Eric Monnet, 13 November 2020

When we compare ratios of debt to GDP, do we look closely enough at the political and financial context in which the debts were calculated? Eric Monnet of the Paris School of Economics tells Tim Phillips about how our statistical methods and assumptions have evolved.

You can find Eric's CEPR Discussion Paper on this subject here
And his chapter, The History and Politics of Public Debt Accounting in the recent book A World of Public Debts: A Political History, here

João Tovar Jalles, Luiz de Mello, 22 October 2020

Widening income disparities and slow productivity growth in many countries have rekindled interest in the policies that can deliver strong and equitable growth in output and living standards. This column presents a chronology of inclusive growth episodes, defined as increases in GDP per capita without a concomitant deterioration in the distribution of household disposable income. These episodes are more likely to occur where human capital is high, tax-benefit systems are more redistributive, productivity grows more rapidly, and labour force participation is high. Trade openness and a range of institutional factors, including political system durability and electoral regimes, also matter.

Dmitry Kuvshinov, Kaspar Zimmermann, 17 July 2020

While short-run deviations of the stock markets from the economy, such as the current COVID-induced gap, are common throughout history, stock market size should co-evolve with real activity in the long run. This column uses data from 1870-2015 for 17 countries to assess this prediction empirically. It finds that stock market size and GDP were closely linked until the 1980s but diverged markedly thereafter, with surging equity prices accompanied by stagnating growth. This long-run divergence is historically unprecedented and can be largely explained by a profit shift towards listed firms at the time of historically low discount rates.

Maarten Verwey, Björn Döhring, 07 July 2020

Forecasters agree that the economic fallout from COVID-19 has caused the sharpest drop in economic activity in Europe and globally since WWII. Just how deep the drop of activity was in the second quarter, which sectors were most strongly affected by containment measures, and how swift the rebound will be as they are gradually lifted is still very uncertain. This column describes how the European Commission’s Summer 2020 interim European Economic Forecast now estimates a deeper drop of output in the second quarter of the current year than was anticipated earlier. The recovery is also now expected to be less swift than was projected in Spring, with differences across Member States set to be more pronounced. Minimising hysteresis and avoiding persistent economic divergences within the EU and euro area requires the rapid agreement and deployment of common support measures at the EU level. The risk otherwise is of significant distortions to the internal market and of even deeper divergences between countries that could ultimately threaten the smooth functioning of the monetary union. 

David Baqaee, Emmanuel Farhi, 29 June 2020

Covid-19 is an unusual combination of supply and demand shocks. These shocks propagate through supply chains, causing different sectors to become demand-constrained or supply-constrained. This column uses a disaggregated Keynesian model to identify the shocks, classify the sectors, and draw implications for policy. Negative sectoral supply shocks and shocks to the sectoral composition of demand generate more than 7% inflation, and this inflation is kept in check by a large negative aggregate demand shock. There is considerable slack in economy, with 6% Keynesian unemployment, but it is concentrated in certain sectors. As a result, untargeted aggregate demand stimulus, while desirable, is less effective than in a typical recession. 

Joseph Stiglitz, Martine Durand, Jean-Paul Fitoussi, 29 July 2019

If what experts say has little or no relation to what people feel or can see all around them, it’s inevitable that they stop believing the experts and the politicians they advise, and look for answers elsewhere. This column introduces the work of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress, which argues that we need to develop datasets and tools to examine the factors that determine what matters for people and the places in which they live. Having the right set of indicators, and anchoring them in policy, will help close the gap between experts and ordinary people that lies at the root of today’s political crisis.

Leandro de la Escosura, 15 June 2019

The concept of human development views wellbeing as being affected by a wide range of factors including health and education. This column examines worldwide long-term wellbeing from 1870-2015 with an augmented historical human development index (AHHDI) that combines new measures of achievements in health, education, material living standards, and political freedom. It shows that world human development has steadily improved over time, although advances have been unevenly distributed across world regions.

Pascal Michaillat, Emmanuel Saez, 13 May 2019

Academics and policymakers alike have debated how to structure an optimal stimulus package since the Great Recession. This column revisits the arguments related to the size of the multiplier and the usefulness of public spending, and offers a blueprint for future stimulus packages. It finds that the relationship between the multiplier and stimulus spending is hump-shaped, and that a well-designed stimulus package should depend on the usefulness of public expenditure. The output multiplier is not a robust statistic to use, and instead the ‘unemployment multiplier’ should be used. 

Diane Coyle, 03 May 2019

The reliance on GDP as a measure of economics fails to take into account the shift to a service economy. Diane Coyle of Cambridge University proposes a better metric built around how people use their time.

Sriram Balasubramanian, 17 February 2019

There has been considerable criticism of the general reliance on GDP as an indicator of growth and development. One strand of criticism focuses on the inability of GDP to capture the subjective well-being or happiness of a populace. This column examines new growth models, paying particular attention to Bhutan, which has pursued gross national happiness, rather than GDP, since the 1970s. It finds evidence of the Easterlin paradox in Bhutan, and draws out lessons for macroeconomic growth models. 

Antoine Berthou, Caroline Jardet, Daniele Siena, Urszula Szczerbowicz, 08 February 2019

Escalating tensions between the US and its trading partners have made a global trade war more likely. In addition to the direct effect due to the increase in tariffs, a trade war may also affect GDP via indirect channels, such as a drop in productivity due to uncertainty and changes in the production environment. Using a multi-country model, this column shows that a global and generalised 10 percentage point increase in tariffs could reduce the level of global GDP by almost 2.0% on impact and up to 3.0% after two years, when all the additional indirect channels materialise. 

David Comerford, Sevi Rodriguez Mora, 04 January 2019

Populists in Europe are contesting the perceived benefits of economic integration between countries. This column uses data on trade frictions to estimate the long-run impact of trade frictions on GDP if countries in Europe were to be more or less integrated. Negative between-country impacts, such as from Brexit or an EU collapse, imply a GDP reduction of between 1-3%. The potential trade benefits of a 'United States of Europe', on the other hand, may be an order of magnitude greater for its members.

Gail Cohen, Prakash Loungani, 23 October 2018

At first glance, emissions and economic activity appear to be positively linked. This column refutes this by re-examining emissions and real GDP data using trend/cycle decompositions. The evidence clearly demonstrates decoupling of emissions and real GDP in many richer nations. Furthermore, although decoupling does not yet appear in emerging markets, data from China show that trend elasticities initially increase with per capita real GDP but then decline, thus holding out the hope that the relationship between emissions and GDP growth will weaken as emerging market countries get richer.

Marco Buti, András Chabin, Björn Döhring, João Leal, 13 July 2018

Next week, after ten days of swift, flat riding, the Tour de France reaches the Alps. The European economy, meanwhile, has been pedalling uphill since the beginning of this year. 2017 was easy riding as strong global growth boosted domestic investment, but economic growth has had to move into lower gear in the first half of 2018 as this transmission is no longer working properly, and escalating trade conflicts could derail it. This column presents the European Commission’s Summer 2018 Interim Forecast, which suggests that a tightening of global financial conditions could add to the headwinds, though central banks' balance sheets will remain large for a long time, and domestic fundamentals in the euro area remain strong. 

Loukas Karabarbounis, Brent Neiman, 22 June 2018

Comparing US GDP to the sum of standard measures of payments to labour and imputations of payments to capital results in a large and volatile residual term. Using US data, this column argues that this ‘factorless income’ does not entirely reflect economic profits or unmeasured investment flows. Instead, it likely emerges due to a gap between the cost of capital that firms actually face and the Treasury yields typically used to calculate capital rental rates. These results are important for policy and for understanding historical macroeconomic trends. 

Maxim Pinkovskiy, Xavier Sala-i-Martin, 18 May 2018

Purchasing power parities have been one of the successes of economic measurement. This column asks whether these adjustments are a better measure of the underlying economy than market exchange rates, whether our successive estimates of PPP are improving, and whether we should discard past PPPs when new data become available. Using a regression of night-time lights on PPP-adjusted GDP data, it argues that the answers are yes, yes, and (for now) yes. In fact, current estimates of prices now may be better estimates of past prices than estimates of those past prices made at the time.

Richard Samans, 06 March 2018

Recent political developments in many countries suggest that most of their citizens lack confidence in the assumption of the standard growth model that everyone in a society benefits from GDP growth. This column proposes a multidimensional 'Inclusive Development Index', based on a dashboard of indicators in growth and development, inclusion, and intergenerational equity and sustainability. GDP per capita growth is weakly correlated with performance in many of the new index’s indicators, including those pertaining to employment, income and wealth inequality, and carbon intensity.

Marco Buti, Björn Döhring, José Leandro, 08 February 2018

The outlook for the euro area economy depends to a large extent on whether the impact of the crisis will turn out to be permanent or transitory. This column attempts to chart out the path ahead, starting from what different narratives of the 'atypical recovery' imply about the further trajectory of GDP and inflation. In view of remaining slack, and barring an exogenous shock or policy mistakes, there is scope for solid GDP growth above potential for some time. The factors that should eventually drive an increase in core inflation are gaining force, but only gradually.  The current supportive policy mix is thus appropriate for the euro area as a whole, but reforms that raise productivity and increase the economy's resilience to shocks should be accelerated.

Christian Ebeke, Kodjovi Eklou, 19 January 2018

The economics profession has generally explained large movements in macroeconomic aggregates such as GDP or employment by shocks to other aggregates. This is in part due to the difficulty of translating micro or localised shocks into macro-relevant ‘news’. This column argues that idiosyncratic shocks at the biggest European firms are behind 40% percent of aggregate GDP fluctuations in Europe. These results have implications for the effectiveness of traditional demand-side policies in the fine-tuning of granular economies.

Benjamin Born, Gernot Müller, Moritz Schularick, Petr Sedláček, 29 May 2019

It is hard to calculate the current cost of Brexit, because there is no obvious counterfactual. The original version of this column, first published in November 2017, calculated the cost by letting a matching algorithm determine which combination of comparison economies best resembles the pre-referendum growth path of the UK economy. The results suggested a loss of 1.3% of GDP, or close to £300 million per week, since the vote took place. Subsequent updates using the latest OECD data suggest that the negative drag from the Brexit vote now appears to be roughly £350 million a week, but under current OECD forecasts we can expect the output loss to increase to about 4% of GDP by end-2020.


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