Macroeconomic policy

Shigeru Fujita, Ippei Fujiwara, 14 October 2021

The Japanese economy has experienced a prolonged slowdown in growth and persistent declines in the real interest rate, while at the same time the country’s labour force has been rapidly ageing. This column explores a novel causal link between the ageing labour force and the low-frequency declining trend in the real interest rate since the 1970s, and suggests that the ageing of the labour force accounts for 40% or more of the declines in the real interest rate observed between the 1980s and 2000s in Japan.

Marco Buti, Marcello Messori, 13 October 2021

The way European policymakers solve the policy mix trilemma of asymmetric fiscal rules, no central fiscal capacity and constrained monetary policy in the post-pandemic economy will define the resilience of the euro area in the face of future shocks and the transition to a more sustainable growth model. In a new CEPR Policy Insight, the authors argue that moving to a structured vertical coordination between national and EU budgets would help ensure an adequate fiscal stance and avoid the overburdening of the single monetary policy.    

Mirco Balatti, Juan Carluccio, Francesco Chiacchio, Nuno Coimbra, Susana Parraga, Daniele Siena, Sebastian Stumpner, Fabrizio Venditti, Tina Žumer, 11 October 2021

Since the start of the pandemic, inflation has re-entered mainstream discussion. This column reviews the analysis of globalisation and inflation conducted in the context of the ECB strategy review. Although global factors (mainly commodity prices) matter for inflation synchronisation, their role in lowering both inflation and its sensitivity to the business cycle in advanced economies has been limited since the late 1980s. Global shocks can exert temporary pressure on price dynamics, but the destiny of inflation remains in the hands of central banks.

Armand Fouejieu, Alvar Kangur, Samuel Romero Martinez, Mauricio Soto, 02 October 2021

The past three decades have witnessed reform efforts to contain pension expenditures, the cost of which is born mostly by younger generations. This column assesses the sustainability, fairness, and intergenerational equity of pension systems in Europe by comparing the pension contributions and benefits over the lifetime of different cohorts. Reforms legislated in the decade from the onset of the Global Crisis reduced the lifetime benefit-contribution ratio by nearly 25% for younger generations. However, subsequent policy reversals have partly eroded these gains, suggesting additional reforms are needed.

Bruno Albuquerque, 28 September 2021

Corporate debt has increased substantially in many parts of the world during the pandemic, raising concerns about the effects on investment in the aftermath of the COVID-19 shock. This column uses data for a large panel of US firms to investigate the implications of firm-specific debt booms for investment. It finds that debt booms lead financially constrained firms to decrease capital expenditures and intangibles, underscoring the importance of dealing with debt overhang for managing the US recovery.

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