel Beetsma, Xavier Debrun, 16 May 2016

The success of independent central banks is often used to argue in favour of independent fiscal councils with the aim of promoting sound fiscal policies. But unlike central banks, fiscal councils have no policy levers to pull – they can bark but never bite. This column explores the theoretical foundations and practical implications of fiscal councils. The evidence suggests that independent councils can mitigate the deficit bias. They do this by subjecting the ‘fiscal alchemy’ to systematic, rigorous, and highly publicised scrutiny.

Barry Eichengreen, Poonam Gupta, 13 May 2016

The recent reversal of capital flows to emerging markets has pointed to the continuing relevance of the sudden stop problem.  This column analyses the sudden stops in capital flows to emerging markets since 1991. It shows that the frequency and duration of sudden stops have remained largely unchanged, but that global factors have become more important in their incidence.  Stronger macroeconomic and financial frameworks have allowed policymakers to respond more flexibly, but these more flexible responses have not guaranteed insulation or significantly mitigated the impact.

Ron Anderson, 09 May 2016

Since the onset of the Global Crisis in 2007-08, stress testing has emerged as a major component of the supervisory toolkit. This column introduces a new CEPR Press eBook that presents the perspectives of policymakers, stress test designers and academics on the remarkable development of a tool which ten years ago was little known.

Jean-Pierre Danthine, 04 May 2016

Since the Eurozone Crisis a host of monetary and fiscal instruments have been used to try to reinvigorate growth and achieve financial stability, with mixed results. Basel III’s counter-cyclical capital buffer (CCB) is one such instrument which was met with scepticism. This column uses evidence from the Swiss economy to show that given the right circumstances and political will, the CCB can achieve financial stability.

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