Macroeconomic policy

Christiane Baumeister, Lutz Kilian, 08 February 2016

Expectations play a key role in assessing how oil price fluctuations affect the economy. This column explores how consumers, policymakers, financial market participants, and economists form expectations about the price of crude oil, the differences in these expectations, and why future realisations of the price of oil so often differ substantially from these expectations. Differences in oil price expectations are shown to matter for quantifying oil price shocks and their transmission. 

Stephen Hansen, Michael McMahon, 03 February 2016

In addition to setting interest rates, central banks also communicate with the public about economic conditions and future actions. While it has been established that communication can drive expectations, less is known about how it does so. This column attempts to shed light on this question. Applying novel measures to the content of Federal Reserve statements, it shows that forward guidance is a more important driver of market variables than disclosure of information about economic conditions.

Daron Acemoglu, Ufuk Akcigit, William Kerr, 30 January 2016

How shocks reverberate throughout the economy has been a central question in macroeconomics. This column suggests that input-output linkages can play an important role in this issue. Supply-side (productivity) shocks impact the industry itself and those consuming its goods, while a demand-side shock affects the industry and its suppliers. The authors also find that the initial impact of an industry shock can be substantially amplified due to input-output linkages. 

Athanasios Orphanides, 29 January 2016

Helmut Schmidt, one of the great post-war architects of Europe, passed away in November 2015. This column, by a former governor of the Central Bank of Cyprus, reminds us of Schmidt’s analysis of the political and economic dimensions of the Eurozone Crisis delivered in speeches in late 2011. As Schmidt said: “What we have, in fact, is a crisis of the ability of the EU’s political bodies to act. This glaring weakness of action is a much greater threat to the future of Europe than the excessive debt levels of individual Eurozone countries.”

Michael McMahon, Martin Ellison, Ethan Ilzetzki, Ricardo Reis, Wouter den Haan, 28 January 2016

The beginning of 2016 has seen dramatic developments in key markets, including falls in share prices, low oil prices, and a slowdown in some emerging market economies. This column summarises the views expressed on these issues by leading experts in the monthly Centre for Marcoeconomics survey. While all recognise the considerable uncertainty in the world economy, fewer than a third fear that these events will have a significant negative impact on the UK’s economic recovery. The prevailing argument is that any negative effects of lower foreign demand and market instability will be compensated by the benefits of lower oil prices.

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