Daron Acemoğlu, Ufuk Akcigit, William Kerr, 30 January 2016

How shocks reverberate throughout the economy has been a central question in macroeconomics. This column suggests that input-output linkages can play an important role in this issue. Supply-side (productivity) shocks impact the industry itself and those consuming its goods, while a demand-side shock affects the industry and its suppliers. The authors also find that the initial impact of an industry shock can be substantially amplified due to input-output linkages. 

Manuel Funke, Moritz Schularick, Christoph Trebesch, 21 November 2015

Recent events in Europe provide ample evidence that the political aftershocks of financial crises can be severe. This column uses a new dataset that covers elections and crises in 20 advanced economies going back to 1870 to systematically study the political aftermath of financial crises. Far-right parties are the biggest beneficiaries of financial crises, while the fractionalisation of parliaments complicates post-crisis governance. These effects are not observed following normal recessions or severe non-financial macroeconomic shocks.

Dan Greenwald, Martin Lettau, Sydney Ludvigson, 30 June 2015

Most theories explain the volatility of the stock market with shocks to macroeconomic fundamentals that have important consequences for growth. This column argues that the most important forces behind the longer term gains in the US stock market have not been drivers of economic growth. Instead, they have been an accumulation of random shocks which resulted in redistribution between workers and shareholders. 

Stefano Giglio, Bryan Kelly, Seth Pruitt, 03 April 2015

An important research question is whether the current measures of systemic risk are useful for policymakers. This column presents new evidence on this topic. The relevance of a measure depends on how informative it is regarding how financial distress translates into real macroeconomic outcomes. The findings indicate that few systemic risk measures predict macroeconomic shocks. Interestingly, the relationship between systematic risk and future macroeconomic shocks is not symmetric. 

Daron Acemoğlu, Asuman Ozdaglar, Alireza Tahbaz-Salehi, 27 March 2015

Understanding large economic downturns is one of macroeconomics’ central goals. This column argues that imbalances in input-output linkages can interact with firm-level shocks to produce output fluctuations that are much larger than the underlying shocks. The result can be large cycles arising from small, firm-level shocks. It is thus important to study the determinants of large economic downturns separately. Macroeconomic tail risks may vary significantly even across economies that exhibit otherwise identical behaviour for moderate deviations.

Hans Gersbach, 07 September 2010

The Eurozone crisis and debate over fiscal stimulus have emphasized the importance of responsible government debt management. CEPR DP 8001 develops a political economy model in which politicians prop up their reelection chances with debt-financed public projects but postpone the delivery of the projects until the next term. The author proposes to remedy this by instituting debt-threshold contracts which, if violated, would disqualify politicians from standing for reelection. He suggests that such contracts do not impede the stabilization of negative macroeconomic shocks.

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