Macroeconomic policy

[field_auth], 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.

[field_auth], 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. 

[field_auth], 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.

[field_auth], 07 August 2016

Policymakers use a well established traditional accounting method to analyse past paths and predict future paths of debt ratios. But the traditional accounting exercises underemphasise the role of economic growth. This column proposes a simple, extended accounting framework to recognise the importance of growth more fully and explicitly. It quantifies the role of economic growth in debt-to-GDP measurement for Ireland and Italy, who were similarly placed in 2012 but whose paths diverged significantly in subsequent years.

[field_auth], 05 August 2016

The Greek crisis is one of the worst in history, even in the context of recorded ‘trifecta’ crises – the combination of a sudden stop with output collapse, a sovereign debt crisis, and a lending boom/bust. This column quantifies the role of each of these factors to better understand the crisis and formulate appropriate policy responses. While fiscal consolidation was important in driving the drop in output, it accounted for only for half of that drop. Much of the remainder can be explained by the higher funding costs of the government and private sectors due to the sudden stop. 

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