Blog Post
What’s at stake: The ECB has announced “Outright Monetary Transactions” (OMT) on 6th September. Comprising of potentially unlimited purchases of government bonds, it is the largest ECB intervention so far. In the blogosphere, OMT is mainly evaluated as intended to prevent market panic from pushing otherwise solvent governments into bad equilibria, insolvency due to mounting interest payments. Criticism focuses on either conditionality requiring more austerity, stopping growth or on conditionality being not fully credible as OMT support cannot easily be withdrawn from non-compliant countries.
Blog Post
What’s at stake: Safe debts – or what is often called information insensitive assets, as they do not suffer from the types of financial frictions that are characteristic to other financial assets – play a major role in facilitating transactions for institutional investors. And, as we have learned in the recent years, they also play a major role in triggering financial crises when they loose their safety status and turn into information sensitive assets. As central bankers start backpedalling on their commitments to increase the supply of safe assets and start worrying about the negative effects of the “search for yield”, there has been a renewed discussion in the blogosphere about the role of safe assets and whether they remain in short supply.
Blog Post
What’s at stake: An interesting debate about the trade-off between innovation and redistribution has sparked over the (admittedly wonky) paper by Daron Acemoglu, James Robinson and Thierry Verdier in which the authors argue that the "cuddly" capitalism of Europe could not sustain high levels of growth in the absence of the "cutthroat" capitalism of America. Entrepreneurs in those ruthless economic models bear more risks – and thus move the technology frontier faster. While still in Working Paper format and written for an academic audience, the paper was picked up by several bloggers who criticized the premises, the methodology and the conclusions.
Blog Post
What’s at stake: In an update to its budget and economic outlook, the Congressional Budget Office (CBO) reminded of the approaching “fiscal cliff” – a popular wonk-speak used to describe the significant automatic cuts in federal spending and tax increases scheduled to take place at year end under current laws. CBO estimates that the fiscal drag would be in the order of 4% and would cause a double-dip recession. But even before the issue of the actual economic drag such an impulse could create lies the question of how potential political scenarios could shape policy outcomes, especially ahead of the Presidential election.
Blog Post
What’s at stake: Since the financial crisis, the role of finance has been put into question. Beyond the political process of re-regulation, it is useful to go back to the fundamental questions on the role of financial intermediation on growth, employment, risk sharing, etc. Does finance allocate capital efficiently, and allow better inter-temporal consumption and investments decisions or does it concentrate risks, create volatility, and increase inequality? Whether you look at its share of GDP or of profits, finance has undoubtedly become bigger over the last decade? Should something be done about it? The crisis and the Occupy Wall Street movement have renewed the urgency of these questions and the responses might drive the policy agenda over the next few years.
Blog Post
Last week, we wrote a post arguing that the European economic blogosphere was trailing by far its American counterpart. This is a revision of what we said.
Blog Post
As Bruegel is launching its blog, and what we hope will become an important European forum for discussion on international economics, we came up with a few observations.
Blog Post
What’s at stake: What started as a speech on inflation targeting by the President of a regional Fed has turned into a fierce economic debate on the impact of the collapse of a bubble on potential GDP. While it is natural for the current debate to focus on this phase of the problem, a growing literature has also explored the impact of bubbles on potential GDP during the boom phase. We start by reviewing the provocative body of work that studies bubbles in the presence of financial frictions, which often come to the conclusion that bubbles can increase potential output by reducing the inefficiency induced by financial market frictions. We then review the current debate on the econ blogosphere following the infamous Bullard speech. Although the arguments are somewhat decoupled from the ones we outline in the first part and focus on more familiar ideas, it is interesting to see that a Fed regional President played by the rules of the econ blogosphere and wrote his own “geeky” post as a response to the criticisms he had received.
Essay / Lecture
Ever since first the blueprints for monetary union in Europe were drawn up, the United States, considered as a collection of individual states or regions, has served as a benchmark for assessing its feasibility and evaluating alternative policy options.
Blog Post
What’s at stake: While the movement of the “99 percent” is receding, some of the issues it raised continue to be highly discussed in academic and policy circles. In particular, a crucial public policy question is whether governments should tax high earners more. While in previous election cycles, the narrative on inequality and the crisis […]
Blog Post
What’s at stake: Larry Summers did not make a lot of friends earlier this year when he said that DSGE models played no role at all in the White House policy response to the crisis. That it was all IS-LM augmented by a liquidity trap. Since then, a series of debates has taken place on […]
Blog Post
What’s at stake: Uncertainty is frequently blamed for the sorry state of the economy. In the US, the Speaker of the House John Boehner, for example, recently declared that regulatory, tax, and trade uncertainties are playing a hampering role on the recovery from the Lesser Depression by straining the incentives for companies to invest. After […]