Hume on hold? Consequences of not abolishing Eurozone national central banksMichael Burda, 17 May 2012The EZ crisis reveals critical flaws in the Eurozone’s design. This column argues that failing to abolish national central banks left the door open for national interests to interfere with the natural workings of the financial system and Hume’s adjustment mechanism. This flaw – and the omission of a European Banking Authority with real teeth – will come back to haunt Europe in the months and years to come. Fiscal spending and growth: New evidenceCéline Carrère, Jaime de Melo, 17 May 2012It is not just the OECD countries where fiscal policy is the subject of fierce debate. This column presents results from an “event analysis” carried out on a database of 140 countries over the period 1972-2005. It suggests that, for developing countries at least, a fiscal stimulus can be effective – provided the rest of the economy is stable and the fiscal deficit is low. The Eurozone crisis: Fiscal fragility, external imbalances, or both?Pietro Alessandrini, Michele Fratianni, Andrew Hughes Hallett, Andrea F Presbitero, 16 May 2012Unsustainable debt along Europe’s periphery is bringing the euro to breaking point. But this column argues that this is not simply the result of fiscal ill-discipline. After 2010, the Eurozone crisis went from a fiscal crisis to a balance-of-payments crisis – with different prescriptions for policy. Greece’s predicament: Lessons from ArgentinaPeter Kretzmer, Mickey Levy, 16 May 2012Greece’s economic and financial crisis is quickly deteriorating and there is no strategy – or even a coalition government – to figure out what to do next. This column looks at the lessons from Argentina’s default in 2001 and argues that Greece’s road to necessary economic reforms, fiscal sustainability and recovery may be even more daunting. Greasing the wheel: Oil’s role in the global crisisLucas Chancel, Thomas Spencer, 16 May 2012Between January 2002 and August 2008, the nominal oil price rose from $19.7 to $133.4 a barrel. This column gathers evidence on the role of this rise in prices in the global crisis. It suggests that oil prices had a direct impact on household expenditure on gasoline and increased mortgage delinquency rates. It adds that it also had many indirect impacts, notably though interest rate increases due to monetary policy. Regional integration and natural resources: Who benefits?Céline Carrère, Julien Gourdon, Marcelo Olarreaga, 15 May 2012Regional integration schemes that include natural-resource-abundant countries have by and large been unsuccessful. Part of the reason is the uneven distribution of gains when resource-poor and resource-rich countries integrate. This column presents new evidence suggesting that the slow progress of regional integration efforts in the Middle East and North Africa can be explained by the reluctance of resource-rich countries to enter into trade agreements that will hurt them. The housing market and the case for higher inflation targets in the US and the EurozoneJoshua Aizenman, Menzie D. Chinn , 15 May 2012Might more inflation be good for the US and Europe? This column looks at the housing market in the US and argues that, with houses dropping in price, buyers are playing a waiting game. And as buyers keep delaying, the price drops further. Given the importance of property in many economies, the knock-on effects are severe. Yet one way to break this vicious cycle is with inflation. School-to-work pathways in Europe and in the USGlenda Quintini, 15 May 2012Recent sizeable increases in youth unemployment are compromising the school-to-work transition of recent school graduates. This column uses optimal matching, a method borrowed from molecular biology, to study the transitions from school to work in Europe and the US. It argues the share of youth facing serious difficulties on the labour market is 18 percentage points smaller in the US than in Europe. In Europe, 30% of youth face difficulties settling into the labour market and another 15% are trapped in long-term unemployment or inactivity. The impossible hope of an end to austerityCharles Wyplosz, 14 May 2012With French and Greek voters rejecting austerity, politicians are once again taking the government spending debate seriously. This column argues that the voters are right – it is a bad idea to tighten fiscal policy when growth is so feeble. But the column adds that, wherever one looks, the road away from austerity looks desperately blocked. Wasted youthMarco Annunziata, 14 May 2012In Greece and Spain, around half of all workers under 25 are now unemployed. In Italy, Ireland, and Portugal, the rate of youth unemployment is around one in three. But this column argues that we shouldn’t go blaming austerity; even when these countries were booming, youth unemployment was still painfully high. The problem is far deeper. US debt issuance since 1951 and the fallacy of issuing floating rate notesManmohan Singh, Peter Stella, 14 May 2012Much of the debate over public finances in the US relates to the amount of debt, this column explores the type of debt. It criticises the recent suggestion that the US Treasury should start issuing floating rate notes. Bitter origins of the Sicilian MafiaArcangelo Dimico, Alessia Isopi, Ola Olsson, 13 May 2012If it were a business, the Mafia would be one of Italy’s most successful and one of the largest in Europe. But how did it come to be so powerful? This column argues that it began with control of the international lemon trade in the 19th century. The new World Input-Output DatabaseHubert Escaith, Marcel Timmer, 13 May 2012Global value chains and the international fragmentation of production challenge well-established trade policy models and raise new issues. Yet research has been hindered by the limited availability of proper statistics. This column introduces the World Input-Output Database (WIOD), a new public data source that offers unique opportunities to study the effects of fragmentation on a range of socioeconomic and environmental issues. What matters for financial development?Eduardo Cavallo, Carlos Scartascini, 12 May 2012For some commentators, the recent financial crises are a sign that financial development has gone too far. Yet there are still countries where such concerns are the stuff of dreams. This column focuses on why the level of financial development in poor countries remains so low and what policymakers can do about it. Russia’s national income in war and revolution, 1913 to 1928Mark Harrison, Andrei Markevich, 11 May 2012At the start of the 1920s, Russia’s economy suffered the greatest economic catastrophe of a turbulent 20th century. This column argues that measuring this experience yields lessons for the relationship between state capacity, government policies, and economic development. Euro-coupons: Mutualise the interest payments, not the principalJoão Fonseca, Pedro Santa-Clara, 11 May 2012Eurobonds have been proposed as a solution to the crisis, but Germany is wary of guaranteeing the entire debt of EZ countries. This column suggests the more politically feasible Euro-coupon solution. EZ countries would issue bonds at market interest rates and transfers between countries would harmonise the effective interest rates. Shadow economies around the world: Model-based estimatesCeyhun Elgin, Oguz Oztunali, 10 May 2012Shadow economies – sometimes called the black market or informal economy – exist in every country. But how big are they? This column presents some new approaches to estimating their size and uses them to compare shadow economies across rich and poor countries over the last 60 years. World food prices and protectionismPaolo Giordani, Nadia Rocha, Michele Ruta, 9 May 2012International food prices are on the rise and becoming increasing volatile, reaching crisis levels in recent years. This column argues that one overlooked reason for this is the rise in protectionist policies aimed at restricting food exports. Weekend elections: Democracy and the fiscal compactFrancesco Daveri , 8 May 2012Voters in France, Greece, Italy, and Germany rewarded politicians who opposed austerity. This column argues that attempts to fulfill campaign promises will run up against a hard constraint. The countries whose voters are calling for looser fiscal policies are those where public spending rose fastest since the birth of the euro. The only way out of today’s difficulties is to use the flexibility already in the fiscal compact and continue with bold implementation of the economic reforms that are under way. Are migrants paid more? Evidence from Italian footballAlex Bryson, Giambattista Rossi, Rob Simmons, 8 May 2012Are migrants paid more or less than their native colleagues? This column provides a unique insight by looking at data from an industry where there are many foreigners and where their relative quality can be easily measured – professional football in Italy. A tale of two depressions: What do the new data tell us? February 2010 updateBarry Eichengreen, Kevin H O’Rourke, 8 March 2010This column updates the original Vox columns by Barry Eichengreen and Kevin O’Rourke comparing today’s global crisis to the Great Depression. The three previous columns have shattered all Vox readership records with over 450,000 views. This latest edition covers up to February 2010 showing that, while there is cause for optimism, there is no room for complacency. Views 712990Educated in America: College graduates and high school dropoutsJames J. Heckman, Paul A. LaFontaine, 13 February 2008Official statistics for US high school graduation rates mask a growing educational divide. This column presents research showing that a record number of Americans are going to university – while an increasing number are dropping out of high school. This poses major social challenges for the United States. Views 189214Eurozone breakup would trigger the mother of all financial crisesBarry Eichengreen, 4 May 2010Originally posted 17 November 2007, this Vox column is more relevant than ever arguing that adopting the euro is effectively irreversible. Leaving would require lengthy preparations, which, given the anticipated devaluation, would trigger the mother of all financial crises. National households and firms would shift deposits to other Eurozone banks producing a system-wide bank run. Investors, trying to escape, would create a bond-market crisis. Here is what the train wreck would look like. Views 137039Debt, deleveraging, and the liquidity trap: A new modelPaul Krugman, 18 November 2010Debt is the crux of advanced economies’ current policy debates. Some argue for fiscal expansion to avoid recession and deflation. Others claim that you can’t solve a debt-created problem with more debt. This column explains the core logic of a new model by Eggertsson and Krugman in which debt shocks and policy reactions can be examined. Relying on heterogeneous agents, the model naturally produces the paradox of thrift but also finds new supply-side paradoxes, those of toil and flexibility. The model suggests that most economists have been misthinking the issues and that actual policy in the US and EU is misguided. Views 99754Five decades of evidence on financial crisis and recession: How long? How deep?Stijn Claessens, M Ayhan Kose, Marco E Terrones, 7 October 2008The house and equity price busts on top of a credit crunch make this an unprecedented crisis for the modern US economy; its real economy effects are thus difficult to assess. This column provides insights based on evidence from 122 recessions in 21 advanced nations since 1960. Findings suggest recessions in such circumstances are much costlier and slightly longer. But the outcome can be affected by policy, and it’s high time that policymakers act swiftly and decisively. Views 96380Subprime 'crisis': FAQs (revised & updated)Stephen Cecchetti, 15 August 2007A revised and updated version of the 13 August column on the basic how's and why's of what the Fed has been doing to calm financial markets. Views 94530Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisisBarry Eichengreen, Richard Baldwin, 9 October 2008Without rapid and coordinated action by G7/8 leaders, this financial crisis could turn into a jobs crisis, a pension crisis and much more. This column introduces a collection of essays by leading economists on what the G7/8 leaders should do this weekend. The dozen essays present a remarkable consensus on a few points: we need immediate, coordinated global action that includes recapitalisation of the banks. Views 87613Trade and inequality, revisitedPaul Krugman, 15 June 2007It’s no longer safe to assert that trade’s impact on the income distribution in wealthy countries is fairly minor. There’s a good case that it is big, and getting bigger. I’m not endorsing protectionism, but free-traders need better answers to the anxieties of globalisation’s losers. Views 87575The euro could surpass the dollar within ten yearsJeffrey Frankel, 18 March 2008One of the world’s leading international economists explains how the euro could surpass the dollar as the premier international currency and examines the geopolitical implications of such a shift. Views 86997Subprime crisis: causes, consequences and curesCarmen M Reinhart, 15 March 2008We may just have started to feel the pain. Asset price drops – including housing – are common markers in all the big banking crises over the past 30 years. GDP declines after such crises were both large (-2% on average) and protracted (2 years to return to trend); in the 5 biggest crises, the numbers were -5% and 3 years. This column, based on the author’s testimony to the Congress, picks through the causes and consequences. It argues that when it comes to ‘cures,’ it would be far better to get the job done right than get the job done quickly. Views 86186Slave trade and African underdevelopmentNathan Nunn, 8 December 2007Slavery, according to historical accounts, played an important role in Africa’s underdevelopment. It fostered ethnic fractionalisation and undermined effective states. The largest numbers of slaves were taken from areas that were the most underdeveloped politically at the end of the 19th century and are the most ethnically fragmented today. Recent research suggests that without the slave trades, 72% of Africa’s income gap with the rest of the world would not exist today. Views 82695Subprime ‘crisis’: FAQsStephen Cecchetti, 13 August 2007Here are the basic how's and why's of what the Fed has been doing to calm financial markets. Views 81344Good news at last? The recession will be over sooner than you thinkNicholas Bloom, Max Floetotto, 12 January 2009A key source of the today’s economic weakness is uncertainty that led firms to postpone investment and hiring decisions. This column, by the authors whose model forecast the recession as far back as June 2008, report that the key measures of uncertainty have dropped so rapidly that they believe growth will resume by mid-2009. This means any additional economic stimulus has to be enacted quickly. Delaying to the summer may mean the economic medicine is administered just as the patient is leave the hospital. Views 76034How bad could the crisis get? Lessons from IcelandJon Danielsson, 12 November 2008Iceland’s banking system is ruined. GDP is down 65% in euro terms. Many companies face bankruptcy; others think of moving abroad. A third of the population is considering emigration. The British and Dutch governments demand compensation, amounting to over 100% of Icelandic GDP, for their citizens who held high-interest deposits in local branches of Icelandic banks. Europe’s leaders urgently need to take step to prevent similar things from happening to small nations with big banking sectors. Views 76007Krugman’s view on the dollarRichard Baldwin, 2 October 2007As the dollar has started to slide, the question is: how far, how fast? This column, which is based on Paul Krugman’s recent Economic Policy article suggests the answers are: pretty far and pretty fast. Views 75868Mother of all bailouts and what it means for EuropeDaniel Gros, Stefano Micossi, 20 September 2008The radical moves in the US have direct implications for European banks and indirect implications for European governments. This column discusses the likely channels and notes that several European banks are both too big to fail and may be too big to be saved by their national governments alone. Views 74361Iceland’s banking collapse: Predicable end and lessons for other vulnerable nationsWillem Buiter, Anne Sibert, 30 October 2008In the first half of 2008, Buiter and Sibert were invited to study Iceland’s financial problems. They identified the “vulnerable quartet” of (1) a small country with (2) a large banking sector, (3) its own currency and (4) limited fiscal capacity – a quartet that meant Iceland’s banking model was not viable. How right they were. This column summarises the report, which is now available as CEPR Policy Insight No. 26 with an October 2008 update. Views 72882Tennis, pressure and the gender wage-gapM Daniele Paserman, 26 June 2007Female tennis players play more conservatively and commit more unforced errors when playing critical points. Does this explain the upper-echelons wage gap? Views 71036Is the LIBOR-OIS spread due to predatory behaviour?Francesco Giavazzi, 2 June 2008Editor's Note: Originally posted 2 June 2008. There has been a persistent spread between the rate at which banks lend each other money and government-backed securities yields in recent months. This column describes hypotheses explaining the spread – including the possibility that banks aren’t lending in order to bankrupt acquisition targets. Views 70939Open Letter to European leaders on Europe’s banking crisis: A call to actionAlberto Alesina, Richard Baldwin, Tito Boeri, Willem Buiter, Francesco Giavazzi, Daniel Gros, Stefano Micossi, Guido Tabellini, Charles Wyplosz, Klaus F. Zimmermann, 1 October 2008This is a once-in-a-lifetime crisis. Trust among financial institutions is disappearing; fear may spread. Last week’s US experience showed that saving one bank at a time won’t work. A systemic response is needed and in Europe this means an EU-led initiative to recapitalise the banking sector. Unless European leaders immediately unite to address this crisis before it spirals out of control, they may find themselves fighting over how best to salvage the aftermath. Views 70820The impossible hope of an end to austerityCharles Wyplosz, 14 May 2012With French and Greek voters rejecting austerity, politicians are once again taking the government spending debate seriously. This column argues that the voters are right – it is a bad idea to tighten fiscal policy when growth is so feeble. But the column adds that, wherever one looks, the road away from austerity looks desperately blocked. Weekend elections: Democracy and the fiscal compactFrancesco Daveri , 8 May 2012Voters in France, Greece, Italy, and Germany rewarded politicians who opposed austerity. This column argues that attempts to fulfill campaign promises will run up against a hard constraint. The countries whose voters are calling for looser fiscal policies are those where public spending rose fastest since the birth of the euro. The only way out of today’s difficulties is to use the flexibility already in the fiscal compact and continue with bold implementation of the economic reforms that are under way. The European debate on bank capital is not just about EuropeNicolas Véron, 4 May 2012Europe’s finance ministers are currently deciding on the legislation intended to implement the Basel III international agreement on bank capital, leverage, liquidity, and risk management. This column argues that many officials, within Europe and beyond, severely underestimate the importance of this debate for reaching a global standard for financial regulation. Have the US and European economies parted company?Domenico Giannone, Jasper McMahon, Lucrezia Reichlin, Saverio Simonelli, 2 May 2012According to official statistics, the UK and Europe are heading for recession, while the US is recovering. This has led some to suggest that European economies are moving in the opposite direction to the US. This column, written by the co-founders of Now-Casting, presents new now-casting estimates that put Europe and the US even further apart. Fiscal austerity and policy credibilityMarco Buti, Lucio R Pench, 20 April 2012Most economists agree that European economies share the need to reduce public deficits and debts. This column stresses that while gradual consolidations are in general more likely to succeed than cold-shower ones, the superiority of a gradual strategy tends to evaporate for high levels of debt and is also less pronounced for consolidation episodes following a financial crisis. The EZ breakup contest: Take ignorance seriouslyRichard Baldwin, 10 April 2012The five finalists of the £250,000 EZ breakup contest were announced last week; only one has a graduate degree in economics. This column argues that three are amateurish efforts full of economic and factual errors. European economists should take such ignorance seriously. Failure to do so in the US allowed odious ideas to gain respectability. Spending cuts to improve confidence? No, the arithmetic goes the wrong wayJ. Bradford DeLong, 6 April 2012The Vox debate on austerity rages on. Here Brad DeLong draws on his recent research with Larry Summers to argue that unless long-term real borrowing costs in the Eurozone exceed 5%, the short-term contractionary effects of spending cuts are likely to erode rather than bolster the overall fiscal situation. The austerity question: ‘How’ is as important as ‘how much’Alberto Alesina, Francesco Giavazzi, 3 April 2012Europe’s embrace of austerity has sparked a debate among economists. This column argues that the debate has gone astray. Until the critical principle – ‘how’ is as important as ‘how much’ – is embraced, the austerity debate in Europe will continue to be completely out of line with the real economic trade-offs. ECB inflation-fighting powers remain intactChristian Thimann, 30 March 2012A recent Vox column argued that with the three-year liquidity operations, the ECB has “hit a limit in its ability to prevent an acceleration of inflation”. This column explains why the ECB’s inflation-fighting powers remain intact – and why the risks of a sudden inflationary spike remain low. Wanted: A real budget for growth – Commentary on UK Budget 2012John Van Reenen, 29 March 2012The UK’s recent budget reflects tensions felt throughout Europe – how to stem massive budget deficits while not choking off growth. The UK is often held up as a model for voluntary austerity, but this column argues that its policies are a poor model for growth. It asserts that there is a deep intellectual vacuum at the heart of the budget and the government’s approach to economic growth in general. Financial repression: Then and nowJacob Funk Kirkegaard, Carmen M Reinhart, 26 March 2012Rich nations worldwide have a problem with debt. In the past, such problems have been dealt with by several tactics, including 'financial repression'. This column explains how the tactic works and documents its resurgence in the wake of the global and Eurozone crises. The logic and fairness of Greece’s programmeOlivier Blanchard, 23 March 2012The Greek package has cheered up markets. In this column, the IMF’s Chief Economist Olivier Blanchard argues that the programme deals squarely with the two most fundamental issues facing Greece – high debt and low competitiveness. And it is also fair, asking for sacrifices of both Greece and its creditors. A tale of two depressions reduxBarry Eichengreen, Kevin H O’Rourke, 6 March 2012The debate over stimulus versus austerity continues unabated. This column shows that, while industrial production and trade recovered much more quickly than during the Great Depression, both series now appear to be slowing down. It suggests that, as St Augustine would have said had he been managing director of the IMF, there is a case for additional fiscal consolidation and monetary normalisation, but not yet. In the slipstream of the Greek debt exchangeMitu Gulati, Jeromin Zettelmeyer, 5 March 2012One of the most interesting questions arising from the ongoing Greek debt restructuring is what it implies about the feasibility of voluntary debt restructurings. Indeed, why would anyone voluntarily take a debt-exchange offer that promises a large reduction in repayments? This column argues creditors might feel safer with new debt instruments issued under English law than with old Greek-law regulated ones. Right-wing political extremism in the Great DepressionAlan de Bromhead, Barry Eichengreen, Kevin H O’Rourke, 27 February 2012The enduring global crisis is giving rise to fears that economic hard times will feed political extremism, as it did in the 1930s. This column suggests that the danger of political polarisation and extremism is greatest in countries with relatively recent histories of democracy, with existing right-wing extremist parties, and with electoral systems that create low hurdles to parliamentary representation of new parties. But above all, it is greatest where depressed economic conditions are allowed to persist. Are economics graduates fit for purpose?Diane Coyle, 22 February 2012The global crisis has plunged the economic profession into a state of anxiety, at least in some quarters. One question, among many, is whether the way economics is taught at universities needs to be rethought. This column summarises the range of views raised at a recent conference on this issue organised by the British government, the Bank of England, and the Royal Economic Society. The ECB’s trillion euro betCharles Wyplosz, 13 February 2012Spreads on public debts in the Eurozone – with the exception of Greece – are falling hard and fast. This column argues that this is in large part because the ECB is now effectively guaranteeing Eurozone government debts. But it cautions that in doing so, the central bank is taking enormous risks. The fiscal compact treaty: Keynes and the German taxpayerJacob Funk Kirkegaard, 6 February 2012Europe’s new fiscal compact is seen by some as the death of Keynesian government spending. This column argues that such analysis is simply wrong. It says that there is still room for government spending in extreme situations, but that there are now more safeguards to maintain stability, reduce contagion, and placate German taxpayers. The coming resolution of the Eurozone crisisFred Bergsten, Jacob Funk Kirkegaard, 26 January 2012Policy reactions to the Eurozone crisis are seen by many as short-sighted, incoherent, and driven by political expediency. This column disagrees. What we are seeing is a game of chicken among the key political and economic powers in Europe. As the crash looms ever closer, the right deals will be struck and Europe will emerge stronger and with its currency intact. Mispricing of sovereign risk and multiple equilibria in the EurozonePaul De Grauwe, Yuemei Ji, 23 January 2012Economists now agree that markets were wrong in placing the same risk premium on Greek bonds as on German bonds. But this column adds that today the same markets are also wrong in overestimating the risk that the periphery countries will default. Policymakers looking to calm such skittish markets should take note. |
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