Macroeconomic policy

Robert Shiller, Jonathan D. Ostry, James Benford, Mark Joy, 16 March 2018

While the idea of governments issuing debt instruments whose repayments are indexed to GDP is not new, the current global backdrop of high government debt suggests the case for doing so might be especially strong now. This column introduces a new eBook in which leading economists, lawyers, and investors examine the case for issuing GDP-linked bonds, the obstacles to market development, ways of overcoming them, and what such a security might look like in practice.

Irina Stanga, Razvan Vlahu, Jakob de Haan, 15 March 2018

Mortgage delinquency triggered the liquidity crisis that turned into the Global Crisis. Ten years on, mortgage lending still accounts for a large share of both household debt and banks’ assets. This column examines the incidence of mortgage arrears using a dataset for 26 countries from 2000 to 2014. The results show that higher unemployment is associated with an increase in defaults, while higher house prices have a strong negative association with defaults. The analysis suggests that dealing effectively with mortgage default requires a mix of prudential regulation and institutional design improvements.

Sanjeev Gupta, Michael Keen, Alpa Shah, Geneviève Verdier, 07 March 2018

Digitalisation has vastly increased our ability to collect and exploit the information that governments use to implement macroeconomic policy. The column argues that the ability of governments to use the vast amounts of information held in the private sector on financial transactions are already making fiscal policy more efficient and effective. Problems of access to digital technology, cybersecurity risks, and the difficulty of organisational change in the public sector may slow the pace at which these opportunities are exploited.

Kevin Daly, Loughlan O'Doherty, 05 March 2018

Recent years have seen emerging market economy inflation rates converge towards developed economy rates, as well as convergence between emerging markets. The sustained improved inflation performance in emerging markets has occurred even as unemployment in many of these economies has fallen to record lows. This column attributes the improved performance to two factors: increases in monetary policy credibility following the widespread introduction of inflation targeting, and a reduction in the frequency of emerging market currency crises, reflecting a secular improvement in their balance sheets.

Rüdiger Bachmann, Peter Zorn, 02 March 2018

A long-standing question in macroeconomic research pertains to the causes of business cycle fluctuations in macroeconomic variables like output and investment. This column uses survey data from the German manufacturing sector to show that aggregate variations in investment and output are mainly due to aggregate demand shocks. These shocks resemble swings in business and consumer sentiment but, for the most part, have no obvious relation to macroeconomic policy.

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