A large literature in macroeconomics shows how credit market shocks can propagate through deterioration in the value of collateral. This column decomposes debt into secured and unsecured components and investigates their effects separately. While secured debt is acyclical, unsecured debt is confirmed to predict GDP movements in accordance with the standard financial accelerator mechanism.
Costas Azariadis, Leo Kaas, Yi Wen, Saturday, April 4, 2015
George-Marios Angeletos, Fabrice Collard, Harris Dellas, Monday, March 16, 2015
The Global Crisis has forced a revaluation of the standard macroeconomic models in use worldwide. This column discusses an enrichment that include a formal concept of ‘confidence’ about the short-medium term economic outlook – one that relates to market psychology rather than expectations about technology and policy. This extension helps the model predictions better match reality. It also offers a formalisation of the popular view that depressed spending, arising from a drop in confidence, is a major cause of recessions and that recoveries often hinge on ‘restoring confidence in the economy’.
Philippe Weil, Friday, June 20, 2014
The CEPR Business Cycle Dating Committee recently concluded that there is not yet enough evidence to call a business cycle trough in the Eurozone. Instead, the committee has announced a 'prolonged pause' in the recession. This Vox Talk discusses the possible directions that this situation could lead to and questions whether the Great Recession has harmed the Eurozone’s long-term growth prospects to the extent that meagre growth could become the 'new normal'.
CEPR Business Cycle Dating Committee, Tuesday, June 17, 2014
The simplest business cycle dating algorithm declares recessions over after two consecutive quarters of positive GDP growth. By that metric, the Eurozone recession has been over since 2013Q1. This column argues that growth and improvements in the labour market have been so anaemic that it is too early to call the end of the Eurozone recession. Indeed, if this is what an expansion looks like, then the state of the Eurozone economy might be even worse than economists feared.
Chiara Criscuolo, Peter N. Gal, Carlo Menon, Monday, May 26, 2014
Young firms are known to play a central role in job creation. This column presents the results of a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data. It confirms that young firms play a central role in creating jobs, and in enhancing growth and innovation. Public policies can help by enabling firms to experiment, and by fostering the reallocation of resources towards the most productive firms. Structural reforms to product, labour, and capital markets, as well as bankruptcy laws that do not overly penalise failure, are particularly relevant.
Ayako Saiki, Sunghyun Henry Kim, Sunday, February 2, 2014
Before the introduction of the euro, it was hoped that by promoting increased intra-regional trade it would increase business-cycle synchronisation within the Eurozone, and thus help it to fulfil the criteria for an optimum currency area. This column presents recent research that compares the evolution of business-cycle synchronisation in the Eurozone and east Asia. While the euro has had some impact on business-cycle synchronisation in the Eurozone, it has done so not through increased intra-regional trade intensity, but rather through some other channel – most likely financial integration.
Ian Dew-Becker, Stefano Giglio, Sunday, October 20, 2013
Stabilisation policy should focus on the frequencies consumers care most about. This column presents evidence from stock-market returns suggesting that consumers are willing to pay the most to avoid – and are therefore most concerned about – fluctuations that last tens or hundreds of years. Modern macroeconomic theory tends to view the role of monetary policy as smoothing out inflation and unemployment over the business cycle. The authors’ findings suggest that resources would be better spent on policies that smooth out longer-run fluctuations.
Òscar Jordà, Moritz Schularick, Alan Taylor, Friday, October 18, 2013
In the aftermath of the global financial crisis, few would dispute the risks of excessive borrowing. But which debts should one worry about – public or private? This column presents new research on the interplay of public and private debts since 1870 in 17 advanced economies. History demonstrates that excessive private-sector borrowing plays a greater role than fiscal profligacy in generating financial instability. However, when the credit boom collapses, the government’s capacity to alleviate the downturn is limited by the prevailing level of public debt.
Carlos A. Vegh , Guillermo Vuletin, Tuesday, October 1, 2013
Government spending is procyclical in developing countries, exacerbating the business cycle. However, an analysis of tax policy is also required in order to properly assess the overall stance of fiscal policy. This column presents recent research showing that tax policy tends to be procyclical in developing countries and acyclical in developed countries. Although some developing countries have managed to escape the procyclical fiscal policy trap, some developed nations – notably Eurozone members – are falling into it.
Peter N. Gal, Gabor Pinter, Saturday, September 21, 2013
Renting capital goods makes up 20% of total capital expenses by US companies and this type of capital spending increases in downturns. This column discusses research showing that the systematic pattern of corporate leasing can be linked to credit constraints. This means that a robust rental sector has the potential to mitigate the negative effects of financial disruptions when obtaining credit becomes difficult.
Philippe Weil, Monday, November 19, 2012
Philippe Weil, newly appointed Chair of CEPR’s Euro Area Business Cycle Dating Committee, talks to Viv Davies about the Committee’s recent announcement of a peak in economic activity in the Eurozone in the third quarter of 2011 and that the Eurozone has been in recession since then. They discuss the issue of heterogeneity of business cycles of Eurozone countries, the likely impact of subsequent data revisions, and future plans for the Dating Committee. The interview was recorded on 16 November 2012. [Also read the transcript]
Wouter den Haan, Vincent Sterk, Tuesday, November 8, 2011
Financial institutions played a leading role in the global crisis, and policymakers are under pressure to do something about them. This column argues that before any draconian measures are passed, we need to be reminded of the benefits of the financial sector and the innovation it provides.
Lee E. Ohanian, Andrea Raffo, Sunday, October 16, 2011
During the Great Recession, output in the US fell slightly less than in Germany while total hours worked fell nearly 8% in the US but only 1% in Germany. This column constructs a new dataset for total hours worked per quarter for the last 50 years in 14 OECD countries to check whether these patterns are consistent with previous historical episodes. It then suggests the labour-market weakness in the US may be fundamentally tied to the large decline in housing.
Andrew K Rose, Saturday, August 1, 2009
Less synchronised business cycles would be good news for the world economy, allowing for more stable global growth and opportunities for risk-sharing across countries. However, is decoupling fact or fiction? This column says that, contrary to much current commentary, there is no downward trend in synchronisation.
Sébastien Wälti, Monday, July 27, 2009
Have emerging market economies decoupled from advanced economies’ business cycles? This column, looking at emerging markets’ trend growth rates, argues that decoupling was always a myth and that globalisation brings national business cycles closer together.
Michael J. Artis, Toshihiro Okubo, Wednesday, January 28, 2009
This column shows that globalisation reduces business cycle differences between countries– and that this feature is more marked in the current globalisation era than the first.
Michele Lenza, Lucrezia Reichlin, Domenico Giannone, Thursday, January 15, 2009
This column argues that the introduction of the euro has not changed the historical pattern of member countries’ business cycle correlations. The IMF outlook for economic activity over the next few years implies that the current recession will not change it either.
Tommaso Monacelli, Roberto Cardarelli, Alessandro Rebucci, Luca Sala, Saturday, April 26, 2008
Recent housing finance innovations have changed the relationship between house prices and the business cycle. This column suggests that these changes amplify spillovers from the housing sector to the rest of the economy and recommends that monetary policy respond more aggressively to the housing market.
Yoonsoo Lee, Toshihiko Mukoyama, Monday, January 7, 2008
It is commonly believed that business cycles ‘cleanse’ industry with waves of creative destruction. New research shows that entry is higher in booms than busts, but exit rates and the type of exiting firms, are steady over the cycle. Plants entering during recessions, however, are larger and more productive –‘creative entry’ rather than ‘creative destruction’.