The US manufacturing recovery: Uptick or renaissance?
Oya Celasun, Gabriel Di Bella, Tim Mahedy, Chris Papageorgiou, 24 February 2014
The strong rebound of manufacturing production following the Great Recession of 2008–09 has generated renewed interest in the sector among analysts and policymakers. This column argues that a detailed look at the data suggests that claims of a US manufacturing renaissance are unwarranted. Yet, there remain factors that could support a greater contribution from the manufacturing sector to overall US growth in the years ahead.
Amid increasing anecdotes of a ‘renaissance’ in US manufacturing, many commentators have argued that the sector may contribute more significantly to domestic GDP and global industrial output in future (e.g. Financial Times 2012, New York Times 2012, McKinsey Global Institute 2012, Citi Research 2013).
Topics: Global economy
Tags: Great Recession, growth, manufacturing, US
How did household balance sheets affect consumption during the Great Recession?
Scott Ross Baker, 19 January 2014
The dramatic fall in consumption during the Great Recession was accompanied by an equally dramatic increase in household debt in the years preceding it. This column examines the relationship between household debt and consumption behaviour, and the channels through which this link operates. The column concludes that the relationship is driven almost entirely by the presence of financial constraints, such as liquidity or borrowing limits.
The presence of substantial amounts of household debt in 2007 has prompted many economists and policymakers to link debt to the depth of the recession in the following years. The possibility that higher levels of household debt induce deeper or longer recessions has important implications for both financial regulation and the size of the social safety net.
Topics: Global crisis
Tags: consumption, Great Recession, household debt
Job losses from the credit crunch during the Great Recession
Samuel Bentolila, Marcel Jansen, 1 February 2014
The evidence about the effect of declined lending during the Great Recession on the employment is quite limited. This column presents new research on the problem focusing on the case of Spain. A large part of credit to non-financial firms before the crisis came from weak banks, which solvency was strongly eroded during the crisis. As a result, firms that relied heavily on loans from such weak banks displayed significantly higher employment reduction in comparison to similar, less exposed firms. The bulk of employment destruction was driven by firm closures, which carries higher economic costs than downsizing, and could potentially make the recession more protracted.
Policymakers in both Europe and the US are concerned about the economic implications of the current shortage of credit. As the International Monetary Fund put it recently, “policymakers want to support markets because the decline in lending is seen to be a primary factor in the slow recovery” (IMF 2013).
Topics: Global crisis
Tags: Credit crunch, Great Recession, job losses, Spain
Crisis-proof services: Why trade in services did not suffer during the 2008-09 collapse
Andrea Ariu, 24 December 2013
The Global Crisis saw a sudden and synchronised fall in exports worldwide. One quirk in this Great Trade Collapse was the surprisingly robust performance of service exports. This column investigates the differences using Belgian firm-level data, finding that most of the differences stem from business-service exports. These services fell less mainly due to demand-side factors as their demand reacted to the macro fluctuations more like consumables than durables.
Following the failure of Lehman Brothers in September 2008, international trade in goods collapsed by 30%. This dramatic collapse was highly synchronised across countries and mostly concentrated in the category of durable goods (Baldwin 2009). Surprisingly, international trade in services barely reacted to the crisis.
Topics: International trade
Tags: Great Recession, trade in services
Does policy uncertainty reduce economic activity? Insights and evidence from large trade reforms
Kyle Handley, Nuno Limão, 23 November 2013
The impact of policy uncertainty on economic activity is potentially important, but controversial because it is hard to identify and quantify. Recent research provides a framework to identify the impacts of policy uncertainty on firm decisions, and finds it has strong effects in the context of international trade. China’s WTO accession secured its most-favoured nation status in the US, and the evidence shows this reduction in uncertainty can explain a significant fraction of its export boom to the US.
The impact of policy uncertainty on economic activity is an issue traditionally associated with developing countries. Since 2008, however, the spotlight has shifted. Governments’ responses to the Great Recession and the Eurozone crisis have raised considerable uncertainty about the future policies of advanced economies.
Topics: International trade
Tags: China, Eurozone crisis, Great Recession, trade, uncertainty, US, WTO
Is the Phillips curve alive and well after all? Inflation expectations and the missing disinflation
Olivier Coibion, Yuriy Gorodnichenko, 15 November 2013
During the Great Recession, advanced economies have not experienced the disinflation that has historically been associated with high unemployment. This column shows that using consumers’ (as opposed to forecasters’) inflation expectations restores the traditional Phillips curve relationship for recent years. Consumers’ inflation expectations are more responsive to oil prices than those of professional forecasters. The increase in oil prices between 2009 and 2012 may in fact have prevented the onset of pernicious deflationary dynamics.
“Prior to the recent deep worldwide recession, macroeconomists of all schools took a negative relation between slack and declining inflation as an axiom. Few seem to have awakened to the recent experience as a contradiction to the axiom.” (Bob Hall, 2013.)
Topics: Global crisis, Monetary policy
Tags: disinflation, expectations, global crisis, Great Recession, inflation, oil, Phillips curve
Economic uncertainty and the effectiveness of monetary policy
Knut Are Aastveit, Gisle James Natvik, Sergio Sola, 19 October 2013
Many analysts blame uncertainty for at least part of advance nations’ poor economic performance since the crisis. This column discusses new research showing that the economic impact of monetary policy is dampened when uncertainty is high. This means that high uncertainty forces monetary policymakers into a trade-off between acting decisively and acting correctly as policy must be more aggressive than otherwise in order to stabilise economic activity. The finding is particularly stark when uncertainty measures from financial markets are utilised.
Since the onset of the “Great recession”, economists have struggled to explain why the recovery has been so slow, despite the many policy measures that have been passed to re-invigorate economic activity. One candidate explanation that several have pointed to, for instance Baker, Bloom, Davis and Van Reenen (2012), is economic uncertainty.
Topics: Monetary policy
Tags: Great Recession, monetary policy, uncertainty
How to make Europe's incipient recovery durable – A rejoinder
Marco Buti, Pier Carlo Padoan, 8 October 2013
The causes of the Eurozone’s slow growth are much debated. This column argues that fiscal consolidation will be less of a drag going forward but that the ongoing recovery remains fragile. A policy strategy is needed to support the recovery based on three mutually reinforcing elements – reducing policy uncertainty, repairing the financial system, and undertaking structural reforms.
Our recent Vox column triggered an interesting and lively debate (see for instance Krugman, 2013; Fatas, 2013; Watt, 2013).
Topics: Macroeconomic policy
Tags: austerity, EZ recovery, Great Recession
How the great recession affected unemployment of non-Western Immigrants in the Netherlands
Jan van Ours, 6 October 2013
In absolute terms, the Great Recession affected the unemployment rate of non-Western immigrants more than that of native workers in the Netherlands. However, this merely reflects their generally weak labour-market position – job-finding rates are much lower for non-Western immigrants than they are for natives. There is little difference between the cyclical sensitivity of these two groups’ unemployment or job-finding rates. In relative terms, the labour-market position of non-Western immigrants is bad, but the Great Recession did not make it worse.
The labour-market position of immigrants in many European countries is weak – unemployment rates among immigrants are high, and employment rates are low (OECD 2011). There are various explanations for this. Immigrants often have lower educational attainment than natives, and fewer language skills. Furthermore, ethnic identity may be important.
Topics: Labour markets, Migration
Tags: Great Recession, migration, Netherlands, unemployment
Why is this global recovery different?
M Ayhan Kose, Prakash Loungani, Marco E Terrones, 18 April 2013
The Great Recession has been followed by a ‘Not-So-Great Recovery’. Why the recovery has been weak and protracted remains a matter of debate. This column argues that one specific aspect of the current global recovery makes it different from previous ones. Over the course of past recoveries, both monetary and fiscal policies maintained an accommodative stance. In this global recovery, fiscal and monetary policies in advanced economies are pushing in opposite directions.
There is an intensive discussion about the weak and protracted nature of the ongoing recovery.
Topics: Global crisis, Monetary policy
Tags: Great Recession