What’s at stake: A recent “box” in the first chapter of the WEO, co-authored by IMF Chief Economist Olivier Blanchard and his colleague Daniel Leigh, have reinvigorated the debate over whether austerity measures imposed on struggling eurozone countries has contributed to a deepening recession. On Wednesday, the European Commission responded with its own “box” pointing to the importance of distinguishing permanent from temporary fiscal adjustments. Contrary to what the battle of the boxes suggests, if there is multiplier uncertainty, it is very unlikely to come from the empirical front. Rather, it may come from recent challenges to previously accepted theoretical results. Read more
Bruegel blog
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Blogs review: Empirical and theoretical multiplier uncertainty
12th November 2012
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Blogs review: The economics and politics of migration in the economic crisis
2nd November 2012
What’s at stake: Rising unemployment in rich Western states fundamentally changes the context of migration. High unemployment among immigrants reduces the pull exerted by richer countries on potential immigrants, whilst economic hardships suffered by native citizens or perceptions of competition for scarce jobs between immigrants and natives can fuel anti-immigrant sentiments, leading to a tightening of immigration policies or even outright xenophobia. Read more
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Blogs review: the patent war in IT
26th October 2012
What’s at stake: Apple’s recent victory in its ongoing dispute over IP rights with Samsung has received a great deal of attention from regulators, academics and the media worldwide. It is, however, just one of the many battles of an ongoing war in the IT sector over intellectual protection. Standard economic analysis sees IP protection as a trade-off between securing a fair reward for innovators while ensuring that future innovation is not jeopardized and that customers pay a fair price. Although the aim of the patent system is to strike the right balance between these two broad objectives, recent developments – for example patent trolls, patent thickets and ambush strategies – suggest that the balance has tipped towards incumbents. Read more
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Blogs review: Markets without a price
19th October 2012
What’s at stake: Lloyd Shapley and Alvin Roth have won the Nobel Prize in economics “for the theory of stable allocations and the practice of market design”, which relate to the study of social allocation problems where money as a medium of exchange is ruled out or at least constrained. Roth has built on the insight of Gale and Shapley to come-up with precise conditions under which market design can achieve efficient allocations and has applied these lessons to a variety of real world matching problems such as organ exchange, college admissions and the design of the economics Job Market. Read more
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Blogs review: Can we all be more like Scandinavians?
12th October 2012
What’s at stake: An interesting debate about the trade-off between innovation and redistribution has sparked over the (admittedly wonky) paper by Daron Acemoglu, James Robinson and Thierry Verdier in which the authors argue that the "cuddly" capitalism of Europe could not sustain high levels of growth in the absence of the "cutthroat" capitalism of America. Entrepreneurs in those ruthless economic models bear more risks – and thus move the technology frontier faster. While still in Working Paper format and written for an academic audience, the paper was picked up by several bloggers who criticized the premises, the methodology and the conclusions. Read more
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Blogs review: the UK’s output, employment and productivity puzzle
1st October 2012
What’s at stake:While the decline in output in the UK over the last few years has been the longest and nearly deepest since the Great Depression, employment has remained surprisingly stable, even recently increasing at an impressive fast pace despite the double-dip recession. Contrary to the US, which has experienced recent increases in productivity, many European countries have seen persistently weak productivity. But the UK’s loss of labour productivity stands out, as it is now 10% below its pre-crisis trend. Whether the nature of this decline is temporary or permanent has become a central issue for policymakers in the UK. Read more
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Blogs review: OMT - Has the ECB solved the Euro Crisis?
25th September 2012
What’s at stake: The ECB has announced “Outright Monetary Transactions” (OMT) on 6th September. Comprising of potentially unlimited purchases of government bonds, it is the largest ECB intervention so far. In the blogosphere, OMT is mainly evaluated as intended to prevent market panic from pushing otherwise solvent governments into bad equilibria, insolvency due to mounting interest payments. Criticism focuses on either conditionality requiring more austerity, stopping growth or on conditionality being not fully credible as OMT support cannot easily be withdrawn from non-compliant countries. Read more
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Blogs review: The welfare state during times of economic crisis.
18th September 2012
What’s at stake: The current economic crisis has led to increased unemployment and put sharp pressure on government budgets. The welfare state can help mitigate the effects of the crisis on citizens, particularly through provision of unemployment insurance, but will also strongly be affected when budget consolidation is to occur through spending cuts. Furthermore, particularly American right wing commentators argue that European welfare states are root causes of the present sovereign debt crises. This review focuses on the perspectives for welfare states, particularly in Europe, under conditions of government budget consolidation. Read more
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Blogs review: Wallace Neutrality and Balance Sheet Monetary Policy
10th September 2012
What’s at stake: The media has widely echoed that Michael Woodford – arguably the top monetary economist in the world – came out in support of Nominal GDP targeting in his speech at the Jackson Hole Economic Symposium. But Woodford’s 96 pages paper is much more than that as it provides certainly the best non-technical discussion of policy options available to central banks at the ZLB. The paper discusses forward guidance policies as well as balance-sheet policies, in which the central bank varies either the size or the composition of its balance sheet. In this review, we focus on the latter as Woodford’s paper provides a useful complement to understand the ongoing blogosphere discussion about Wallace neutrality – an economics proposition due to Neil Wallace (1981) asserting that, in certain environments, alternative size and composition of the CB balance sheet have no effect. Read more
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Blogs review: The Fiscal Cliff
3rd September 2012
What’s at stake: In an update to its budget and economic outlook, the Congressional Budget Office (CBO) reminded of the approaching “fiscal cliff” – a popular wonk-speak used to describe the significant automatic cuts in federal spending and tax increases scheduled to take place at year end under current laws. CBO estimates that the fiscal drag would be in the order of 4% and would cause a double-dip recession. But even before the issue of the actual economic drag such an impulse could create lies the question of how potential political scenarios could shape policy outcomes, especially ahead of the Presidential election. Read more