Monetary policy and long-term trends
Charles A.E. Goodhart, Philipp Erfurth 03 November 2014
There has been a long-term downward trend in labour’s share of national income, depressing both demand and inflation, and thus prompting ever more expansionary monetary policies. This column argues that, while understandable in a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance. The authors propose policies to raise the share of equity finance in housing markets; such reforms could be extended to other sectors of the economy.
There has been a long-term downward trend in the share and strength of labour in national income, which is depressing both demand and inflation. This has prompted ever more expansionary monetary policies. While understandable, indeed appropriate, within a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance (leverage).
Financial markets Macroeconomic policy Monetary policy
monetary policy, Inequality, debt, leverage, wages, labour share, globalisation, consumption, propensity to consume, fiscal policy, Ageing, interest rates, investment, asset prices, housing, house prices, exchange rates, global crisis, mortgages, sub-prime crisis, Macroprudential policy, structural reforms, balance sheets, deleveraging, equity, shared-equity mortgages, Help to Buy
Temporary employment: The trade-off between efficiency and equity
Elke Jahn, Regina T. Riphahn, Claus Schnabel 10 October 2012
Economic policymakers across Europe have sought to increase labour market flexibility by promoting the use of temporary employment. This column points to a possible trade-off between efficiency and equity when deregulating labour markets, suggesting that flexible forms of employment can be both a boon and a bane for labour markets and for society as a whole.
Over the last three decades, the use of flexible forms of employment such as fixed-term and temporary agency work contracts has increased substantially throughout much of Europe. This development has been driven by government efforts to ease restrictions on temporary employment, whereas the regulation of permanent contracts has been left essentially unaltered. The reforms of temporary employment have intended to increase overall employment by lowering dismissal and adjustment costs for flexible jobs and thereby providing firms with new opportunities.
unemployment, temporary contracts, equity, efficiency
The virtuous equity-efficiency trade-off in educational outcomes
Richard B. Freeman, Stephen Machin, Martina Viarengo 04 January 2011
Many interpret countries' scores in international testing as grades of their national educational policies. Summarising evidence from international maths exams, this column finds that the highest-scoring countries are those with the least inequality in test scores, suggesting a “virtuous” equity-efficiency trade-off. It also finds that countries perform even better when test scores are highly correlated with the number of books in the family home.
How countries fare in international tests of student achievement is a magnet for media attention the world over. In December 2010, for instance, two of the world's leading newspapers, the New York Times, and The Financial Times reported on the remarkable scores of students from Shanghai in the latest Programme for International Student Assessment (Pisa) tests, which assess the reading, maths and scientific skills of the world’s 15-year-olds (Cook 2010, Dillon 2010).
education, equity, educational policy
The distributional burden of cap and trade
Sebastian Rausch, Gilbert E. Metcalf , John Reilly , Sergey Paltsev 31 July 2010
The carbon-pricing implications of cap-and-trade programmes have raised concern that they might be a regressive policy tool. This column documents how allowance allocation schemes similar to those in recently proposed US legislation address distributional concerns and challenges the view that carbon pricing is necessarily regressive.
The distributional impacts of energy and climate policies can be assessed across a number of dimensions. Goulder and Parry (2008) note that two dimensions in particular have attracted attention: the impact on energy-intensive industry and the impact across households of differing incomes.
equity, cap and trade, carbon pricing
Has equity always earned a premium? Evidence from nineteenth-century Britain
John Turner , Graeme Acheson , Charles Hickson, Qing Ye 10 May 2008
Past performance is no guarantee, but history tells us that the equity risk premium has been persistent. This column shows that British investors enjoyed relatively high returns in the nineteenth century, though today’s UK market differs greatly from its formative ancestor.
Financial economists have become increasingly interested in the historical returns of financial assets.1 This interest largely stems from a desire to calculate the expected equity risk premium. In particular, academics and practitioners are interested in discovering whether or not the high returns on stock markets over the past half-century are an aberration or are somehow intrinsic to equity as an asset.
equity, risk premium, UK, stock markets