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Enrico Perotti

E. P.

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Articles by E. P.

The coronavirus shock to financial stability

March 27, 2020

The coronavirus pandemic will cost many lives. It will not wipe out the population, but it will make us wiser and poorer. In the medium term, economic activity will resume, albeit with some major impact on our wealth, work, and social habits. 
In the short term, widespread lockdowns have hit the world economy during a phase of economic and financial stagnation. Unlike a financial crisis, this is a real shock that reduces production and income, affects both demand and supply, and disrupts value chains. Avoiding a rapid contraction thus requires broadly targeted fiscal measures (Baldwin and Weder di Mauro 2020), such as tax postponement or direct income support, perhaps via ‘helicopter money’ (Galí 2020, Turner 2020).1
A key question is whether and where a financial panic may

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Coronavirus shock to financial stability

March 27, 2020

Enrico Perotti tells Tim Phillips that while regulatory reform means that banks are unlikely to be at risk, the coronavirus shock poses a serious liquidity risk for the shadow banking sector, where significant funding has been extended on the basis of cash flow rather than real collateral. Avoiding financial panic is key, and will require liquidity support as well as targeted fiscal measures.

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The conduct of monetary policy in a diverse monetary union

April 4, 2017

The monetary union of the euro has been established between very diverse countries. In itself, diversity is a positive feature, since variation in comparative advantages enables more risk sharing and gains from enhanced trade (Alesina and la Ferrara 2005). Yet European countries also differ in terms of institutional quality. This difference is well-appreciated by the general public and dominates the discussion in public media.1 What are the consequences of a monetary union among diverse countries?2
Definition of institutions
In economic research, “institutions” refer to essential ‘rules of the game’ – explicit and implicit governance structures that shape how public policy and private contracting actually works (North 1991). They may differ from formal institutions as they reflect the actual allocation of decision power, and are critical to understanding comparative economic performance across countries (Acemoglu et al. 2005).
Better institutions ensure a reliable contracting environment and safe property rights, increasing private efficiency in the private sphere. In the political sphere, greater accountability ensures that public decisions are more aligned to social welfare and less captured by special interests, reducing waste and ensuring proper competition.

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Public policy in a zero-growth scenario

December 16, 2016
Public policy in a zero-growth scenario

Since the Global Crisis, per-capita income in developed countries has stagnated. Europe took until 2015 to recover to the 2008 level of output. Unprecedented monetary expansion has failed to counter this stagnation. Even international trade, the ultimate engine of growth, is falling.
The debate on what should be done has been largely conjunctural. Most macroeconomists interpret the lack of growth as a temporary phenomenon caused by the credit crisis. A neo-Keynesian view is that the prolonged slump reflects an excessive retrenchment of demand as firms, households and intermediaries are gripped by high debt and uncertainty about the future. The contrasting view attributes lack of growth to high taxation and heavy-handed regulation. The two views have opposing implications for public intervention, but both interpret the slump as a deviation from the path of long-term growth.
Rogoff and Lo (2016) argue that growth rates will return to trend once the debt overhang created by a credit supercycle is reabsorbed. Proponents of a ‘secular stagnation’ interpretation driven by demographics suggest that further fiscal expansion, directed at public infrastructure, would prevent persistent negative effects of high unemployment and restart growth (Summers 2016).

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