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161. Spain's fiscal targets should be eased

Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
The Spanish government has announced that the fiscal deficit for 2011 may be even worse than expected, perhaps even exceeding 8% of GDP. In response to this overshoot, the authorities have so far announced additional spending cuts and tax rises amounting to €15bn. But fiscal tightening will have to be even more severe if the government wants to meet its 4.4% of GDP deficit target for 2012.
Topic:
Debt, Economics, Government, Monetary Policy, and Financial Crisis
Political Geography:
Spain

162. The Fed moves to provide more transparency

Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Oxford Economics
Abstract:
The Federal Reserve has taken additional actions to make its monetary policy more transparent to markets. The latest moves include the release of FOMC members' expectatins for the federal funds rate at the end of each of the next few years and in the longer term. Another is an statement of strategy for meeting its dual mandates of price stability and full employment. Although the statement included an explicit target for inflation but not for unemployment, the equal weights given to each goal afford the Fed more discretion in setting monetary policy.
Topic:
Economics, Government, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
United States

163. Dynamics of Inflation "Herding": Decoding India's Inflationary Process

Author:
Urjit R. Patel and Gangadhar Darbha
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Compared to immediately preceding years, that is, its own recent history, India's inflation became unhinged (thereby reversing creditable performance) from as far back as 2006. The paper puts forward an empirical framework to analyze the time series and cross-sectional dynamics of inflation in India using a large panel of disaggregated sector prices for the time period, 1994/95 to 2010/11. This allows us to rigorously explore issues that have been, at best, loosely posed in policy debates such as diffusion or comovement of inflation across sectors, role of common and idiosyncratic factors in explaining variation, persistence, importance of food and energy price changes to the overall inflation process, and contrast the recent experience with the past. We find, interalia, that the current period of high inflation is more cross-sectionally diffused, and driven by increasingly persistent common factors in non-food and non-energy sectors compared to that in the 1990s; this is likely to make it more difficult for anti-inflationary policy to gain traction this time round compared to the past. The paper has also introduced a novel measure of inflation, viz., Pure Inflation Gauges (PIGs) in the Indian context by decomposing price movements into those on account of: (1) aggregate shocks that have equiproportional effects on all sector prices; (2) aggregated relative price effects; and (3) sector-specific and idiosyncratic shocks. If PIGs, in conjunction with our other findings, for example, on persistence had been used as a measure of underlying (pure) inflationary pressures, the monetary authorities may not have been sanguine regarding the timeliness of initiating anti-inflationary policies.
Topic:
Development, Economics, Industrial Policy, International Trade and Finance, and Monetary Policy
Political Geography:
South Asia and India

164. Mispricing of Sovereign Risk and Multiple Equilibria in the Eurozone

Author:
Paul De Grauwe and Yuemei Ji
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper finds evidence that a significant part of the surge in the spreads of the PIGS countries (Portugal, Ireland, Greece and Spain) in the eurozone during 2010-11 was disconnected from underlying increases in the debt-to-GDP ratios, and was the result of negative market sentiments that became very strong since the end of 2010.
Topic:
Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, Spain, Portugal, and Ireland

165. This Time Is Not Different: Blaming Short Sellers

Author:
Pierre Siklos
Publication Date:
03-2012
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
Reinhart and Rogoff's timely volume, This Time Is Different: Eight Centuries of Financial Folly (2009), makes it abundantly clear that financial crises are protracted affairs. The title of this policy brief highlights the irony of lessons never learned. History, in the form of recurring economic crises, does indeed repeat itself. Nevertheless, a closer look at Reinhart and Rogoff's often-publicized conclusion reveals that there are remarkable variations across individual countries' experiences, as well as across time. For example, the actual severity of crises can be exacerbated when a banking crisis is accompanied by a currency crisis. Most importantly, the severity of the recession that typically accompanies all types of financial crises is often determined by the response of policy makers.
Topic:
Economics, International Trade and Finance, Markets, Global Recession, Monetary Policy, and Governance

166. Gold Exchange Standard in its 40th Year of Abolition: Jacques Rueff Re-Visited

Author:
Onur Bayramoğlu
Publication Date:
03-2012
Content Type:
Policy Brief
Institution:
Global Political Trends Center
Abstract:
While the post-war international monetary system that evolved under the leadership of the U.S. dollar has secured credit abundance – and hence contributed to global growth – the system has also revealed its deficiencies already by 1950's. In contrary to the 1930's when the world's main problem was chronic deflation; two decades later, the problem has become chronic inflation and fiscal deficits. Since then many blamed the indiscipline of the Keynesian school of thought and the inability of the U.S. dollar to become a global “public good” by being a stable international currency. In this Policy Brief, I overview the many aspects of the post-war international monetary system through the lens of the post-war French economist, Jacques Rueff, and question the applicability of his longproposed gold standard in today's highly integrated and speculative money markets.
Topic:
Economics, International Trade and Finance, Markets, Monetary Policy, and Financial Crisis
Political Geography:
United States

167. Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks

Author:
Joseph E. Gagnon
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Over the past 10 years, central banks and governments throughout the developing world have accumulated foreign exchange reserves and other official assets at an unprecedented rate. This paper shows that this official asset accumulation has driven a substantial portion of the recent large global current account imbalances. These net official capital flows have become large relative to the size of the industrial economies, and they are a significant factor contributing to the weakness of the economic recovery in the major industrial economies.
Topic:
Development, Economics, Emerging Markets, Globalization, Markets, Monetary Policy, and Financial Crisis

168. Liquidity in times of crisis: Even the ESM needs it

Author:
Daniel Gros and Thomas Mayer
Publication Date:
03-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
This paper argues that the new permanent European rescue fund, the European Stability Mechanism (ESM), should be provided with a liquidity backstop by having it registered as a bank – and be treated as such by the European Central Bank. If the crisis were to become acute again, the ESM would stand ready to intervene in secondary markets, potentially with almost unlimited amounts of funding. Access to central bank financing will be crucial in a future crisis, because in such a crisis risk aversion is likely to be extreme, and even the ESM might not be able to raise at very short notice the huge sums that might be required to prevent a breakdown of the financial system. Hundreds of billions of euro might be needed just to top up the programmes for Greece, Ireland and Portugal – and Spain and Italy may require more than a thousand billion euro. Sums of this order of magnitude cannot be raised quickly by a new institution. Simply increasing the headline size of the ESM might thus be of little use.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
Greece, Spain, Italy, Portugal, and Ireland

169. Fear Athens Less and Washington More

Author:
Irwin M. Stelzer
Publication Date:
05-2012
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
There comes a tide in the affairs of men And the one sweeping from Greece, across Europe and into the United States is washing away support for austerity, in some cases reinforcing opposition to it, largely from the Left. President Obama is delighted at this support for his refusal to cut spending in the face of mounting deficits, and the Republicans are feeling beleaguered at what they see as the disinterment of the body of works of John Maynard Keynes. No longer must the President sit at G8 meetings (in this weekend's case, G7 since Vladimir Putin finds it necessary to stay at home to deal with an unpleasant spate of dissent) and hear only the voice of Germany's iron Chancellor, Angela Merkel, extolling the virtues of thrift, austerity and balanced budgets. Now he has France's new socialist President, François Hollande, to preach the virtues of spending, "the indispensable stimulation of the economy", and, even better, high taxes-- up to 75% on incomes in excess of $1.35 million per year, which makes the team of Buffett and Obama mere pikers at the soak-the-rich game. Secretary of State Hillary Clinton expressed the administration's delight at Hollande's "different political approach Different voices may be louder on growth than they have been It's been our view that there needed to be adjustments to austerity, so that there could be growth, both for economic reasons and for political reasons President Obama and our economic team have been saying for some time that growth had to factor into a European recovery." Take that, Mrs. Merkel and all you Republicans who want to cut entitlement spending and retain the Bush tax cuts that benefit "millionaires and billionaires", Obama shorthand for families earning more than $250,000 per year.
Topic:
Economics, International Trade and Finance, Monetary Policy, and Budget
Political Geography:
United States, Europe, Washington, Greece, and France

170. How Safe Is the U.S. Safe Haven?

Author:
Irwin M. Stelzer
Publication Date:
06-2012
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
This version of the glorious sonnet composed by Emma Lazarus in 1883, and later engraved on a bronze plaque installed on the Statue of Liberty, calling the world's huddled masses to our shores, captures what it means these days to be a safe haven. Just as America proved to be such a safe haven for immigrants in the latter 19th and early 20th centuries, it is now seen as a safe haven for wealth attempting to escape Europe's tax collectors and financial chaos and recession in Europe, and for foreign central banks newly enamored of the dollar.
Topic:
Economics, International Trade and Finance, Immigration, and Monetary Policy
Political Geography:
United States, Europe, and Germany