Quantifying the macroeconomic effects of large-scale asset purchases

Karl Walentin 11 September 2014

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Central banks have used various unconventional monetary policy tools since the onset of the financial crisis yet the debate continues regarding their efficiency. This column attempts to shed light on the ‘bang for the buck’, or the macroeconomic effects, of one such unconventional monetary policy – the Federal Reserve’s large-scale asset purchases of mortgage-backed securities employed during the Fed’s QE1 and QE3 programs.

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Topics:  Global crisis Monetary policy

Tags:  monetary policy, unconventional monetary policy, large-scale asset purchases, central banking, financial crisis, Federal Reserve, quantitative easing, mortgage-backed securities, term premia, zero lower bound, interest rates, US, UK, Sweden, mortgages, global crisis

To exit the Great Recession, central banks must adapt their policies and models

Marcus Miller, Lei Zhang 10 September 2014

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“Practical men…are usually the slaves…[of] some academic scribbler of a few years back” – John Maynard Keynes.

For monetary policy to be most effective, Michael Woodford emphasised the crucial importance of managing expectations. For this purpose, he advocated that central banks adopt explicit rules for setting interest rates to check inflation and recession, and went on to note that:

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  Taylor rule, forward guidance, great moderation, global crisis, Great Recession, quantitative easing, DSGE models, expectations, tapering, US, UK, Europe, eurozone, ECB, Bank of England, central banking, IMF, unconventional monetary policy

The US economy performs better under Democratic presidents. Why?

Alan S. Blinder, Mark Watson 04 September 2014

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Economists and political scientists – not to mention the political commentariat – have devoted a huge amount of attention to the well-established fact that faster economic growth helps re-elect the incumbent party (see, for example, Fair 2011 for the US). But what about causation in the opposite direction – from election outcomes to economic performance? It turns out that the US economy grows faster – indeed, performs better by almost every metric – when a Democratic president occupies the White House.

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Topics:  Politics and economics

Tags:  US, politics, Democrats, Republicans, growth, macroeconomics, self-fulfilling prophecies

Migration states and welfare states: Why is America different from Europe?

Assaf Razin, Efraim Sadka 01 September 2014

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European welfare and migration policies are strikingly different from states within the US. Over the last half century, Europe ended up with 85% of all unskilled migrants to developed countries, whereas the US retains its innovative edge by attracting 55% of the world-educated migrants.

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Topics:  Migration Welfare state and social Europe

Tags:  migration, welfare generosity, EU, US, skilled migrants

Understanding the decline in the labour force participation rate in the United States

Steven Braun, John Coglianese, Jason Furman, Betsey Stevenson, Jim Stock 18 August 2014

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In part due to the vigorous, multi-front response to the economic crisis, the US has enjoyed a sustained economic recovery that has exceeded most contemporaneous and historical financial crisis benchmarks. Up until a year ago, the unemployment rate was falling by an average of 0.7 percentage points per year, roughly tracking the more successful historical experiences, and well exceeding the norm following a financial crisis. In the past year, the pace of the decline in the unemployment rate has doubled.

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Topics:  Global crisis Labour markets

Tags:  Labour force participation, US, Ageing population

Secular stagnation: Facts, causes, and cures – a new Vox eBook

Coen Teulings, Richard Baldwin 10 September 2014

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Teaser from original column posted on 15 August 2014

Six years after the Crisis and the recovery is still anaemic despite years of zero interest rates. Is ‘secular stagnation’ to blame? This column introduces an eBook that gathers the views of leading economists including Summers, Krugman, Gordon, Blanchard, Koo, Eichengreen, Caballero, Glaeser, and a dozen others. It is too early to tell whether secular stagnation is really secular, but if it is, current policy tools will be obsolete. Policymakers should start thinking about potential solutions.

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  interest rates, US, Europe, Japan, investment, macroeconomics, Great Recession, zero lower bound, savings, secular stagnation, SecStag debate

Conflict between US-led and China-led economic architecture

Pradumna B. Rana 05 August 2014

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The Bretton Woods agreement – which is 70 years old this month – established three institutions to promote law and order in international economic relations:

  • The IMF to promote macroeconomic stability,
  • The GATT (and its successor, the WTO) to ensure an open trading environment, and
  • The World Bank to provide development finance for poverty reduction.

The smooth operation of this rules-based, US-led global economic architecture contributed to the unprecedented economic growth and worldwide prosperity of the post-WWII period.

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Topics:  Global governance

Tags:  US, China, IMF, global governance, World Bank, multilateralisation, troika

It takes more than two to tango: Cry, but not for Argentina, nor for the holdouts

Jeffrey Frankel 22 July 2014

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US federal courts have ruled that Argentina is prohibited from making payments to fulfil 2005 and 2010 agreements with its creditors to restructure its debt, so long as it is not also paying the few creditors that have all along been holdouts from those agreements. The judgment is likely to stick because the judge (Thomas Griesa, in New York) told American banks on 27 June that it would be illegal for them to transfer Argentina’s payments to the 92% of creditors who agreed to be restructured, and because the US Supreme Court in June declined to review the lower court rulings.

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Topics:  Development Global governance

Tags:  US, sovereign debt, Argentina

The Transatlantic Trade and Investment Partnership: Review of the debate on economic blogs

David Saha 20 July 2014

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A study by the Centre for Economic Policy Research (CEPR 2013) for the European Commission models the effects of the Transatlantic Trade and Investment Partnership (TTIP) in a computable general equilibrium model. An ambitious deal, consisting of tariff barriers being lowered to zero, non-tariff barriers lowered by 25%, and public procurement barriers reduced by 50%, would lead to an increase in EU GDP by 0.5% by 2027. Growth effects for the rest of the world will be positive, on average, 0.14% of GDP due to increased demand from the EU and US.

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Topics:  Global governance International trade

Tags:  US, EU, TTIP

Why the US and EU are failing to set information free

Susan Ariel Aaronson 14 July 2014

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Tim Berners-Lee, the architect of the World Wide Web, taught us that the internet we have is a function of the choices we (users, companies, policymakers, etc.) make about information flows. For example, in 1995, Berners-Lee chose not to patent his work on the World Wide Web because he feared patenting it could limit its universality and openness. He continues to advocate this. In March 2014, he called for an online bill of rights and created a new organisation to ensure that the web would remain the “web we want” – open, free, and neutral.

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Topics:  EU policies Global governance International trade

Tags:  US, EU, WTO, information technology, trade, technology, internet, Human rights, national security, Information, free trade agreements, data protection, privacy

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