Macroeconomic policy

Otaviano Canuto, Francisco Carneiro, Leonardo Garrido, 01 July 2015

Industrialised and developing countries have differing fiscal strategies for dealing with the business cycle. But are countries’ strategies different according to whether they are industrialised? This column presents new evidence suggesting that the picture is complex. Procyclical fiscal policies remain the norm amongst most non-industrialised developing countries, but some key developing countries have recently moved toward a counter-cyclical stance as a result of strengthening institutions.

Minouche Shafik, 25 June 2015

UK long-term yields are extraordinarily low. This could be interpreted as financial markets expecting prolonged low growth or low inflation, or both. This column argues that this view is overly gloomy. Factors pulling down today’s inflation are unlikely to be permanent, and the economic headwinds should ease gradually. Additionally, a return to productivity growth should facilitate faster potential output growth over the long term. A more likely interpretation is that low yields reflect precautionary actions by public and private financial-market participants to reduce vulnerabilities to adverse outcomes.

Giovanni Caggiano, Efrem Castelnuovo, 23 June 2015

There is no consensus on the effectiveness of government spending as a measure for boosting output. This column suggests that increasing government spending is highly effective exactly when it is most needed – when the economy is experiencing a deep recession. But the finding does not imply a one-size-fits-all recommendation. There are potential dangers in increasing spending in countries whose level of debt might be perceived as unsustainable.

Jonathan D Ostry, Atish R Ghosh, Raphael Espinoza, 22 June 2015

High public debt ratios dominate today's fiscal policy discussions. This column argues that paying down the debt involves a trade-off that balances the gains from the insurance value of low debt against the costs of an insurance premium – higher distortionary taxation. When countries have fiscal space and no real prospect of a sovereign crisis, the cost of bringing down the debt is likely to exceed the crisis-insurance benefit. The best policy might be to simply live with higher debt.

Richard Baldwin, 21 June 2015

Vox columnists have posted a steady stream of research-based policy analysis and commentary on the Greek Crisis. This column provides a list of all the relevant columns posted since the beginning of 2015.

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