Giancarlo Corsetti, Joao B. Duarte, Samuel Mann, 07 August 2020

A persistent challenge for the ECB has been meeting the various needs and demands of euro area member states. This column provides empirical and quantitative evidence suggesting that the transmission of the ECB’s monetary policy varies significantly across member states. For variables such as those related to housing and labour markets, the dispersion of responses to a monetary shock is twice as large as the average response. The results also suggest that the disruption to market integration brought about by the COVID-19 crisis may create further challenges to conducting monetary policy in the euro area.

,

US economists on the economic impact of the crisis and policy developments in the US and Europe.

with:
* Adam S. Posen, The Peterson Institute for International Economics
* Vivien A. Schmidt, Boston University
* Jeffry Frieden, Harvard University
* Michael Landesmann, Vienna Institute for International Economic Studies (wiiw)

The following questions will be addressed:
* How does the unfolding Covid-19 crisis compare so far between the US and Europe?
* How does the EMU/EU governance structure constrain monetary and fiscal responses compared to the US?
* Which failures in policy can be/could have been avoided?
* Which social and political outcomes do you expect on both sides of the Atlantic?
* How will the US and European responses affect global economic and political relations?

Olivier Coibion, Yuriy Gorodnichenko, Michael Weber, 12 May 2020

Business cycles are rarely a matter of life or death in advanced economies, but the COVID-19 crisis is forcing policymakers into painful trade-offs between saving lives and saving the economy. This column uses several waves of a customised survey to study the economic costs of US lockdowns in terms of spending, labour market outcomes, and macroeconomic expectations. It finds overall spending drops of more than 30%, unemployment expectations climbing more than 10%, inflation expectations falling, uncertainty rising, and plans to purchase large durables plummeting.

Tatiana Didier, Federico Huneeus, Mauricio Larrain, Sergio Schmukler, 24 April 2020

The COVID-19 pandemic has nearly halted economic activity worldwide. Firm cash flows have collapsed, triggering inefficient bankruptcies as firms' valuable relationships are broken. This column proposes hibernation could allow firms to survive the pandemic, while preserving their vital relationships. All stakeholders could share the burden of economic inactivity, helping more firms to survive. However, financial systems are not well equipped to handle this type of exogenous and synchronised systemic shock so governments should work with the financial sector to keep firms afloat.

Giorgio Gobbi, Francesco Palazzo, Anatoli Segura, 15 April 2020

Most governments have introduced temporary credit guarantees to ensure banks can provide the liquidity needed by firms during the Covid-19 crisis. This column argues that these policies create incentives for banks to foreclose guaranteed loans maturing close to the expiration date of the guarantee scheme. This hidden effect is worse for firms whose debt is set to substantially increase during the pandemic. To avoid foreclosure ‘waves’ on the eve of the public guarantee termination, complementary measures that reduce firms’ debt burden should also be adopted.

Pascal Michaillat, Emmanuel Saez, 12 April 2020

A lower unemployment rate puts more people into work, but it also makes it harder for businesses to fill their vacancies. This column explores the trade-off between unemployment and vacancies, as captured by the Beveridge curve – a measure which can then be used to estimate the socially efficient unemployment rate for the wider economy. The analysis suggests that the US unemployment rate of 3.5% just before the coronavirus crisis was just about efficient. 

Olivier Blanchard, Lawrence H. Summers, 13 May 2019

The changes in macroeconomic thinking prompted by the Great Depression and the Great Inflation of the 1970s were much more dramatic than have yet occurred in response to the events of the last decade. This column argues that this gap is likely to close in the next few years as a combination of low neutral rates, the re-emergence of fiscal policy as a primary stabilisation tool, difficulties in hitting inflation targets, and the financial ramifications of a low-rate environment lead to important changes in our understanding of the macroeconomy and in policy judgements about how to achieve the best performance.

Morten Ravn, 08 November 2018

Morten Ravn of University College London discusses ADEMU work on how differences across households and players in the economy matter for macroeconomic policy.

Narayana Kocherlakota, 18 June 2018

Modern macro models offer insights into the outcomes of adopting entire policy regimes, but in reality, policymakers are rarely required to make such broad-ranging policy decisions. This column suggests how theoretical and applied microeconomics can be used to develop a framework for modern macroeconomic policymaking, and demonstrates how game-theoretic principles could be used to make series of sequential policy decisions. While this approach requires large amounts of data, it would allow academic macroeconomists to refocus on important policy questions.

Michael Bordo, Eric Monnet, Alain Naef, 18 April 2018

Central bank cooperation has once again become a central issue amid the Global Crisis and the persistence of global imbalances, but there are few examples of successful cooperation schemes that survived the test of time. This column argues that the Gold Pool of 1961-1968 offers a unique example of integrated financial cooperation between major central banks. It failed not due to members freeriding, but because they did not have to abide by any rules-based policies to prevent imbalances.

Patrick Pintus, 08 September 2017

Real interest rates are typically countercyclical. As Patrick Pintus discusses, they can also be good predictors of future macroeconomic conditions. This video was recorded in July 2017 at a macroeconomics conference organised by the Bank of England.

Gaston Gelos, Jay Surti, 19 August 2016

International financial spillovers from emerging markets have increased significantly over the last 20 years. This column argues that growing financial integration of emerging economies is more important than their rising share in global trade in driving this trend, that firms with lower liquidity and higher borrowing are more subject to spillovers, and that mutual funds are amplifying spillover effects. Policymakers in developed economies should pay increased attention to future spillovers from emerging markets, particularly from China.

Paolo Mauro, 07 August 2016

Policymakers use a well established traditional accounting method to analyse past paths and predict future paths of debt ratios. But the traditional accounting exercises underemphasise the role of economic growth. This column proposes a simple, extended accounting framework to recognise the importance of growth more fully and explicitly. It quantifies the role of economic growth in debt-to-GDP measurement for Ireland and Italy, who were similarly placed in 2012 but whose paths diverged significantly in subsequent years.

Peter Bofinger, 07 June 2016

At first sight, it is difficult to explain why the macroeconomic debate and macroeconomic policy in Germany differ considerably from other countries, despite the same academic textbooks and models being used as elsewhere. This column explains how a specific paradigm of macroeconomics, developed by Walter Eucken and diametrically opposed to Keynesian economics, is behind the German formal theoretical apparatus. The success of German macroeconomic policy can be attributed to the openness of the German economy, which allows it to benefit from macroeconomic policies pursued in other major countries.

Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 23 December 2015

In November, the Chancellor of the Exchequer unveiled plans for debt reduction in the UK over the rest of this Parliament. This column compiles the views of several experts on these plans, taken from a Centre for Macroeconomics survey. A significant number of respondents felt that the plans for debt reduction were not appropriate. There were also widespread doubts that the Chancellor’s Charter for Budgetary Responsibility would help underpin the credibility of fiscal policy. 

Dennis Reinhardt, Cameron McLoughlin, Ludovic Gauvin, 05 November 2014

In the aftermath of the Global Crisis, policymakers and academics alike discussed how uncertainty surrounding macroeconomic policymaking has impacted domestic investment. At the same time, concerns regarding the spillover impact of monetary policy in advanced economies on emerging market economies featured strongly in the international policy debate. This column draws the two debates together, and examines how policy uncertainty in advanced economies has spilled over to emerging markets via portfolio capital flows. It finds remarkable differences in the spillover effects of EU vs. US policy uncertainty.

Moreno Bertoldi, Philip Lane, Valérie Rouxel-Laxton, Paolo Pesenti, 24 October 2014

The reason for the divergent macroeconomic policies on the two sides of the Atlantic after the Crisis remains a hotly debated subject. The topic was also discussed at the recent “Macroeconomic Policy Mix in the Transatlantic Economy” workshop. This column summarises the main discussions at the workshop. Other covered topics included secular stagnation, the output effects of fiscal consolidation, cross-border banking (as a source and propagator of shocks), and the asset-market effects of unconventional monetary policies. 

Francesco Giavazzi, Guido Tabellini, 25 September 2014

In a recent column, the authors suggested coordinating monetary and fiscal expansions in the Eurozone through a money-financed temporary tax cut. The effectiveness of their proposal, however, has been questioned. In this column, the authors address some of the criticisms. They argue that the counter-cyclical fiscal policies adopted by the US and the UK, together with monetary easing, had a stabilising effect on output. Moral hazard due to the more lax monetary and fiscal policies is avoidable, increasing the credibility of the future spending cuts. 

Olivier Blanchard, Giovanni Dell'Ariccia, Paolo Mauro, 31 May 2013

The Global Crisis has shaken the consensus on how to run macroeconomic policy. Three years ago, the authors discussed this issue on VoxEU.org. This column takes a more granular look at new efforts to rethink macroeconomic policy. It takes stock of early results and provides a more detailed agenda for the key issues that should keep policymakers and academic macroeconomists busy in the next few years.

Richard Wood, 19 December 2012

Five years after the subprime bubble burst, the self-correcting nature of business cycles is being questioned and, subsequently, orthodox macroeconomic policy is starting to be challenged. This column introduces a radical rethink of options open to macroeconomic policymakers, suggesting that in order to simultaneously achieve economic stimulus without increasing debt, new money creation should be used to directly finance on-going budget deficits.

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