Bruegel blog

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  The Weekender

  19th March 2012 by Shahin Vallée

  Dear All, I’m writing these lines from Paris where European Social democratic parties held a big pow wow on Friday and Saturday. It was a very interesting opportunity to get a better sense of Hollande’s European plans. He is still well ahead in the polls for the second round but his advance is shrinking fast. Meanwhile I will focus on: 1.Hollande’s European strategy, 2.Some conjectures on global rebalancing Read more

  • Sections: The Weekender
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  World Wide Rates

  16th March 2012 by Zsolt Darvas

  In a recent Bruegel Working Paper I calculated trade-weighted real effective exchange rates (REERs) for 178 countries – many more than in any other publicly available database – plus an external REER for the euro area. My main motivation was that for a particular research project I looked for REERs for all countries of the world, but in available datasets data was missing for a large number of countries. Read more

  • Sections: Comment
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  Nobel Prize Lecture and the European Return of Hamilton

  13th March 2012 by Lucia Granelli

  The “Fiscal Compact” signed by 25 Member States on March the 2nd has been welcomed by many as the proof that Europeans are obsessed with fiscal discipline. Since the beginning of the year, more and more articles drawing comparisons between the US after the War for Independence back in the 1780s and the current situation in Europe have been published. Randall Henning and Martin Kessler do it for a Bruegel essay. In their conclusions they call for a unified “bank regulation and (…) a common fiscal pool for restructuring the banking system” in the Eurozone. Harold James, from Princeton University and the European University Institute, also covers this comparison in his project-syndicate post arguing that collective debt-sharing mechanisms along with… Read more

  • Sections: Comment
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  Dominique Strauss Kahn's Cambridge speech

  12th March 2012 by Shahin Vallée

  Dominique Strauss Kahn gave a very interesting speech here in Cambridge on Friday where he presented a “tale of three trilemmas” to understand globalization challenges and how Europe fits in it. It provided a quite a provocative way of looking at the international monetary system, globalization and Europe all at once and the articulation he sketched offers a thought-provoking framework that I feel compelled to share (maybe a bit parochially because some work by Bruegel is quoted in it). Read more

  • Sections: Comment
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  The Weekender

  12th March 2012 by Shahin Vallée

  Dear All, It has been an eventful week globally. The Fed pre-announcing a more modest form of possible easing through purchases at the long end of the curve sterilized by short term borrowing, the ECB signaling that LTROs were off unless something major happened while the Reserve Bank of India and the Central Bank of Brazil accelerated their pace of easing. Meanwhile, Greece successfully pushed through its PSI and maximized participation by activation of the CACs, expectedly triggering a credit event. This allowed the IMF MD to propose to the Board a new Extend Fund Facility program for some 28bn (in reality, there were about 10bn left in the former Stand By, so this is only about 18bn in new money). I will try to leave Europe (a bit) this weekend and focus on:1.Japan denuclearization’s and global rebalancing, 2.The Fiscal Compact is stillborn, 3. DSK's speech at Cambridge Read more

  • Sections: The Weekender
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  Microfoundations in Macroeconomics

  9th March 2012 by Jérémie Cohen-Setton,

  What’s at stake:The role of aggregate or ad-hoc models for policy discussions in an age where journal papers in macro theory are always microfounded DSGE was brought to the forefront more than 2 years ago by Paul Krugman’s provocative essay `How Did Economists Get It So Wrong?’ (see here for a review). Since then, an interesting discussion – in the sense that it is not a discussion between those who do not understand the language of modern macroeconomics and those who do – has been going in the blogosphere on the importance of microfoundations for macroeconomic analysis. In a previous post,we outlined recent extensions of the basic IS-LM framework and pointed to a specific strand (modeling financial frictions into New Keynesian models) of a burgeoning literature: models with heterogeneous agents. We use the flurry of debate this week on the blogosphere to provide more background on these heterogeneous agents models and on other alternative approaches to the representative agent framework (behavioral macro models and agent based models). Read more

  • Sections: Bruegel Economic Blogs Review
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  Corporate balance sheet adjustment: new stylized facts and its relevance for the euro area

  5th March 2012 by Eric Ruscher, Guntram B. Wolff

  We analyse corporate balance sheet adjustment episodes in Germany and Japan as well as a sample of 30 countries using national account data. Corporate balance sheet adjustment tends to be long lasting and associated with strong effects on current accounts, investment and wages. Adjustment episodes lead to significant changes in corporate balance sheets ratios with a built-up of liquidity and a reduction of leverage. The adjustment is generally achieved by reducing investment and increasing savings on the back of a falling wage share. A better understanding of corporate balance sheet adjustment processes is critical for understanding macroeconomic divergence within EMU. Read more

  • Sections: Comment
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  Reflections after the G20 meeting in Mexico

  29th February 2012 by Ignazio Angeloni

  In diplomatic language there is a difference between saying “event B cannot happen because condition A is not fulfilled” and saying “event B will happen if – or even as soon as – condition A is fulfilled”. This distinction helps understand what happened last weekend in the G20 ministerial meeting in Mexico City. A few hours ahead of the meeting, an agreement on a replenishment of IMF resources of the size asked by Managing Director Christine Lagarde (a “global firewall”), was a non-starter. The US, followed by almost everybody not located between the Atlantic and the Urals, opposed the move arguing that Europe should mobilize its resources first – in the implicit assumption that new IMF money would be used,… Read more

  • Sections: G20 Monitor
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  The Weekender

  27th February 2012 by Shahin Vallée

  Dear All,
  
  I’m writing these lines from Paris where the vote on the ESM took place in the parliament and passed with the abstention of most left wing parties. Now this will go before the Senate next week where the left has a majority. I have written quite a bit (in French) to advocate in favour of the ESM, here for the Huffington Post and here for Le Monde along Daniel Cohn Bendit and others. I think it will pass in the Senate but the message sent to Germany will be problematic for Hollande if and when he takes office.
   
  I will focus on the following:
   
  1.    The nitty gritty of the ESM Treaty
  2.    Greek Deal
  3.    Softer Terms for Spain and Portugal Read more

  • Sections: The Weekender
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  Bubbles and potential output

  17th February 2012 by Jérémie Cohen-Setton, Martin Kessler

  What’s at stake: What started as a speech on inflation targeting by the President of a regional Fed has turned into a fierce economic debate on the impact of the collapse of a bubble on potential GDP. While it is natural for the current debate to focus on this phase of the problem, a growing literature has also explored the impact of bubbles on potential GDP during the boom phase. We start by reviewing the provocative body of work that studies bubbles in the presence of financial frictions, which often come to the conclusion that bubbles can increase potential output by reducing the inefficiency induced by financial market frictions. We then review the current debate on the econ blogosphere following… Read more

  • Sections: Bruegel Economic Blogs Review