Macroeconomic policy

Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 02 August 2015

Does monetary policy really face a zero lower bound or could policy rates be pushed materially below zero per cent? And would the benefits of reforms to achieve negative policy rates outweigh the costs? This column, which reports the views of the leading UK-based macroeconomists, suggests that there is no strong support for reforming the monetary system to allow policy rates to be set at negative levels.

Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, 01 August 2015

China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.

Stephanie Schmitt-Grohe, Martín Uribe, 20 July 2015

In the past few years, the world has witnessed large swings in world relative prices, from oil, to metals, to food prices. This column examines how important these terms-of-trade shocks are in explaining GDP fluctuations. Using structural vector autoregression analysis, it shows that terms-of-trade shocks account for no more than 10% of business-cycle fluctuations in the majority of poor and emerging countries.

Joan Paredes, Javier J. Pérez, Gabriel Pérez-Quirós, 12 July 2015

Uncertainty about fiscal policies can be damaging for economic performance, as it affects decisions about consumption, investment, and savings. This column argues that it is possible to reduce such uncertainty. Even if governments’ fiscal plans turn out to be (purposely) wrong ex post, they can convey useful information. It is just a matter of using the appropriate learning device whereby government promises are confronted every quarter with reality (i.e. what the government is actually doing).

Mariacristina De Nardi, 11 July 2015

Wealth inequality is back in the spotlight, but its determinants and the saving behaviour generating it are less clear. This column discusses the mechanisms in dynamic quantitative macro models that give rise to wealth inequality. Different mechanisms give rise to similar observed wealth concentrations, but have very different policy implications. A combination of better empirical analysis and richer models is needed to guide policy.

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