How well has OMT done? This column attempts to temper Mario Draghi’s recent plaudits that “it’s really very hard not to state that OMT has been probably the most successful monetary policy measure undertaken in recent times”. Yes, OMT should provide unlimited liquidity to troubled countries, but not at the expense of necessary structural reforms. The ECB should cover Eurozone countries’ current expenditures, but should not pay off all long-term debt holders. That way, capital markets will be disciplined and incentives for implementing economic reforms will be maintained.
Harald Benink, Harry Huizinga, Friday, July 12, 2013
Almut Balleer, Britta Gehrke, Wolfgang Lechthaler, Christian Merkl, Friday, July 12, 2013
During the Great Recession, 25 of 33 OECD countries have used some version of short-time work, a form of publicly subsidised working-time reductions. This column argues that despite its popularity, knowledge of the macroeconomic effects of this measure is limited. Using Germany as a case study, it’s clear that the existence of a short-time work system stabilises the economy and reduces job losses by roughly 20% during a recession. However, short-time work is a lot less effective for Anglo-Saxon labour markets.
Viral Acharya, Richard Portes, Richard Reid, Wednesday, July 3, 2013
Many central banks have recently employed unprecedented expansionary monetary policy, keeping interest rates at near-zero levels for an extended period of time. Quantitative easing interventions have been employed to affect asset prices directly, most notably in government-bond and mortgage markets, in order to keep sovereign and mortgage borrowing costs low. CEPR recently organised a conference to discuss existing theory and empirical evidence on the implications of an extended phase of unconventional monetary policy. This short column outlines the key issues and also includes a Vox Views video summary of the event.
Giuseppe Bertola, Friday, June 28, 2013
How can we make the Eurozone work, and work for everyone? This column suggests that a lack of productivity convergence and the Eurozone’s inability to deal with asymmetric shocks are both rooted in the incompleteness and incoherence of the current Eurozone policy framework. A robust and coherent European market and policy-integration process would require implementation of the behavioural constraints and redistribution schemes that operate, not without difficulties, within established national socioeconomic systems.
Livio Stracca, Tuesday, June 25, 2013
Should the public care about financial imbalances? This column suggests that financial imbalances are, in fact, not a main and direct concern for citizens. Of course, this does not exonerate policymakers from trying to prevent booms and busts (because they have substantial costs in terms of macroeconomic stability). Policymakers should focus on preventing the fallout of booms and busts for macroeconomic stability rather than trying to stabilise the ‘financial cycle’ as an end in itself.
Gerald A. Carlino, Robert P Inman, Monday, June 24, 2013
How should macro-fiscal policy be coordinated in economic unions? This column argues that the received wisdom has it right, and presents new empirical evidence suggesting that there are important positive spillovers between an economic union’s lower-tier governments in the management of macro-stabilisation policies. We should pursue coordinated policies. Finding programmes and institutions that can best facilitate this coordination is the important next step, both for new and established economic unions.
Paolo Manasse, Wednesday, June 19, 2013
It’s currently very trendy in Italy to blame Angela Merkel, Mario Monti, and austerity measures for the current recession. This column argues that while the severity of the downturn is clearly a cyclical phenomenon, the inability of the country to grow out of it is the legacy of more than a decade of a lack of reforms in credit, product and labour markets. This lack of reform has suffocated innovation and productivity growth, resulting in wage dynamics that are completely decoupled from labour productivity and demand conditions.
Francesco Giavazzi, Richard Portes, Beatrice Weder di Mauro, Charles Wyplosz, Wednesday, June 12, 2013
An ongoing German Constitutional Court case threatens to make the Eurozone Crisis much worse. This column argues that a Eurozone breakup could well be self-fulfilling given the absence of large-scale fiscal backstopping. The ECB’s Outright Monetary Transactions (OMT) programme has so far blocked speculation that could lead to such a breakup. A German court ruling against the OMT would destroy the programme’s credibility. The court would be wise to dismiss the case, if it does not want to risk becoming a threat to Eurozone stability and to taxpayers in Germany and beyond.
Charles Wyplosz, Monday, October 14, 2013
Exiting from unconventional monetary policies is a key challenge facing policymakers in advanced nations and a key worry for everyone else. This column introduces the new 'Geneva Report' on the subject, Exit Strategies, by Alan Blinder, Thomas Jordan, Donald Kohn and Frederic Mishkin. The report considers what the post-exit world will look like, how we can get there and the long-run impact on central banking.
Sascha O Becker, Peter Egger, Maximilian von Ehrlich, Thursday, June 6, 2013
The EU encourages regional cohesion through transfers for structural changes and development. This column presents new research suggesting that some poorer countries don't benefit as well as we might expect. This is likely to be because of worse technological and institutional absorptive capacity. Structural transfers need reform, and policymakers would do well to focus on recipients’ absorptive capacity.
Harald Benink, Harry Huizinga, Wednesday, June 5, 2013
Europe has been postponing the recapitalisation of its banking sector. This column argues that it has been doing so for far too long. Without such a recapitalisation, the danger is that economic stagnation will continue for a long period, thereby putting Europe on a course towards Japanese-style inertia and the proliferation of zombie banks.
Giancarlo Corsetti, Luca Dedola, Wednesday, June 5, 2013
Spain and Britain have similar debt problems. So why does Spain face far higher sovereign-interest rates? Is this because Eurozone membership makes national economies vulnerable to self-fulfilling debt crises? This column argues that EZ membership does not fully explain this discrepancy. A central bank can provide an effective backstop to national debt both in monetary unions and in countries with their own currency. EZ members are more vulnerable to debt crises to the extent that the ECB cannot count on the joint support of national fiscal authorities.
Luis Garicano, John Van Reenen, Thursday, May 30, 2013
France has a raft of labour-market regulations that kick in for firms with 50 workers or more. This column uses this threshold to identify the economic effects of size-contingent regulations. Such policies seem to subsidise small firms at the expense of larger firms. But since small firms are on average less productive than large firms, the French economy loses out.
Joshua Aizenman, Ilan Noy, Wednesday, May 29, 2013
What do macroeconomic shocks do to public and private saving? This column argues that it is only truly dramatic shocks that have a long-lasting effect on saving behaviour. Past crises tend to increase savings among households, but they also lead to decreased public-sector saving. However, the evidence suggests that this decrease in public saving is about a third of the magnitude than the corresponding increase in household saving.
Viral Acharya, Sascha Steffen, Thursday, May 23, 2013
A pernicious aspect of the Eurozone crisis is the ‘doom loop’ linking European banks and governments. This column argues that poor European policy choices in the wake of the 2008 Global Crisis worsened the problem. Rather than being forcefully recapitalised as in the US and UK, many Eurozone banks were left undercapitalised and free to gamble for redemption. In what may be the greatest carry trade ever, they borrowed cheap, first in short-term debt markets and then from the ECB, to invest in high-yield but risky sovereign debt. Substantial bank recapitalisations against sovereign-bond losses is the way forward.
Jon Danielsson, Tuesday, May 21, 2013
Icelandic voters recently ejected its post-Crisis government – a government that successfully avoided economic collapse when the odds were stacked against it. The new government comprises the same parties that were originally responsible for the Crisis. What’s going on? This column argues that this switch is, in fact, logical given the outgoing government’s mishandling of the economy and their deference towards foreign creditors.
Giovanni D'Alessio, Romina Gambacorta, Giuseppe Ilardi, Friday, May 24, 2013
The ECB’s recent survey on household finances and consumption threw up some unexpected results – counter-intuitively, the average German household has less wealth than the average Mediterranean household. In line with a recent VoxEU.org contribution from De Grauwe and Ji, this article analyses the principal differences in wealth and income between the main Eurozone countries.
Erik Feyen, Ines Gonzalez del Mazo, Sunday, May 12, 2013
Before the global financial crisis, European banks had rapidly expanded their foreign-lending activities. However, this column argues that financial stress in Europe has put this process into reverse and negatively affected credit conditions in developed and emerging markets alike. As European banks repair their balance sheets and rethink their business models in a context of stricter regulatory requirements, financial fragmentation, and a deteriorating European economy, they continue to retrench to home markets.
Richard Wood, Saturday, May 11, 2013
The world economy seems to be acting in unexpected ways. This column argues that austerity and quantitative easing do not seem to be working out as advertised. There is an urgent need to review the effectiveness of alternative macroeconomic policy approaches, and prepare an internationally agreed pro-growth plan to reflate distressed economies. The outlines of one such plan are presented.
Nicholas Crafts, Sunday, May 12, 2013
The UK escaped a liquidity trap in the 1930s and enjoyed a strong economic recovery. This column argues that what drove this recovery was ‘unconventional’ monetary policy implemented not by the Bank of England but by the Treasury. Thus, Neville Chamberlain was an early proponent of ‘Abenomics’. This raises the question: is inflation targeting by an independent central bank appropriate at a time of very low nominal-interest rates?