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.

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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

Revisiting the pain in Spain

Paul De Grauwe 07 July 2014

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The different macroeconomic adjustment dynamics in Spain – a member of a monetary union – and the UK – a stand-alone country – is stark. Paul Krugman popularised this contrast in his New York Times blog with the title “The Pain in Spain” (Krugman 2009, 2011), and commented on my own analysis in De Grauwe (2011).

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Topics:  Europe's nations and regions Global crisis Macroeconomic policy

Tags:  ECB, monetary policy, euro, EMU, Spain, monetary union, fiscal policy, UK, government debt, austerity, EZ crisis, Outright Monetary Transactions, currency depreciation

The social impact of fiscal policy responses to crises

Carlos A. Vegh , Guillermo Vuletin 12 June 2014

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Fiscal policy in many developing countries is typically procyclical. Expansionary in good times and contractionary in bad times, these policies often amplify business cycles. The most convincing explanations for such practices seem to be limited access to international credit markets during bad times and political pressures that tend to encourage too much public spending during boom periods (Calderon and Schmidt-Hebbel 2008). Whatever the reason, the pattern is well documented (see Frankel, Vegh, and Vuletin 2011 on the spending side and Vegh and Vuletin 2013a on the tax side).

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Topics:  Macroeconomic policy

Tags:  fiscal policy, business cycle, austerity, cyclicality, LAC-7

Taxing, spending, and inequality – what is to be done?

Benedict Clements, David Coady, Ruud de Mooij, Sanjeev Gupta 15 April 2014

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The causes and consequences of rising inequality have attracted considerable attention, including the recent study by Thomas Piketty (2014). This has also touched off a lively debate on the appropriate policy response to rising disparities in income and wealth (Mankiw 2013, Berg, Ostry, and Tsangarides 2014). But this is just one of the many challenges facing ministers of finance – reducing public debt ratios and raising growth are also priorities. So what’s a minister to do?

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Topics:  Poverty and income inequality Taxation

Tags:  income inequality, redistribution, fiscal policy

Fiscal adjustment and growth: Beware of the credit constraints

Emanuele Baldacci, Sanjeev Gupta, Carlos Mulas-Granados 31 March 2014

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In the aftermath of the recent financial crisis, the discussion of the effects of fiscal adjustment on economic growth has intensified. While some scholars have focused on the characteristics of the fiscal consolidation needed to bring public debt down from historically high levels, others have examined the effects of alternative strategies on economic performance. The VoxEU debate aptly covered in “Has Austerity Gone Too Far?” (Corsetti 2012) sums up the conflicting positions.

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Topics:  Financial markets Macroeconomic policy

Tags:  financial crisis, fiscal policy, deleveraging, fiscal consolidation, debt, credit constraints, austerity

Delivering the Eurozone ‘Consistent Trinity’

Marco Buti, Maria Demertzis, João Nogueira Martins 30 March 2014

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As argued in an earlier commentary, the financial crisis exposed important economic inconsistencies in the way that EMU operated.1 Although progress has been made, the reality is that more needs to be done. A number of countries still need to consolidate their public finances further, and also implement structural reforms to promote growth and sustain satisfactory welfare systems. At the same time, there is a need for vulnerable countries to ensure consistency between regaining competitiveness and the sustainability of private and public debts.

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  eurozone, euro, EMU, imbalances, fiscal policy, structural reforms, fiscal consolidation, debt, Eurozone crisis, Stability and Growth Pact, banking union, internal devaluation

A fiscal shock absorber for the Eurozone? Lessons from the economics of insurance

Daniel Gros 19 March 2014

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Even before the euro crisis started, it had been widely argued that the Eurozone needed a mechanism to help countries overcome idiosyncratic shocks. The experience of the crisis itself seemed to make this case overwhelming, and throughout the EU institutions it is now taken for granted that the Eurozone needs a system of fiscal shock absorbers. For example, The Report of the President of the European Council calls for:

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Topics:  EU institutions Macroeconomic policy Welfare state and social Europe

Tags:  eurozone, euro, insurance, fiscal policy, Eurozone crisis, fiscal union, fiscal shocks, fiscal shock absorbers

Why fiscal sustainability matters

Willem Buiter 10 January 2014

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Does fiscal sustainability matter only when there is a fiscal house on fire, as was the case with the Greek sovereign insolvency in 2011–12? Far from it.

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Topics:  Financial markets Global crisis International finance Macroeconomic policy

Tags:  eurozone, sovereign debt, capital flows, financial crisis, credit booms, fiscal policy, emerging markets, global financial crisis, banking, banks, Eurozone crisis, Currency wars, fiscal sustainability, banking union, sovereign debt restructuring, balance-sheet recession

Catenarian fiscal discipline

Hans Gersbach 04 January 2014

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Limiting the accumulation of public debt in democracies has always been a problem, but it has become a particularly pressing one in the last few decades. While there are normative justifications for public debt-making – such as letting automatic stabilisers and tax-smoothing measures operate (Barro 1979) – political processes tend to push public debt to levels that are likely to be socially undesirable.

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Topics:  Macroeconomic policy

Tags:  democracy, fiscal policy, debt, time inconsistency, fiscal discipline

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