Charles Goodhart, Philipp Erfurth, 04 November 2014

Most of the world is now at the point where the support ratio is becoming adverse, and the growth of the global workforce is slowing. This column argues that these changes will have profound and negative effects on economic growth. This implies that negative real interest rates are not the new normal, but rather an extreme artefact of a series of trends, several of which are coming to an end. By 2025, real interest rates should have returned to their historical equilibrium value of around 2.5–3%.

Charles Goodhart, Philipp Erfurth, 03 November 2014

There has been a long-term downward trend in labour’s share of national income, depressing both demand and inflation, and thus prompting ever more expansionary monetary policies. This column argues that, while understandable in 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. The authors propose policies to raise the share of equity finance in housing markets; such reforms could be extended to other sectors of the economy.

Olivier Coibion, Yuriy Gorodnichenko, Lorenz Kueng, John Silvia, 25 October 2014

There are several conflicting channels through which monetary policy could affect the distribution of wealth, income, and consumption. This column argues that contractionary monetary policy raised inequality in the US, while expansionary monetary policy lowered it. This evidence stresses the need for monetary policy models that take into account heterogeneity across households. Current monetary policy models may significantly understate the welfare costs of zero-bound episodes.   

Scott Baker, 19 January 2014

The dramatic fall in consumption during the Great Recession was accompanied by an equally dramatic increase in household debt in the years preceding it. This column examines the relationship between household debt and consumption behaviour, and the channels through which this link operates. The column concludes that the relationship is driven almost entirely by the presence of financial constraints, such as liquidity or borrowing limits.

Petra Gerlach-Kristen, Rossana Merola, Conor O'Toole, 01 December 2013

Households tend to smooth their consumption and that’s why expenditures do not display a large variability over time. However, the recent financial crisis has been associated with a large decrease in consumption in certain countries. This column presents evidence that a drop in income during a crisis leads to a lower short-run consumption. Furthermore, micro data analysis shows that some households are affected more than others. Thus, policy recommendations can be made only after taking household heterogeneity into account.

Tullio Jappelli, Luigi Pistaferri, 23 March 2013

Crisis-stricken governments have enacted large stimulus packages to counteract the recent recession. But how are these financed, and are consumers responding? This column argues that we must understand marginal propensity to consume in order to optimally design fiscal policy, outlining new research on how to get the best measurements. Through several policy simulations, it’s clear how important it is to truly understand the relationship between stimulus packages and marginal propensities to consume.

Yiping Huang, 17 February 2012

The international community, and particularly policymakers in the US, put great expectations on the contribution that China can make to a global economic recovery by rebalancing its economy through promoting consumption growth. This column, drawing on both official and unofficial data, argues that China’s long-awaited economic rebalancing is already well under way.

Sheldon Garon, 06 January 2012

Sheldon Garon of Princeton University talks to Romesh Vaitilingam about his book, ‘Beyond Our Means: Why America Spends While the World Saves’. He contrasts continental European and East Asian countries, which have over many decades encouraged their citizens to save, with the US, which has promoted mass consumption and reliance on credit, culminating in the global financial meltdown. The interview was recorded in London in November 2011. [Also read the transcript]

Aloysius Siow, 24 December 2010

Menopause – or post-reproductive survival – is rare among mammals and, from an evolutionary perspective, anomalous since it reduces consumption for current offspring without producing future offspring. Aloysius Siow of the University of Toronto talks to Romesh Vaitilingam about his theory of menopause, which is based on the fact that, unlike other mammals, humans understand the reproductive process. The interview was recorded at the Centre for Market and Public Organisation in Bristol in October 2010. [Also read the transcript]

Tullio Jappelli, Luigi Pistaferri, 02 April 2010

How does consumption respond to a change in income – whether expected or unexpected, temporary or permanent? This column reviews evidence from diverse sources and suggests that if financial market arrangements and liquidity constraints are binding, even changes in income that are predictable can have a significant effect on consumption. This supports the idea that tax changes can have a considerable impact on expenditure.

Ashoka Mody, Franziska Ohnsorge, 17 February 2010

Just how important is consumption for growth? This column suggests that consumption trends in the G7 economies have significant short-term and long-term implications for global growth and global imbalances. For sustained rebalancing of the global economy, however, investment behaviour may be more important.

Robert Flood, Akito Matsumoto, Nancy Marion, 12 January 2010

Financial globalisation makes it easier for individuals to trade financial assets, and that should help them diversify against country-specific risks. But empirical support for improved international risk sharing is limited. This column says that there is evidence of improved international risk sharing, and it comes mostly from the convergence in rates of consumption growth among countries.

Charles Calomiris, William Miles, Stanley Longhofer, 06 July 2009

Economists have expressed fears over the macroeconomic consequences of falling home prices dragging down consumption in the US and other nations. This column says that housing values and consumption are indeed correlated, but once one takes into account the fact that housing price changes may be acting as a proxy for future expected income, the measured housing wealth effect, if it exists at all, is much smaller than popularly believed. That finding suggests that changes in housing wealth have little effect on consumption.

Giancarlo Corsetti, Panagiotis Konstantinou, 18 February 2009

The US net international investment position declined by an astounding magnitude in 2008. Does that imply a massive contraction in US consumption? This column provides empirical evidence that large swings in the US current account are driven by transitory shocks that don’t significantly alter consumption.

John Muellbauer, 20 July 2008

Recent empirical estimates of the housing wealth effect suggest that a UK recession will be hard to avoid. With the housing-wealth decline compounded by falling equity prices and inflation-eroded real incomes, a drop in consumption is in the offing. The US situation could be even worse.

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