Macroeconomics
Commentaries
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The crisis and how to fix it: Part 2, solutions
Ricardo Caballero, 23 January 2009
My first column argued that the global financial crisis is really a run on all explicit and implicit forms of insurance, which is showing up as a freezing of credit markets at all but the shortest maturity. In this column I discuss the consequences of this and what to do about it. Specifically, I argue that an efficient solution involves the government taking over the role of the insurance...
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Getting past the blame game
Eswar Prasad, 27 January 2009
Who’s to blame for the worldwide financial crisis? The list of potential culprits for the meltdown of the US financial system is long and the rogues’ gallery will no doubt expand a great deal before the economy is out of the woods. But a worldwide crisis calls for a global villain. And there is indeed one at hand – global macroeconomic imbalances, characterised by large current...
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A $2 trillion question
Gian Maria Milesi-Ferretti, 27 January 2009
With the raging financial crisis and the possible measures to combat it taking centre stage in the policy debate, the focus on the US current account deficit and its implications for the US net external asset position has waned to some extent. To be sure, the US current account deficit remains large, but with a dramatic decline in domestic demand, plummeting oil prices, and the lagged effects of...
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Global roots of the current crisis
Brad Setser, 28 January 2009
There is a broad consensus that regulatory weaknesses, distorted incentives and excessive leverage in the US (and European) financial sector contributed to the current, severe global financial crisis. The investment banks themselves presumably no longer think that doubling their leverage from 2004 to 2007 was a good idea. The Western financial sector made two big bets. The first bet was that US...
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Local currency bond markets and financial stability
Frank Warnock, 12 February 2009
Emerging market crises in the 1990s were exacerbated by currency mismatches that were at least somewhat related to the underdevelopment of local debt markets. The underdeveloped markets encouraged companies and governments to seek lower borrowing costs in foreign currency instruments. When local currencies depreciated, many companies immediately became bankrupt, starting a downward spiral that...
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Fiscal Policy for the Crisis
Antonio Spilimbergo, Steven Symansky, Olivier Blanchard, Carlo Cottarelli, 12 February 2009
The output decline in the current crisis could be larger than any since the Great Depression. Successful policy responses by governments should address both the financial crisis and the fall in aggregate demand, however in this crisis the macro policy options are limited. While each single country can adopt an export-led recovery strategy, this is clearly not an option open to the world as a...
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No ordinary recession: There is much to fear beyond fear itself
Axel Leijonhufvud, 13 February 2009
This is not an ordinary recession that differs from other recent episodes simply by being somewhat more severe. It differs in kind. The end of the Cold War brought a decline in military spending and a recession which impinged most heavily on the states, like California, where the military-industrial complex was an important part of the local economy. The nationwide unemployment rate rose from 5....
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Does a $2 trillion decrease in net international investments threaten US consumption?
Giancarlo Corsetti, Panagiotis Th. Konstantinou, 18 February 2009
In a recent Vox column, Gian Maria Milesi-Ferretti estimated that the US current account deteriorated by 15% of GDP in 2008. This record fall was driven by the $1.2-1.3 trillion losses on US-owned foreign assets, mostly equities and foreign direct investment. In previous years, capital gains had actually allowed the US to run a substantial trade deficit while leaving its foreign wealth...
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European government bailouts: Should we let one go broke?
Charles Wyplosz, 21 February 2009
A few months ago, we were anxiously discussing whether governments should bail out banks. They did. And then they went into the business of bailing out car companies, just as central banks – a branch of government – started to lend directly or indirectly to the private sector. And now we start discussing whether governments should bail out… governments within the euro area....
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How to fix the banks and launch a virtuous cycle
Ricardo Caballero, 22 February 2009
Hope is in short supply during these trying economic times. Nowhere is this clearer than in the financial system. Since Secretary Geithner’s announcements last week, shares of the main financial institutions have yet again imploded. To make matters worse, politics has decidedly entered into the process of economic-policymaking, which makes it all the more likely that we will end up with the...
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We need a multilateral consultation on how to avoid global deflation
Olivier Jeanne, 2 March 2009
With the scope for monetary policy apparently exhausted – policy interest rates have been reduced to very low levels – policymakers seem to have pinned their hopes on fiscal stimulus. The only hope left for monetary policy is that we will avoid deflation. However, it is not clear how central banks would respond if deflationary pressures were to become stronger. The uncertainty...
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A “deal” mentality is bad macroeconomics
Ricardo Caballero, 5 March 2009
We are running out of time and there is no end in sight unless massive political capital is put at risk now. We have a superb team of economists and technicians, but their voices all seem to have been lost. I recall Larry Summers rightly claiming that if markets over-react, the government has to over-react even more. Secretary Geithner, even in his much criticized first announcement, sounded to...
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A lot of bucks, but how much bang?
Richard Clarida, 16 March 2009
“We have involved ourselves in a colossal muddle, having blundered in control of a delicate machine, the workings of which we do not understand” - John Maynard Keynes, “The Great Slump of 1930”, published December 1930. I recently had the privilege of participating on a panel that was part of the Russia Forum, an annual conference held in Moscow that brings together market...
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Establishing a global lender of last resort
Guillermo Calvo, 23 March 2009
The subprime crisis is a massive failure of the shadow banking system that has affected all corners of the capital market and triggered worldwide deleveraging. We are in a severe credit crunch. Savers distrust private-sector dissavers, which gives rise to a fall in aggregate demand and a search for safe assets (“flight to quality”). Therefore, the first priority should be to...
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The macroeconomics debate: A guided tour
Philip Lane, 26 March 2009
The contributions to the macroeconomic theme have addressed several dimensions of the crisis. At one level, some of the contributions have focused on the immediate macroeconomic policy challenges facing the G20 government. In addition, the theme has sought to identify the deeper imbalances that lie behind the crisis and whether these imbalances may cause yet further problems in the future. A...
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The outcome of the London Summit: A view from the Cabinet Office
Jonathan Portes, 2 April 2009
The London Summit took place at a time when the world confronts the worst economic crisis since the Second World War. The leaders of the G20 countries, together with the major international institutions, faced an unprecedented range of challenges – of averting an even more severe downturn and restoring growth in the short term, while at the same time reshaping the financial system,...
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The outcome of the G20 Summit: A sceptic’s view
Charles Wyplosz, 3 April 2009
Jonathan Portes provides us with an articulate and elaborate presentation of the outcome of the G20 summit. This is the best that can be said about it, but is it the most appropriate as well? I don’t think so, but let me start with a disclaimer. The G20 is plainly not the format for a replacement for the nearly defunct G8. Too many people around the table to internalise difficult decisions...
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G20 Summit: Reasons to be cheerful
Avinash Persaud, 3 April 2009
The G20 summit will not mark a turning point in the path of this crisis; but it provides the strongest reason yet to be less pessimistic about the future. The 29-point communiqué sets out a clear path for a sustainable recovery and lays down sensible principles to guide the recovery and its aftermath. Gordon Brown and his fellow leaders deserve praise. The devil is in the details. But...
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A tale of two depressions: What do the new data tell us? February 2010 update
Barry Eichengreen, Kevin H O’Rourke, 6 April 2009
Editor's Note: This column updates the original Vox columns by Barry Eichengreen and Kevin O’Rourke comparing today’s global financial crisis to the Great Depression. The previous columns have shattered all Vox readership records with over 450,000 views (O’Rourke and Eichengreen 2009). The latest data cover up to February 2010, the original April 2009 column and the subsequent...
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Global markets: what they are indicating?
Sri Kumar Aduri Freelance Macroeconomic policy researcher, 21 January 2012
The global markets are heading for an interesting time in 2012. We may notice, the indices experience heightened volatility within certain ranges. The upside opportunities arise from the oil price hikes etc and the results of relentless cost cutting by organizations. Oil price rise means short term profits for oil producers and nation states that are hydrocarbon driven. The profits made out of...
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A REDD and green paradox
12 December 2011
In a previous blog (Can’t Pay? Won’t Pay!) I posed the question: What do the worldwide debt crisis and global warming have in common? They both represent economies drawing down assets faster than they can replenish them. In the case of the debt crisis, economies are spending more wealth than they are accumulating. In the case of global warming, we are using up nature...
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What do the worldwide debt crisis and global warming have in common?
30 November 2011
Both the debt crisis and global warming represent economies drawing down assets faster than they can replenish them. In the case of the debt crisis, economies are spending more wealth than they are accumulating. In the case of global warming and other symptoms of ecological scarcity, we are using up nature’s capital and its vital services at an alarming rate...
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What should the G20 be doing about the global economy? Tax "bads" and not "goods"
29 November 2011
Edward B. Barbier Edward B. Barbier is the John S. Bugas Professor of Economics at the University of Wyoming. His latest book, published by Cambridge University Press, is Capitalizing on Nature: Ecosystems as Natural Assets. A fundamental problem impeding global economic progress, growth and job creation is that all economies base their tax systems on raising revenues from "...
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Financial Innovation to power growth in a debt ridden market environment
Sri Kumar Aduri Freelance Macroeconomic policy researcher, 6 September 2011
Governments borrowed and spent (Bail outs included) to deal with the financial crises in 2008 – 09. Naturally that level additional debt on states with debt level around 100% of GDP has resulted in a debt crisis. Now the Austerity is followed to manage. However with several million jobs and pension losses and with the austerity measures, economic growth expectations in the short term should...
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Lessons from the Current Crisis
6 March 2009
The aim of this debate is to get solutions to ‘fix the global economy’, a tall order given that this is a crazy, interconnected world. Barry Eichengreen summed up the key problem at hand, “ ..how to rebalance demand, provide support for global growth, and prevent the recurrence of crises, all at the same time.” (emphasis added). If we are to provide some guidelines...
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The US and China: Time for a grand bargain?
31 January 2009
Timothy Geithner, in his first foray into international economic affairs as US Treasury secretary, has kicked off a public row with the Chinese by accusing them of currency manipulation. The Chinese have vehemently rebutted this accusation and flexed their own muscles, telling the US to get its own house in order before lecturing others. A conflict the world cannot afford The world economy,...
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Crisis in financial markets and its prevention
3 March 2009
A not so famous quote attributed to Albert Einstein on hierarchy of mental faculty is: “Bright, intelligent, brilliant, genius and simple.” At the apex is simple; it therefore, pays to keep things simple. Lighting a match is an individual prerogative and is of no concern to the local fire department. However, lighting a match in a room sprayed with petrol, is very much a...
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Getting the global stimulus numbers right
8 March 2009
We at the International Labour Organization (ILO) have been keeping track of the stimulus efforts of 40 countries (including the G20) for our annual report and other work. While I agree with most of Gallagher's conclusions, there are factual inaccuracies in their work. Here is my quick response (I also posted comments on [Dani Rodrik's] blog): 1) The global fiscal stimulus effort as a...
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A Geithner Plan for Europe
26 March 2009
The lending performance of Irish and other European banks might be improved by the creation of asset management companies to absorb banks’ toxic assets and replace them with cash or near-cash assets. The types of toxic assets held by banks differ across European countries; they are mostly bad property loans and collateralized-mortgage-based securities. There will be...
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