Macroeconomic policy

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.

Dale W. Jorgenson, Koji Nomura, Jon D. Samuels, 08 July 2015

The two lost decades in Japan and the Global Crisis of 2007–2009 have created new opportunities for economic growth. This column describes the evolution of productivity across sectors in Japan and the US and suggests that the greatest payoffs for Japan would come from combining the Trans-Pacific Partnership with domestic reforms and encouraging foreign direct investment.  

Tamon Asonuma, Said Bakhache, Heiko Hesse, 04 July 2015

Home bias in banks’ holdings of domestic government debt could pose problems for financial stability and crisis management. This column discusses some of the determinants of this bias. Factors that increase macroeconomic instability are associated with higher home bias, while better investment opportunities in the private sector and better institutional quality reduce home bias.

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