Time to scrap the Stability and Growth Pact

Paolo Manasse 01 December 2014

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In recent years the European fiscal framework has undergone important reforms (see Frayne and Riso 2013). In 2005, the Stability and Growth Pact was amended in order to take country-specific considerations and economic conditions into account.

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Topics:  EU policies Macroeconomic policy

Tags:  eurozone, Stability and Growth Pact, fiscal policy, fiscal rules, convergence, fiscal discipline, Fiscal Compact Treaty, debt sustainability

How to climb a mountain with both hands tied

Jean Pisani-Ferry 07 November 2014

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Against the background of lacklustre global demand, economic growth in Europe has weakened again. In the Eurozone, a third recession in less than seven years is a distinct possibility. Yet economic policy looks powerless. On the monetary side, although the ECB may still embark on a genuine programme of quantitative easing, such action is unlikely to deliver a major boost because the benchmark 10-year government bonds already yield just 1%.

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Topics:  Environment EU policies Macroeconomic policy Microeconomic regulation

Tags:  Europe, eurozone, recession, stimulus, monetary policy, quantitative easing, fiscal policy, structural reforms, labour market reforms, liquidity trap, investment, Cash for clunkers, scrapping subsidies, environment, regulation, emissions standards

Monetary policy and long-term trends

Charles A.E. Goodhart, Philipp Erfurth 03 November 2014

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Introduction

There has been a long-term downward trend in the share and strength of labour in national income, which is depressing both demand and inflation. This has prompted ever more expansionary monetary policies. While understandable, indeed appropriate, within a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance (leverage).

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Topics:  Financial markets Macroeconomic policy Monetary policy

Tags:  monetary policy, Inequality, debt, leverage, wages, labour share, globalisation, consumption, propensity to consume, fiscal policy, Ageing, interest rates, investment, asset prices, housing, house prices, exchange rates, global crisis, mortgages, sub-prime crisis, Macroprudential policy, structural reforms, balance sheets, deleveraging, equity, shared-equity mortgages, Help to Buy

The impact of the maturity of US government debt on forward rates and the term premium: New results from old data

Jagjit Chadha 02 November 2014

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Revisiting the supply effect

The question of the impact of the stock and maturity of net government debt on longer-term US Treasury yields, and the potential implications for central bank balance sheet policies, matters for monetary policy.

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Topics:  Financial markets Macroeconomic policy Monetary policy

Tags:  public debt, yield curve, debt maturity, term premia, interest rates, open market operations, monetary policy, QE, US, Federal Reserve, market segmentation, Greenspan Conundrum, debt management, fiscal policy, unconventional monetary policy

The halo of victory: What Americans learned from World War I

Hugh Rockoff 04 October 2014

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World War I had important consequences for the structure of the US economy and its role in the world economy. This was especially true in the world of finance. The US transitioned from being a debtor nation to a creditor nation, and financial leadership moved from London to New York. But equally important were the lessons that Americans drew from the war. Although the war had much to teach, Americans tended, I will argue below, to learn too much from the war, drawing strong conclusions from a war in which the US was actively engaged for only 19 months.

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Topics:  Competition policy Economic history

Tags:  World War I, WWI, planning, rationing, New Deal, Great Depression, fiscal policy, monetary policy, stimulus, financial crisis, conscription, inflation, unemployment, price controls, Competition policy, antitrust, National Industrial Recovery Act

Where danger lurks

Olivier Blanchard 03 October 2014

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Until the 2008 global financial crisis, mainstream US macroeconomics had taken an increasingly benign view of economic fluctuations in output and employment. The crisis has made it clear that this view was wrong and that there is a need for a deep reassessment.

The benign view reflected both factors internal to economics and an external economic environment that for years seemed indeed increasingly benign.

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Topics:  Macroeconomic policy Monetary policy

Tags:  macroeconomics, global crisis, great moderation, rational expectations, nonlinearities, fluctuations, business cycle, monetary policy, inflation, bank runs, deposit insurance, sudden stops, capital flows, liquidity, maturity mismatch, zero lower bound, liquidity trap, capital requirements, credit constraints, precautionary savings, housing boom, Credit crunch, unconventional monetary policy, fiscal policy, sovereign default, diabolical loop, deflation, debt deflation, financial regulation, regulatory arbitrage, DSGE models

Eurozone recovery: there are no shortcuts

Roberto Perotti 13 September 2014

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The consensus is increasing that austerity has not worked – Europe stands on the edge of deflation and suffers from a deficit of demand. A recent VoxEU proposal (Giavazzi and Tabellini 2014) offers a solution that is widely shared on both sides of the Atlantic – all Eurozone countries should cut taxes simultaneously by 5% of GDP, and the ECB should buy the extra debt without sterilisation. This should be accompanied by a credible plan to reduce government spending in the future.

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Topics:  Macroeconomic policy Monetary policy

Tags:  austerity, eurozone, monetary policy, helicopter money, quantitative easing, QE, stimulus, fiscal consolidation, fiscal policy, spending cuts, fiscal sustainability, debt monetisation

Did the Cash for Clunkers stimulus programme reduce new vehicle spending?

Mark Hoekstra, Steve Puller, Jeremy West 03 September 2014

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Cash for Clunkers as stimulus

There has been significant debate about the role of various federal fiscal and monetary policies during recessions. Among the fiscal stimulus programmes, however, one seemed to hold particular promise. The Car Allowance Rebate System (CARS), better known as Cash for Clunkers, provided subsidies of up to $4,500 to households who scrapped their existing ‘clunker’ and purchased a new, fuel-efficient vehicle. Subsidies totalled nearly $3 billion.

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Topics:  Energy Environment Macroeconomic policy

Tags:  Cash for clunkers, scrapping subsidies, stimulus, environment, fuel efficiency, fiscal policy, cars, Auto industry

How to jumpstart the Eurozone economy

Francesco Giavazzi, Guido Tabellini 21 August 2014

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The mantra is that once again it is up to the ECB to save the Eurozone. Quantitative easing is the last policy tool available to jumpstart the Eurozone economy. The longer the ECB waits before starting to buy government bonds, the further away will the recovery be. This analysis, however, overestimates the power of monetary policy.

Quantitative easing should take place, but together with fiscal easing

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  ECB, monetary policy, fiscal policy, quantitative easing, public debt, aggregate demand, Eurozone economy, stagnation

Pension reform and equity

Benedict Clements, Csaba Feher, Sanjeev Gupta 17 July 2014

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Pension reform remains a critical fiscal policy challenge for advanced and emerging market economies. Despite reform efforts in these economies – which have focused on raising retirement ages and reducing benefits – spending is expected to rise as a share of GDP over the medium-term (EC 2012, Merola and Sutherland 2013). But pension reforms, to be politically acceptable, must also be perceived as fair. This column examines key equity challenges in the design of pension reforms, drawing on a new book published by the IMF (Clements, Eich, and Gupta 2014).

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Topics:  Poverty and income inequality

Tags:  redistribution, fiscal policy

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