Macroeconomics

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Lead Commentaries

The US net international investment position declined by an astounding magnitude in 2008. Does that imply a massive contraction in US consumption? This column provides empirical evidence that large swings in the US current account are driven by transitory shocks that don’t significantly alter consumption.

The global crisis demands bold initiatives to i) rescue the financial sector, and ii) boost aggregate demand, with early resolution of financial sector problems being a necessary condition for the stimulus to work. Since monetary policy is at the end of its rope, early, strong, and carefully thought-out fiscal policies are urgently needed. Time and action are of the essence if we are to avoid a contraction larger than any we’ve seen since the 1930s.

Jonathan Portes, 02 April 2009

The long awaited London Summit of G20 leaders took place on April 2. This column – written by a senior economist working within the UK government on the Summit – sets out the background, what was agreed, and what will happen as a result.

Frank Warnock, 12 February 2009

Global finance is made more fragile by the inability of most nations to borrow in their own currencies. This means depreciations often lead to debt and/or banking crises, and it encourages global imbalances. Capital flows out of emerging markets into US debt securities, returning to those same nations in the form of corporate and sovereign borrowing, with this roundtrip adding a currency and maturity mismatch. Encouraging the development of local currency bond markets would be one way of reducing the global financial system’s instability.

This column updates the original Vox columns by Barry Eichengreen and Kevin O’Rourke comparing today’s global crisis to the Great Depression. The three previous columns have shattered all Vox readership records with over 450,000 views. This latest edition covers up to February 2010 showing that, while there is cause for optimism, there is no room for complacency.

Gian Maria Milesi-Ferretti, 28 January 2009

The crisis has produced a number of highly unusual macroeconomic effects. Preliminary estimates suggest that the US net international investment position deteriorated by over $2 trillion over 2008 − some 15% of GDP. This column explores the reasons for this unprecedented worsening.

Olivier Jeanne, 03 March 2009

This column proposes the organisation of a round of "multilateral consultation", under the auspices of the IMF, on how to avoid worldwide deflation. Ineffective fiscal and financial policies mean that attention will inevitably return to monetary policy – policymakers should be prepared. Getting the main central banks to agree on a basic set of principles would reduce the fog of Knightian uncertainty prolonging the crisis.

Ricardo Caballero, 05 March 2009

The Obama team’s strong words are followed by policies focused on getting a ‘deal’ for taxpayers. Here one of the world’s leading macroeconomists argues that squeezing current stakeholders for political appearance is short-sighted and self-defeating. Until the systemic panic is alleviated, the crisis will continue. This requires the investment of massive political capital right now; we are running out of time.

The US net international investment position declined by an astounding magnitude in 2008. Does that imply a massive contraction in US consumption? This column provides empirical evidence that large swings in the US current account are driven by transitory shocks that don’t significantly alter consumption.

The global crisis demands bold initiatives to i) rescue the financial sector, and ii) boost aggregate demand, with early resolution of financial sector problems being a necessary condition for the stimulus to work. Since monetary policy is at the end of its rope, early, strong, and carefully thought-out fiscal policies are urgently needed. Time and action are of the essence if we are to avoid a contraction larger than any we’ve seen since the 1930s.

The global crisis demands bold initiatives to i) rescue the financial sector, and ii) boost aggregate demand, with early resolution of financial sector problems being a necessary condition for the stimulus to work. Since monetary policy is at the end of its rope, early, strong, and carefully thought-out fiscal policies are urgently needed. Time and action are of the essence if we are to avoid a contraction larger than any we’ve seen since the 1930s.

Avinash Persaud, 03 April 2009

Did the Summit succeed? This column argues that the G20 Summit is not the turning point, but it provides the strongest reason yet to be less pessimistic. The commitments may leave plenty of room for the devil to make mischief with, but it is hard to think what more the G20 could have done. Gordon Brown has pulled some large rabbits from his hat.

Eswar Prasad, 28 January 2009

The crisis has shattered predictions on the unravelling of global macroeconomic imbalances. The US dollar has resisted rather well, US treasury bonds remain the safe-heaven investment of choice, and the world economy still seems tied to US demand. These elements point to the intensification of global macroeconomic imbalances during the recovery of the global economy. This column proposes global solutions to avoid a new derailment

Philip Lane, 26 March 2009

This column provides a tour of the main ideas discussed in the Macroeconomic theme of the Global Crisis Debate on VoxEU.org. Bottom line: fighting the current crisis and preventing future crises requires a holistic approach that tackles both short-term macroeconomic policy imperatives and longer-term institutional reforms. It is a false choice to argue that the upcoming summit should focus on one or the other. Fixing this crisis without redressing global imbalances may be setting the stage for the next crisis – a dollar collapse.

Richard Clarida, 16 March 2009

Policymakers have committed substantial sums to addressing the global recession and the global financial crisis, but there is real doubt about their effectiveness. This column explains why the fiscal stimulus might fail.

Charles Wyplosz, 21 February 2009

Some European governments are contemplating bailouts of other European governments. This column argues that violating the Eurozone’s no-bailout clause this soon would be a mistake. Much as it was necessary to let Lehman Brothers go down before bailing out the remaining banks, it may be necessary to let a profligate government default and ask for IMF assistance.

Axel Leijonhufvud, 13 February 2009

This recession is different. Balance sheets of consumers, firms, and banks are under strain. The private sector is bent on reducing debt and this offsets Keynesian stimulus more than standard flow calculations would suggest. Bank deleveraging is by far the most dangerous. Fiscal stimulus will not have much effect as long as the financial system is deleveraging.

The global crisis demands bold initiatives to i) rescue the financial sector, and ii) boost aggregate demand, with early resolution of financial sector problems being a necessary condition for the stimulus to work. Since monetary policy is at the end of its rope, early, strong, and carefully thought-out fiscal policies are urgently needed. Time and action are of the essence if we are to avoid a contraction larger than any we’ve seen since the 1930s.

Charles Wyplosz, 03 April 2009

Did the Summit succeed? This column argues that, except for the promises of more resources for the IMF, the summit did not move the agenda forward. Doing more was probably impossible, but now national governments must do more at home, and very urgently. It would be a tragedy if the Summit outcome encouraged complacency.

Brad Setser, 28 January 2009

While national policy considerations dominate debates on macroeconomic policies, this column argues that these debates need to take into account the global consequences of their policy choices. The sum of individual macroeconomic policy choices will determine whether large imbalances remain a defining feature of the global economy – and thus the risk of future trouble.

This column updates the original Vox columns by Barry Eichengreen and Kevin O’Rourke comparing today’s global crisis to the Great Depression. The three previous columns have shattered all Vox readership records with over 450,000 views. This latest edition covers up to February 2010 showing that, while there is cause for optimism, there is no room for complacency.

Ricardo Caballero, 23 January 2009

Here is an unconventional view of what governments must do. Frozen credit markets prolong the recession and keep us on the edge of financial meltdown. The ineffectiveness of existing policy to kick-start credit markets and bank lending is due to investors’ fear of “unknown unknowns”. Ordinary restructuring-and-liquidation recipes won’t work until the government provides insurance against such systemic events. Recent actions by the US and UK get it partially right.

Guillermo Calvo, 23 March 2009

Fiscal stimulus and financial regulation cannot restore credit availability. This column argues that we need a global lender of last resort to restore liquidity. In the short run, it presses for large liquidity facilities to protect emerging market economies from the risk of damaging sudden stops of capital inflows.

Ricardo Caballero, 22 February 2009

Banks must be fixed as their troubles are at the heart of the economic recession. In this column, one of the world’s most distinguished macroeconomists suggests a radical alternative to current policies. Governments should promise to buy twice the number of outstanding bank shares in 5 years at twice their recent prices. Markets would immediately price-in this pledge, and the resulting price boom would allow banks to raise necessary capital from private sources.