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Silvia Merler

Silvia Merler

Silvia Merler, an Italian citizen, joined Bruegel as Affiliate Fellow at Bruegel in August 2013. Her main research interests include international macro and financial economics, central banking and EU institutions and policy making.

Articles by Silvia Merler

Argentina’s troubles

5 days ago

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

13 days ago

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?

20 days ago

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

27 days ago

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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Venezuela’s hyperinflation

February 19, 2018

The International Monetary Fund forecasts Venezuelan inflation spiralling to 13,000 percent this year. As President Maduro is expected to introduce the “petro” cryptocurrency next week, we review economists’ recent (and less recent) opinions on the current crisis.

For those in need of a quick recap, the FT has the Venezuelan crisis in five charts.
As prices have skyrocketed, and with unemployment expected to grow to more than 36% by 2022, income has not been able to keep up with the need to buy food. Nearly three-in-four Venezuelans reported suffering weight loss last year, and, of those, a 9kg loss on average. Venezuela has recently surpassed China and Mexico as the largest source of asylum applications to the US.
With the homicide rate having risen to the second highest in the

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The stock market slide

February 12, 2018

The stock market dropped last week, leading to questions and debates as to the underlying reasons. We review economists’ views on the issue.

John Cochrane has a long explanatory post on “stock gyrations”, where he examines in depth stock prices, price dividend ratio, rates, risk premium and volatility. The question before us is, are long-term real rates finally rising – back to something like the historical norm that held for centuries – and if so why? The good story, Cochrane argues, is that we are entering a period of higher growth. This would raise real growth, with a small stock price decline, but higher stock returns and bond returns going forward. The bad story is that, having passed a tax cut that left untouched will lead to trillion-dollar deficits, congressional leaders just

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Economies of States, Economies of Cities

February 5, 2018

Both in Europe and the US, economists are starting to notice how the economies of cities have been sometimes diverging from the economies of states. While some areas thrive, others may be permanently left behind. Maybe it is time to adopt a more clearly sub-national perspective. We review recent contributions on this issue.

In this week’s Free Lunch, Martin Sandbu makes the very interesting claim that “all economics is local”, and that sustainability of economic strategies depend on their local effects. Many studies show that intensifying economic vulnerability at the local or regional level is closely associated with anti-establishment votes for political disruption or for extremist or populist parties. The deindustrialisation that rich countries have undergone at the hands of

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Bank liquidation in the European Union: clarification needed

January 10, 2018

Critical functions and public interest. What role do they play in Member States’ decision to grant liquidation aid? The author of this paper looks at how resolution and liquidation differ substantially when it comes to the scope of legislation applicable to the use of public funds and how the diversity in national insolvency regimes is a source of uncertainty about the outcome of liquidation procedures.
By:
Silvia Merler
Date: January 10, 2018
Topic: European Macroeconomics & Governance

Under the current European Union frameworks for dealing with banking problems, resolution of banks is seen as an exception to be activated only if liquidation under national insolvency proceedings would not be warranted. This is most

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Abenomics, five years in

January 8, 2018

Five years have passed since Japan’s Prime Minister Shinzō Abe was elected in 2012 and started “Abenomics”, a macroeconomic package based upon the “three arrows” of monetary easing, fiscal stimulus and structural reforms. After five years, has Abenomics worked? We review recent opinions.

The Economist points out that five years later, Japan’s currency is about 30% cheaper in dollar terms than it was in November 2012 and the Nikkei 225 stock-market index is up by more than 150%. That has provided some of the intended stimulus to the economy, and Japan’s GDP has risen for seven quarters in a row, its longest spell of uninterrupted growth for 16 years. Exports contributed a lot to the increase, but private investment has also grown by more than 18% in nominal terms over the past five

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Critical functions and public interest in banking services: Need for clarification?

December 18, 2017

What is the role that the concepts of critical functions and public interest play in Member States’ decision to grant liquidation aid? Silvia Merler looks at the recent liquidation of two Italian banks to show how resolution and liquidation differ substantially when it comes to the scope of legislation applicable to the use of public funds.
By:
Silvia Merler
Date: December 18, 2017
Topic: European Macroeconomics & Governance

This material was originally published in a paper provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate-General for Internal Policies of the Union and supervised by its Economic Governance Support Unit (EGOV). The

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The Republican Tax Plan (2): The debate rumbles on

December 18, 2017

Reactions to the Republican tax plans continue, concentrating on different aspects of the proposed legislation. We review the latest contributions.

Robert Barro writes on Project Syndicate that by reducing the costs of investments and cutting the tax rate on corporate profits, the final plan that emerges will likely boost growth substantially. His conclusion is based on three likely changes to the taxation of businesses (which he treats as permanent, in his analysis): (i) a reduction of the main tax rate on profits of C-corporations from 35% to 20%; (ii) a replacement of the current system of depreciation allowances for new equipment with immediate 100% expensing; (iii) the shortening of the recovery period for most non-residential business structures, such as office buildings, from

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The DSGE Model Quarrel (Again)

December 11, 2017

Dynamic Stochastic General Equilibrium models have come under fire since the financial crisis. A recent paper by Christiano, Eichenbaum and Trabandt – who provide a defense for DSGE – has generated yet another wave of reactions in the economic blogosphere. We review the most recent contributions on this topic.
By:
Silvia Merler
Date: December 11, 2017
Topic: European Macroeconomics & Governance

A recent paper by Christiano, Eichenbaum and Trabandt (C.E.T.) on Dynamic Stochastic General Equilibrium Models (DSGEs) has generated quite a reaction in the blogosphere. In the paper, C.E.T. argue that pre-crisis DSGE models had shortcomings that were highlighted by the financial crisis and its aftermath. But over the past 10 years,

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The Bitcoin Bubble

December 4, 2017

The price of bitcoin has just passed $11,000. A year ago it was worth less than $800. Economists and commentators are thus increasingly concerned that this may be a bubble waiting to burst. We review recent opinions on the topic.

The price of Bitcoin has reached and passed $11,000, from $800 just one year ago (Figure 1). The Economist’s Buttonwood’s notebook thinks that while the stock market has been trading at high valuations for some time, there is nothing like the excitement about shares that there was during the dotcom bubble of 1999-2000. That excitement has shifted to the world of cryptocurrencies like Bitcoin and Ethereum. There are three strands to their appeal: the limited nature of supply; fears about the long-term value of fiat currencies in an era of quantitative easing;

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Has the Phillips curve disappeared?

November 21, 2017

The Phillips curve prescribes a negative trade-off between inflation and unemployment. Economists have been recently debating on whether the curve has disappeared in the US and Europe. We report some of the most recent views.

The Economist argues that the Phillips curve may be broken for good, showing a chart of average inflation and cyclical unemployment for advanced economies, which has flattened over time (Figure 1). The Economist also refers to a recent paper by three economists at the Philadelphia Fed, arguing that the Phillips curve is not very useful at forecasting inflation: their Phillips curve models’ forecasts tend to be unconditionally inferior to those from a univariate forecasting model. Phillips curve forecasts appear to be more accurate when the economy is weak and

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Powell’s Federal Reserve

November 13, 2017

With the appointment of Jerome Powell as the next Fed’s chairman, President Trump break a tradition of bipartisan re-nomination and chooses someone who is not an economy by formation. We review economist’s opinions on this choice and the challenges ahead.

Kenneth Rogoff argues that with the appointment of Jerome Powell as the next Fed Chair, Donald Trump has made perhaps the most important single decision of his presidency. It is a sane and sober choice that heralds short-term continuity in Fed interest-rate policy, and perhaps a simpler and cleaner approach to regulatory policy. Powell will face some extraordinary challenges at the outset of his five-year term. By some measures, stock markets look even frothier today than they did in the 1920s and with today’s extraordinarily low

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The Bank of England’s dovish hike

November 6, 2017

For the first time since 2007, the Bank of England raised interest rates, with a hike of 25 basis points. At the same time, it provided forward guidance that outlines a very gradual path for future increases. We review the economic blogosphere’s reaction to this decision.

By:
Silvia Merler
Date: November 6, 2017
Topic: European Macroeconomics & Governance

Chris Giles at the FT says that the Bank has questions to answer: about its reasoning; about the UK’s economic prospects; and about the way it communicates the future outlook for interest rates. For most of this year, City economists have converged on the view that in light of Brexit, the Monetary Policy Committee (MPC) would not touch interest rates until late 2018 or

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The capital tax cut debate

October 30, 2017

How much do workers gain from a capital gains tax cut? CEA chairman Hasset claims the tax cut will cause average household labour income to increase by between $4000 and $9000. Several commentators note this implies that more than 100% of the incidence of the tax is on labour. This question has triggered a heated discussion in the economic blogosphere, which we review here.

Former chair of the Council of Economic Advisers (CEA) Jason Furman writes on Twitter that “the economic debate about the %age of the corporate tax paid by labour ranges from 0% to 100%. The new CEA study puts it at 250%.” Larry Summers writes in the Washington Post that White House Chief Economist Hasset’s claim that cutting the corporate tax rate from 35 percent to 20 percent would raise wages by $4000 per

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Bailout, bail-in and incentives

October 23, 2017

Ever since the outbreak of the global financial crisis, more and more rules have been developed to reduce the public cost of banking crises and increase the private sector’s share of the cost. We review some of the recent academic literature on bailout, bail-in and incentives.

Some early literature correlated the likelihood of systemic crises to banks’ anticipation of bailouts. Leitner (2005) develops a model of financial networks in which linkages not only spread contagion but also induce private sector bailouts, where liquid banks bail out illiquid banks because of the threat of contagion. Linkages can thus be optimal ex ante because they allow banks to obtain some form of mutual insurance even if formal commitments are impossible. However, in some cases, the whole network may

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On the cost of gun ownership

October 11, 2017

On 1 October 2017, 59 people were killed and another 489 injured in what is currently the deadliest mass shooting in US modern history. The author reviews recent contributions on the economic cost of gun violence, as well as the impact of regulation.

The Washington Post makes the math of mass shootings.There is no universally accepted definition of a mass shooting, and different organizations use different criteria. The Post piece uses a narrow definition and looks only at deadliest mass shootings, beginning August 1, 1966. Based on this criteria, they identify 131 events in which four or more people were killed by a lone shooter (or two shooters in three cases). An average of eight people died during each event, taking the total death toll to 948. It’s worth checking out the Post’s

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The Economics of Healthcare

October 2, 2017

Healthcare reform has been a thorn in the side of the US administration for several months, prompting President Trump to declare that “Nobody knew that healthcare could be so complicated.” We review recent economists’ views on the issue.

Greg Mankiw  argues that healthcare is so complicated because the magic of the free market sometimes fails us when it comes to this sector, for several reasons. First, externalities abound. When a new treatment is discovered, for example, that information enters society’s pool of medical knowledge, but without research subsidies or an effective patent system, too few resources will be devoted to research. Second, when people get sick, they often do not know what they need and sometimes are not in a position to make good decisions. The inability of

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The Fed’s Unwinding

September 25, 2017

The Federal Open Market Committee (FOMC) held short-term interest rates steady on September 20th and announced that starting from October 2017 the Fed will gradually shrink its balance sheet, which grew considerably in response to the Great Recession. We review economists’ views on this move.

Joseph Gagnon at PIIE thinks that the unexpected development was a further reduction in the median view of FOMC participants about where the short-term interest rate will settle in the long run. The Fed apparently endorses the view that the slowdowns in the growth rates of productivity and the working-age population have persistently lowered both the economy’s potential growth rate and the rate of return on investment. Shrinking the balance sheet will tighten financial conditions because it will

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Global Imbalances

September 21, 2017

The recent IMF’s External Sector Report highlighted the persistence of imbalances and a switch of imbalances towards advanced economies. We review recent contributions on this topic.

The IMF’s 2017 External Sector Report shows that global current account imbalances were broadly unchanged in 2016. Overall excess current account imbalances (i.e., deficits or surpluses that deviate from desirable levels) represented about one-third of total global imbalances in 2016, increasingly concentrated in advanced economies. Persistent global excess imbalances suggest that automatic adjustment mechanisms are weak. While the rotation of excess imbalances toward advanced economies likely entails lower deficit-financing risks in the near term, the increased concentration of deficits in a few

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North Korea: sanctions and marketization from below

September 11, 2017

What’s at stake: despite Western sanctions, North Korea has been in the news all summer. The country was in the spotlight for the death of American student of Otto Warmbier in June, and for the frequent missiles tests in July and August. We review recent contributions on the impact of economic sanctions.

The Economist argues that Western sanctions have not had much effect on North Korean economy, which is probably growing at between 1% and 5% a year. The UN has attempted to block the country’s access to hard currency by capping the amount of coal it can export, and China, the buyer in 99% of North Korea’s reported coal sales, said that it would suspend all imports. Yet North Korean vessels have continued to dock at Chinese coal ports. Moreover, countries or individuals that help

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