Wednesday , November 14 2018
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Silvia Merler

S. M.


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Articles by S. M.

Jair Bolsonaro’s Brazil

9 days ago

Far-right candidate Jair Bolsonaro won the Brazilian presidential elections after a highly polarising campaign. We review economists’ and scholars’ views of what this means for Brazil going forward.

Before the elections, Monica de Bolle wrote that the challenge for the winning candidate was going to be daunting: after suffering through the worst recession to ever hit Brazil, the economy has not quite recovered. Although growth has been restored, it has not been enough to create jobs for the more than 13 million unemployed Brazilian workers, and wages remain stagnant. Most importantly, Brazil has high and uncontrolled fiscal deficits and a debt-to-GDP ratio that is unsustainable over the medium term. Fiscal adjustment will be hard to orchestrate in an economy that is already weak – the

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The rise of ‘ethical’ investing

16 days ago

We are used to think about the value of investment as measured by financial return. But investing with an eye to environmental or social issues and, more generally, ethical considerations, has become more prominent. We review contributions to this debate.

Environmental, social and governance (ESG), socially responsible investing (SRI), impact investing and gender-lens investing have emerged as a response to investors’ will to combine ethical with financial considerations in investment decisions (see here for an explanation of the differences).
The US Forum for Sustainable and Responsible Investment is due to publish its latest biannual report on US sustainable, responsible and impact investing trends on October 31st. The previous report, out in 2016, revealed a 33% increase in

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The United States-Mexico-Canada free trade agreement (USMCA)

23 days ago

While final ratification of the USMCA (also known as Nafta 2.0) is pending, we review economists’ assessment of the agreement.

If you are unfamiliar with the deal, Chad P. Brown highlights five surprising things about USMCA and Geoffrey Gertz has a five-things-to-know compendium.
The Economist’s leader argues that the renegotiation of Nafta is a relief but not a success. Although the new pact does contain improvements to Nafta, taken as a whole it is a step backwards for free trade. As a result, it will harm America.
Trade deals should not be judged by how well they protect domestic industries, but by whether they serve the public as a whole. Against this yardstick, the USMCA is clearly worse than the deal it is replacing. A marginal liberalisation of the Canadian dairy industry is

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The 2018 Nobel Prize: Growth and the environment

October 15, 2018

The 2018 Nobel Prize in Economic Sciences has been awarded jointly to William Nordhaus and Paul Romer for integrating respectively climate change and technological innovation into long-run macroeconomic analysis. We review how economists reacted to the announcement.

Kevin Bryan on VoxEU has a recount of how the contributions of this year’s Nobel prize-winners came into existence and how they link to each other. Both Nordhaus and Romer have been running favourites for the award for many years, but the surprise is that the prize went to both of them together: Nordhaus is best known for his environmental economics, Romer for his theory of ‘endogenous’ growth. But on reflection, the connection between their work is obvious.
With Romer, we have a general equilibrium model for thinking

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Financial panic and the Great Recession

October 8, 2018

A debate on the roles of financial panic in the Great Recession has been pitting Ben Bernanke against Paul Krugman in what has been characterised as “the battle of the beards”. Other economists have joined the discussion on the new American Economic Association’s discussion forum.

Ben Bernanke has a paper on the real effects of disrupted credit with evidence from the Global Financial Crisis (GFC). He argues that besides failing to predict the global financial crisis, economists also underestimated its consequences for the broader economy. Post-crisis research on the role of credit factors in the decisions of households, firms, and financial intermediaries provides broad support for the view that credit market developments deserve greater attention from macroeconomists, not only for

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Digesting the Salzburg Summit

October 1, 2018

As the moment of truth for Brexit negotiations is approaching, with the October European Council around the corner, we review opinions on the outcome and meaning of the Salzburg summit.
By:
Silvia Merler
Date: October 1, 2018
Topic: European Macroeconomics & Governance

Martin Sandbu writes that Salzburg changes nothing. Outside of parts of the British press and political world, few expected any breakthrough in the Brexit negotiation process at the Salzburg summit this week, and nobody should have expected anything before the British conservative party conference. Sandbu thinks that the situation is not as bad for Theresa May as some would have it. He  argues that the main elements of Mrs May’s press conference suggest that

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Inequality in China

September 24, 2018

After amply discussing income inequality in Europe and the US, economists are now looking at the magnitude, implications and possible remedies for this phenomenon in the context of the Chinese economy.

Sonali Jain-Chandra published a striking chart on income inequality in China on the IMF blog – which is based on a recently issued working paper. It shows that the Gini coefficient has risen by 15 points since 1990 to 50: that is a big change, even though some increase in inequality could have been expected as the level of development improved.
Differences in education are one important driver of the increase inequality. Rapid technological change and industrialisation have boosted demand, and therefore incomes, for highly skilled workers. Differences in incomes between urban and rural

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Reforming the EU fiscal framework

September 17, 2018

Researchers have often highlighted the problematic nature of the currently very complex EU fiscal framework. Here we review economists’ views on how it should be changed.
By:
Silvia Merler
Date: September 17, 2018
Topic: European Macroeconomics & Governance

VoxEU has been publishing a number of contributions on reforming the EU fiscal framework. Coen Teulings thinks that the EU fiscal rules urgently need revision, because the fiscal rules in the Stability and Growth Pact were too strict and their update – laid down in the new European Fiscal Compact – made matters worse. The euro area’s demography makes a 60% sovereign debt more of a lower bound than an upper bound.
The rules should allow, during a bad recession, for an

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Lehman Brothers: 10 Years After

September 10, 2018

Ten years after the bankruptcy that shook the world, we review economists’ take on the lessons learned from the global financial crisis.

Adam Tooze has a whole new 700-page book on the financial and economic history of the last decade (aptly titled “Crashed”). The book revolves around four themes: the immediate post-crisis response; the euro-zone crisis; the shift in the developed world after 2010 to a more austere fiscal policy; and the rise of populist politics in Europe and America. You can find a review of the book here (among others), and Tooze’s blog has many interesting entries that draw on the themes discussed in the book.
Christine Lagarde writes on the IMF blog that the anniversary gives us an opportunity to evaluate the response to the crisis over the past decade. Lagarde

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Italy’s capital flight: 2011, 2016, and early 2018

August 31, 2018

International investors have been repositioning vis-à-vis Italy, after the new government took office in early May. We compare this summer turmoil to previous episodes of capital outflows. Outflows from Italian portfolio investments in May and June have exceeded the outflows recorded during the summer of 2011, and are already halfway to matching the cumulated total outflows recorded during the entire 2011-12 crisis.
By:
Silvia Merler
Date: August 31, 2018
Topic: European Macroeconomics & Governance

The most recent balance-of-payment data from the Bank of Italy show important outflows in the portfolio investments of foreigners in Italy, down by €33 billion in May and €42 billion in June (Table 1). The biggest outflows were

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The Turkish Crisis

August 27, 2018

Financial markets have been very nervous about Turkey for the past few weeks. We review economists’ opinions about the economic, political and geopolitical risks and opportunities of this situation.

Jamie Powell and Colby Smith write on FT Alphaville that the Turkey crisis looks like a classic emerging-market meltdown: a rapidly growing economy funded by short-term, dollar-denominated liabilities, fronted by a strongman leader with a penchant for appointing insiders to key government positions. As such, it is evocative of the Asian currency crises of 1997 and 1998, which hold lessons for Turkey.
Brad Setser thinks instead that while Turkey has some similarities with the Asian crisis countries of the 1990s, it also has important differences. Turkey’s banks are the main reason why the

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Italy’s “Dignity Decree”

July 23, 2018

The new Italian government pushed through its first legislative act including elements of labour market reform. Presented as an overturn of the previous government’s “Jobs Act”, the estimated effects of the decree are controversial. We review Italian economists’ view on the matter.
By:
Silvia Merler
Date: July 23, 2018
Topic: European Macroeconomics & Governance

The recently approved “Dignity Decree” is the first legislative act of the new Italian government in the area of the labour relations and, according to Luigi Di Maio, Minister for Labour and Economic Development, it represents an overturn of the previous government’s “Jobs Act”. Among other things, the decree establishes that the maximum length for temporary contracts

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Economy of Intangibles

July 16, 2018

Economists have been discussing the implications of the rise of the intangible economy in relation to the secular stagnation hypothesis, and looking more generally into the policy implications it has for taxation. We review some recent contributions.

Haskel and Westlake argue that the recent rise of the intangible economy could play an important role in explaining secular stagnation. Over the past 20 years, there has been a steady rise in the importance of intangible investments relative to tangible investments: by 2013, for every £1 investment in tangible assets, the major developed countries spent £1.10 on intangible assets (Figure below). From a measurement standpoint,  intangibles can be classified into three broad categories: computer related, innovative properties, and company

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World Cup Economics

July 9, 2018

As we approach the final rounds of the tournament, here are some recent contributions about the economics and economic impact of the World Cup.

Looking for fancy statistics that will make you look cool at the pub? Goldman Sachs has you covered with their report “The World Cup and Economics 2018”. It features an interview with Carlo Ancelotti, explains GS’ predictive model (which, like all of us in the pub, overestimated Germany and underestimated Sweden), and presents a one-page report for each participant. It also has a very funny section on World Cup trends viewed through a (light-hearted) economic lens. For example, you may not have noticed the relationship between the number of offsides and mutual trust numbers. Ending up ‘beyond enemy lines’ more frequently as a strike force may

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US tariffs and China’s holding of Treasuries

July 2, 2018

China has the biggest bilateral trade surplus vis-à-vis the US but is also a top holder of US government bonds. While China has started to counteract US trade tariffs, economists have been discussing the case of China acting on its holdings of US Treasuries. We review recent contributions.

The recently published Reuters’ article on the current situation between the US and China  holds some interesting quotes. Answering a reporter, Zhu Guangyao – Chinese Vice Finance Minister – reportedly reiterated China’s policy regarding its foreign exchange reserves, saying it is a responsible investor and that it will safeguard their value. Jeffrey Gundlach, chief executive of DoubleLine Capital LP, believes that China can use its Treasury holdings as leverage, but only if they keep holding them.

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The Meseberg declaration and euro-zone reform

June 25, 2018

The recent Franco-German Meseberg declaration will set the scene for next week’s summit. We review opinions on this important agreement.
By:
Silvia Merler
Date: June 25, 2018
Topic: European Macroeconomics & Governance

Martin Sandbu thinks the Meseberg declaration is a small step for the euro economy, a bigger leap for its politics, and has exceeded expectations. The momentum – moderate, but momentum nonetheless – is back. The agreement on a budget for the euro zone – although eye-catching – is not as consequential as the agreement on the fundamental principle that economic convergence, investment for growth and indeed macroeconomic stabilisation are common concerns for euro-zone countries.
Sandbu also thinks that linking up

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Demographics and Long Run Growth

June 18, 2018

Scholars have been investigating the relationship between demographics and long term growth, in the context of the secular stagnation hypothesis. We review recent contributions.

Cooley and Henriksen argue that demographic factors cannot fully account for the slowdown of long-run growth, but they likely represent an important contributing factor. Demographic change is persistent and predictable. Across the most advanced economies, average age will increase and life expectancy will almost surely increase. This may have important consequences for long-run economic growth. Economic policies that strive to mitigate the effects of ageing on long-run growth will have to target households’ incentives to supply capital and labour over their life-cycles; in particular late-working-life labour

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The Italian mini-BOT debate

June 11, 2018

Talks of parallel currency are not new in Italy. But one of the proposals – the so called mini-BOT – has made it into the government contract that underpins the current League-M5S coalition. We review what has been said about these proposals.

Precedents
In the Italian context, Bossone and Cattaneo proposed in 2016 the “Tax Credit Certificate” (TCC), which they equated to a “helicopter tax credit”. Much as helicopter money is evocatively distributed across the economy for free, TCCs as helicopter bonds would be assigned free of charge by the government to households and enterprises. Bossone and Cattaneo argue that the Tax Credit Certificate system is projected to accelerate Italy’s recovery and will likely be sustainable. It also provides a tool to avoid the breakup of the Eurosystem

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The Italian Crisis

June 4, 2018

While Italy has been through one of the gravest institutional crises in its history, we review recent opinions on the topic.

Ferdinando Giugliano notices how the Italian president has been cast as an enemy of democracy after his refusal to accept a eurosckeptic finance minister, while the anti-establishment League and M5SFive Star parties –— who chose to blow up their attempt to form a government instead of proposing an alternative name –— have been hailed as defenders of the popular will. The longer the wrangling goes on, the clearer it becomes that the populists are playing politics. The populists are meant to be a break from the established way of doing politics, but their manoeuvrers show they are anything but. And they are taking a real toll on the country.
Ashoka Mody writes on

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Argentina’s troubles

May 22, 2018

Argentina has abruptly called on the International Monetary Fund for financial help, amid currency pressures. We review recent economists’ position on this.

Monica de Bolle says that the action taken by the government of President Mauricio Macri is hard to square with the fact that the country was the darling of the financial markets a little over a year ago, having pulled off the sale of a 100-year bond.
Part of the explanation of the abrupt turn certainly lies with the excessive optimism over the country’s ability to dig itself out of the very deep hole caused by a decade-and-a-half of economic mismanagement. The tide turned some three weeks ago when skittish investors – fearful of the global repercussions of a potential US-China trade war, combined with a likely rise in US

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200 Years of Karl Marx

May 14, 2018

May 5th 2018 marked the 200th anniversary of the birth of Karl Marx. We review some economists’ takes on the controversial philosopher’s legacy.

Project Syndicate has a collection of earlier pieces written by J. Bradford Delong, Kenneth Rogoff, Nouriel Roubini, and Yanis Varoufakis. In the 2018 contribution, Peter Singer argues that the most important takeaway from Marx’s view of history is negative: the evolution of ideas, religions, and political institutions is not independent of the tools we use to satisfy our needs, nor of the economic structures we organise around those tools, and the financial interests they create. He concludes that if this seems too obvious to need stating, it is because we have internalised this view and in that sense, we are all Marxists now.
The

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Did Economics Fail?

May 7, 2018

The debate about rethinking economics keeps rambling. We summarise newest contributions to this important discussion.

In January 2018, the Oxford Review of Economic Policy published an issue edited by David Vines and Samuel Wills, dedicated to the project of rebuilding macroeconomic theory. We covered some of the project in a previous blog review, here. The issue features contributions by Olivier Blanchard, Simon Wren-Lewis, Joseph Stiglitz, Paul Krugman, Ricardo Reis and many others. It triggered a debate that keeps going, and we cover new contributions.
Martin Sandbu has argued that economics can be more open, without losing rigour. The overall DSGE approach could be liberated enough to allow for a large range of different assumptions about microeconomic behaviour and the macro

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The cost of remittances

April 30, 2018

Remittances flows are very important for developing countries. In 2009 the G8 pledged to reduce the cost of remittances to 5%, a commitment that was endorsed by the G20 in 2011 and 2014, and included in the UN’s Sustainable Development Goals in 2015. What is the cost today, and what are economists’ suggestions to reduce it?

Stephen Cecchetti and Kim Schoenholtz document the stubbornly high cost of remittances, and look at avenues for cost reduction. Today, remittance flows are triple what they were in 2000 and five times what they were in 1990. Furthermore, the economic importance of inward remittances has increased for low- and middle-income countries, rising from an average of 1.2% of GDP in 1990 to 1.6% of GDP today. However, costs have trended lower only gradually, and with

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The debate on euro-area reform

April 16, 2018

A paper jointly written by 14 French and German economists set off a debate about the reform of euro-area macroeconomic governance. We review economists’ opinions about it.

A group of 14 French and German economists proposes six reforms which, if delivered as a package, would improve the euro area’s financial stability, political cohesion, and potential for delivering prosperity to its citizens – all while addressing the priorities and concerns of participating countries.
First, these economists would break the vicious circle between banks and sovereigns through the coordinated introduction of sovereign concentration charges for banks and a common deposit insurance Second, they would replace the current system of fiscal rules focused on the ‘structural deficit’ by a simple

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Latvia’s money laundering scandal

April 9, 2018

Latvia’s third largest bank ABLV sought emergency liquidity from the ECB and eventually voted to start a process of voluntary liquidation, after being accused by US authorities of large-scale money laundering and having failed to produce a survival plan. What does it mean for the ECB?

The US Treasury Department’s Financial Crimes Enforcement Network said on February 13th 2018 that it was seeking restrictions on ABLV bank, on suspicion of involvement in money laundering and helping clients violate United Nations sanctions on North Korea. Separately, central bank chief Ilmars Rimsevics was detained on Saturday on suspicion that he solicited a bribe. Shaun Richards has a good summary of the events, with relevant news quotes that you may want to read. This Reuters summary is also very

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Milton Friedman’s ” The role of monetary policy” – 50 years later

April 3, 2018

In March 1968, Milton Friedman’s “The Role of Monetary Policy” – after his famous presidential address to the American Economic Association – was published in the American Economic Review. 50 years later, economists reflect on this famous work.

Gregory Mankiw and Ricardo Reis stress that expectations, the long run, the Phillips curve, and the potential and limits of monetary policy all continue to be actively researched. In the near future, the meagre economic growth since the 2008–2009 recession may lead to a reexamination of Friedman’s natural-rate hypothesis. At this point, the simplest explanation is that this stagnation is due to a slowdown in productivity unrelated to the business cycle. Alternatively, however, it might contradict Friedman’s classical view of the long run,

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The Brexit Transition Deal

March 26, 2018

Michel Barnier, the European Union’s Brexit negotiator, and David Davis, Britain’s Brexit secretary, announced a transition deal on March 19. We review recently published opinions about the deal and its implications.
By:
Silvia Merler
Date: March 26, 2018
Topic: European Macroeconomics & Governance

If you are unfamiliar with the discussion over the Brexit transition deal, Alex Barker andMartin Arnold have a short but detailed list of FAQs out on the Financial times. David Henig and Julian Jessop  also each have a thread out on Twitter that you may be interested in checking out.
James Blitz writes in his Brexit Briefing that the transition is agreed, but at a price. There are three reasons for caution. First, the transitional

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Central banks in the age of populism

March 19, 2018

Two years of elections have shown that we live in an age of increasing political and economic populism. What are the consequences of that for central banks? We explore opinions about it, from both 2017 and more recently.

Charles Goodhart and Rosa Lastra have a new paper out as well as a VoxEU piece on the subject. They argue that the consensus that surrounded the granting of central bank independence in the pursuit of a price-stability-oriented monetary policy has been challenged in the aftermath of the global financial crisis, in the light of the rise of populism on the one hand and the expanded mandates of central banks on the other hand.
After considering the economic case for independence as well as the existence of distributional, directional and duration effects, the paper

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Are we steel friends?

March 12, 2018

The U.S. administration is considering to impose tariffs on steel (25%) and aluminium (10%), based on a national security argument. We review economists’ views about this major shift in U.S.’ trade policy.

Chad Brown thinks that this kind of protection would have tremendous and widespread economic and institutional repercussions, for several reasons. First, this would cut a significant amount of imports. New tariffs would probably boost costs for US automakers, can manufacturers, infrastructure projects, and even defence contractors. Second, the US has not triggered protection under the national security law in more than 30 years – President Reagan last imposed restrictions under this law in 1986. Imposing steel and aluminium tariffs now, may set off more claims that trade poses other

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The Italian elections

February 26, 2018

Italy goes to the polls on March 4, with a new electoral law that is largely viewed as unable to deliver a stable government. We review recent opinions and expectations,  as well as economists’ assessment of the cost/coverage of parties’ economic promises. 
By:
Silvia Merler
Date: February 26, 2018
Topic: European Macroeconomics & Governance

What will happen? According to Italian law, no electoral poll can be published in the two weeks preceding the vote. Luckily for the Italian speaking readers, however, we can still keep up with the latest developments by reading the somewhat cryptic results of “clandestine horse racing” reported here. 
Bloomberg Politics instead surveyed economists about their view of most likely scenarios

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