“Twenty years of schooling and they put you on the dayshift.” Subterranean Homesick Blues, Bob Dylan, 1965
This month revealed the official macroeconomic policy response, channelled through the International Monetary Fund (IMF), of the impact of COVID-19 in terms of global macroeconomic prospects, financial sector stability, and fiscal tendencies. Respectively, the Fund’s flagship publications were thus laminated for public consumption as the World Economic Outlook (WEO), Global Financial Stability Report (GFSR), and Fiscal Monitor (FM).
Through these vehicles, official country and region responses—ad hoc and uncoordinated—are somehow brought into harmony. And these forecasts are lapped up by the financial press. The Financial Times (FT) being one, where Martin Wolf reels off the IMF’s forecasts as sacrosanct and serious.
However, upon closer inspection, the IMF offers up only gibberish for public consumption. User beware. Continue reading “COVID-19 and the poverty of IMF macroeconomics”
The publication of the Bank of Italy (BdI) balance sheet for March provides the first glimpse of how the Italian economy is navigating the COVID-19 Crisis through the lens of the official sector. However, there are several moving parts—APP and PEPP purchases, VLTRO access, and USD swap facilities—which makes interpreting the balance sheet trickier than usual. Still, March 2020 will go down as one of the most remarkable in the history of the euroarea as witnessed through BdI balance sheet changes. Continue reading “Banca d’Italia balance sheet: March 2020”
It’s becoming increasingly clear that the fiscal response to COVID-19 in Europe and the United States will fall massively short. Policymakers are, as yet, not up to the task.
The “principle of effective demand,” the cornerstone of immediate post-war macroeconomics, requires that the government spends when the private sector might otherwise refuse—preventing a depression in spending and unemployment that would otherwise emerge. In so doing, the government ensures that employment and income across the community remains higher than individual spending choices alone would deliver. Government spending reasonably offsets private prudence. Continue reading “The fiscal response to COVID-19: The time to act is now”
As the COVID-19 shock continues to fan out across the global economy, policymakers are contemplating the correct response. Curiously, though the shock is of a different character to that during the Great Financial Crisis (GFC) the policy response should be broadly similar—monetary easing, (where possible) liquidity provision by central banks, and fiscal expansion. Whether policymakers react in the correct manner is crucial; the biggest danger facing the global economy right now is that they take the view that a different shock requires a different policy response. This is not the case—with an important caveat. Here we briefly frame the challenge of responding to COVID-19.
Macroeconomics and the COVID.
[Having just reviewed what I imagined to be the outcome in the event of Leave in the week before the Brexit referendum, I thought I’d drop it online for posterity. This is an abridged version (nothing added, only the scenarios that did not emerge and irrelevant details removed) from that written during the week between the devastating murder of MP Jo Cox and the referendum in 2016. With hindsight, the strength of public finances and the economy is clearly wrong and remains a puzzle to resolve; the business cycle more generally has held up–something to ponder in the period ahead; the prediction of a new PM in Bojo was also (thankfully) wrong; while I completely failed to foresee the recalcitrance of Labour to push back meaningfully against Brexit alongside a few other details… but still, our current predicament was in broad brush terms there to foresee. As to Article 50 extension, which i thought would not be granted, it now seems more a question of whether the UK asks rather if the EU grants, but let’s wait and see. I give myself 6/10, perhaps optimistically.]
*** Continue reading “The UK’s Referendum on the European Union: What Happens Next? [throwback from June 2016]”
AS NEW ECONOMIC Counsellor and Director of Research Department (RES), Gita Gopinath, settles into her new role at the IMF, what might her priorities be to make an imprint on the world’s premier monetary institution? Here’s a suggestion. She might begin by taking control of the IMF’s global forecasts—and do so with a view to rekindling the prospects for global macroeconomic policy coordination. Continue reading “On the prospects for global macroeconomic policy coordination”
THE PERCEPTIVE Simon Tilford of the Centre for European Reform has noticed a curious feature of Germany’s external accounts: her net international investment position (NIIP) reveals net “foreign assets have risen much less rapidly than the accumulated current account surpluses, leading to … losses: around €580 billion since 1999.” Continue reading “Germany’s Missing €500 billion”
Consolidated Parts I to III in pdf. Fixing Greece_FINAL
What happens next?
OF LATE, Greece’s current account has come close to registering, but has not yet equalled, surpluses achieved by her comparators at the time their crises abated. Against this, Greek public external debt remains much larger. Continue reading “Fixing Greece: Part III”
The Greek transfer problem
THE MACROECONOMIC challenge facing Greece in 2010 was side-stepped from the start—driving, in turn, policy missteps.
Figure 3 highlights the truly extraordinary non-resident purchases of Greek government debt—capital inflows—during the decade from 1999. The left chart uses the Bank of Greece’s excellent flow of funds data—recorded at market value of transactions—to track the 4-quarter sum of non-resident and resident purchases of Greek debt. It also shows the fiscal balance throughout. Continue reading “Fixing Greece: Part II”