The anaemic recovery from the Global Crisis and the downward trend in real interest rates since 1980 have revived interest in the idea of secular stagnation. This column argues that if the US, UK, and Eurozone had not pursued contractionary fiscal policies from 2010 onwards, the recovery would not have been so slow and nominal interest rates would no longer be at the zero lower bound. Expanding the stock of government debt would have ameliorated, not worsened, the shortage of safe assets.
Simon Wren-Lewis, Friday, January 30, 2015
Roberto Perotti, Saturday, September 13, 2014
There is a growing consensus that austerity is contributing to the Eurozone’s macroeconomic malaise, but also that spending cuts are needed in the long run to achieve fiscal sustainability. Some commentators have advocated a temporary tax cut financed by unsterilised ECB purchases of long-term public debt, accompanied by a commitment to future spending cuts. This column argues that such commitments are simply not credible – especially given the moral hazard problem created by central bank monetisation of debts.
Emanuele Baldacci, Sanjeev Gupta, Carlos Mulas-Granados, Monday, March 31, 2014
The recent debate on the link between austerity and growth has focused on the short run. This column discusses recent research into the link between fiscal consolidation and medium-term growth under different financial conditions. If credit is not available to consumers and investors, private demand is less able to compensate for cutbacks in public demand, so large spending cuts can have a negative effect on growth. Difficult financial conditions probably explain why fiscal adjustments that worked in the 1990s have not produced similar beneficial effects on growth in recent years.
Marco Buti, Maria Demertzis, João Nogueira Martins, Sunday, March 30, 2014
Although progress has been made on resolving the Eurozone crisis – vulnerable countries have reduced their current-account deficits and implemented some reforms – more still needs to be done. This column argues for a ‘consistent trinity’ of policies: structural reforms within countries, more symmetric macroeconomic adjustment across countries, and a banking union for the Eurozone.
Davide Furceri, Prakash Loungani, Thursday, February 13, 2014
Income inequality has been growing in many economies over the past two decades, and it is currently historically high. This column adds two new contributors to the popular explanations of increased inequality. Fiscal consolidations, especially those following the recent crisis, can increase inequality, mostly by affecting the long-term unemployment. A second source that leads to a persistent increase in inequality is capital account liberalisation. Therefore, the effects of these policies on inequality should be taken into account when deciding upon policy designs.
Nicholas Crafts, Tuesday, January 21, 2014
Nicholas Crafts talks to Viv Davies about his recent work on the threatening issue of public debt in the Eurozone. Crafts maintains that the implicit fault line in the EZ is evident; several EZ economies face a long period of fiscal consolidation and low growth and that a different sort of central bank might be preferable. They also discuss the challenges and constraints of banking, fiscal and federal union. The interview was recorded in London on 17 January 2014.
Olivier Blanchard, Jonathan D Ostry, Atish R Ghosh, Friday, December 20, 2013
The world has just been through a period of unprecedented macro policy activism. More is set to come as central banks exit unconventional policies, governments fix their fiscal positions, and financial regulations are reformed. These national policies have undeniable international spillovers. This column argues that the setting is ripe for more cooperation and suggests some ways forward, even if international macro policy coordination may continue to be heard about more often than it is seen.
Nicholas Crafts, Friday, December 13, 2013
This column argues that the legacy of public debt resulting from the crisis in the Eurozone is a serious threat. Both the size of the problem and the options to address it make life much more difficult for policymakers than was the case in the late 1930s after the collapse of the gold standard. For some countries, a ‘subservient’ central bank might be preferable to the ECB.
Michael Keen, Wednesday, October 16, 2013
Fiscal consolidation, and public concern that its pain be fairly spread, is putting tax systems under considerable pressure. This column takes stock of how they have been faring, and how they could do better.
Olivier Blanchard, Daniel Leigh, Friday, May 3, 2013
The debate about fiscal consolidation reduces too often to shouting matches about the value of fiscal multipliers, or about the existence of a critical debt-to-GDP ratio. This does not do justice to what is a complex choice, depending on many factors. Our purpose in this article is to review the relevant factors at play and allow for a richer discussion.
John Van Reenen, Saturday, September 15, 2012
John Van Reenen talks to Viv Davies about fiscal consolidation during a depression. They discuss Van Reenen's recent work on quantifying the costs and benefits of delaying austerity measures until recovery is clearly established. They also discuss whether austerity has gone too far. Van Reenen presents the case for a more federal Europe. The interview was recorded at the LSE on 13 September 2012.
John Van Reenen, Friday, April 27, 2012
Many policymakers in Europe seem to stick to the idea that fiscal consolidation might inspire confidence and help the economy to grow. This column argues these sentiments may be understandable but are basically wrong. For countries like the UK where borrowing is relatively cheap and sovereign default unlikely, slowing down the pace of fiscal consolidation would be a rational response. The obsession over the fiscal stance is a distraction from sustainable long-run growth.
Javier Andrés, Rafael Doménech, Saturday, April 7, 2012
Macroeconomic developments in Europe cast doubt on fiscal-consolidation strategies. This column examines the pace of consolidation in the Spanish 2011–14 Stability Programme. It shows that if Spain were to meet the deficit targets, it would be bringing forward by seven years the zero structural-deficit target that will be mandatory as of 2020, according to the new Spanish legislation.
Marco Buti, Pier Carlo Padoan, Tuesday, March 27, 2012
In late 2011, the financial crisis had evolved dangerously into a vicious circle of sluggish growth, tensions in sovereign debt markets, and banking sector fragility. CEPR Policy Insight No. 61 looks at what measures are required to turn the economy around.
Marco Buti, Pier Carlo Padoan, Tuesday, March 27, 2012
The economic and financial crisis in the Eurozone is in its fourth year. This column argues that, by providing a confidence bridge, decisive and credible policy action can turn the economy around and bring it towards a good equilibrium of debt sustainability and sustainable growth.
Leonard Burman, Marvin Phaup, Thursday, November 17, 2011
As the US tries to cut back its debt, the battle lines are already being drawn. Republicans are in favour of spending cuts; Democrats in favour of tax rises. Putting political ideology to one side, this column asks what objective economics has to say.
Roberto Perotti, Monday, November 14, 2011
With crisis plaguing the Eurozone and austerity the favoured prescription for diseased EZ economies, some are asking: Can big fiscal consolidations, especially those based on cuts, actually restart growth? CEPR DP8658 examines four episodes of past fiscal consolidations in European countries and evaluates the evidence.
Jesús Fernández-Villaverde, Juan F Rubio-Ramirez, Pablo A Guerron-Quintana, Monday, November 7, 2011
The authors of CEPR DP8642 offer a reminder about the usefulness of supply-side policies when the constraints of fiscal consolidation and the zero lower bound limit the macroeconomic-policymaking toolbox. A wealth effect from supply-side reforms could boost aggregate demand and help pull an economy out of the doldrums.
Olivier Blanchard, Friday, November 5, 2010
Olivier Blanchard, economic counsellor at the IMF, talks to Romesh Vaitilingam about the two ‘rebalancing acts’ needed for a strong global recovery and the particular challenges facing the US, Europe and the emerging market economies. He also discusses fiscal consolidation, financial reform and ‘currency wars’. The interview was recorded on 4 November 2010 at the Centre for Economic Performance in London, where Blanchard was delivering a special lecture on ‘The State of the World Economy’.<i> [Also read the transcript] </i>
Salvador Barrios, Sven Langedijk, Lucio R Pench, Saturday, October 2, 2010
Europe’s policymakers are trying to balance fiscal consolidation with economic recovery. This column examines financial crises in EU and OECD countries from 1970 to 2008 and finds that countries facing high debt levels or those at risk of low GDP growth would be better off with quick, “cold-shower” fiscal consolidations. Other countries might benefit from a more gradual approach.