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11. Economic recovery and inflation

Author:
Marek Dabrowski
Publication Date:
04-2018
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
In the last decade, advanced economies, including the euro area, experienced deflationary pressures caused by the global financial crisis of 2007-2009 and the anti-crisis policies that followed—in particular, the new financial regulations (which led to a deep decline in the money multiplier). However, there are numerous signs in both the real and financial spheres that these pressures are disappearing. The largest advanced economies are growing up to their potential, unemployment is systematically decreasing, the financial sector is more eager to lend, and its clients—to borrow. Rapidly growing asset prices signal the possibility of similar developments in other segments of the economy. In this new macroeconomic environment, central banks should cease unconventional monetary policies and prepare themselves to head off potential inflationary pressures.
Topic:
Economics, Monetary Policy, Economic growth, Inflation, Macroeconomics, and Unemployment
Political Geography:
Europe, Global Focus, and European Union

12. Monetary Policy in an Uncertain World: The Case for Rules

Author:
James A. Dorn
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Since monetary policy operates in an uncertain world, discretionary policymaking relying on macroeconomic models of the economy is a weak reed upon which to base policy. The complexity of economic systems and constant changes in the underlying data mean errors may occur in a discretionary regime that can lead to monetary and financial instability.1 The 2008 financial crisis is a case in point: central bankers and their expert staffs failed to anticipate the crisis, and may have worsened it by keeping policy rates too low for too long (Taylor 2012). Moving to a rules‐​based regime would not eliminate radical uncertainty, but it could decrease institutional uncertainty—or what Robert Higgs (1997) has called “regime uncertainty”—and thus reduce the frequency of policy errors. Higgs focused on the uncertainty caused by fiscal and regulatory policies that attenuated private property rights by decreasing expected returns on capital. A discretionary monetary regime increases uncertainty about the future purchasing power of money and thereby undermines an important property right.
Topic:
Economics, Monetary Policy, Economic structure, and Macroeconomics
Political Geography:
Global Focus

13. Comparative Political Economy and Varieties of Macroeconomics

Author:
Lucio Baccaro and Jonas Pontusson
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
This paper provides a historical overview of comparative political economy as an interdisci- plinary field of study anchored in political science and focused on advanced capitalist states. We argue that this field of inquiry has reached an impasse and that a more sustained engage- ment with macroeconomics provides a way forward. Against this backdrop, we review two distinct traditions of macroeconomics – New Keynesian and Post-Keynesian macroeco- nomics – and discuss their relative merits as vehicles for renewing the research agenda of comparative political economy.
Topic:
Capitalism, Macroeconomics, and Keynes
Political Geography:
Global Focus

14. Fiscal Sustainability: Conceptual, Institutional, and Policy Issues

Author:
Marek Dabrowski
Publication Date:
08-2016
Content Type:
Working Paper
Institution:
Center for Social and Economic Research - CASE
Abstract:
'Since 2008, the world economy has been facing the consequences of the global financial crisis. As a result, many economic policy paradigms have been revised, and this process is far from complete. The policy area, which needs a fundamental rethinking (especially in advanced economies), relates to the role of public finance and fiscal policy in ensuring economic growth and financial stability. The primary task will be to develop a new analytical approach and detailed indicators, which are necessary to provide a correct diagnosis and effective recommendations.' What are the “safe” levels of budget deficit and public debt during “normal” or “good” times? Is there a single norm of fiscal safety?
Topic:
Debt, Financial Crisis, Finance, Global Financial Crisis, Macroeconomics, Fiscal Policy, and Deficit
Political Geography:
Europe, Global Focus, and Global Markets

15. Macroeconomic Impact of Capital Flight in Sub-Saharan Africa

Author:
John Weeks
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
This paper assesses the impact of capital flight on growth in thirty-one sub-Saharan African countries. It first considers the “macro fundamentals” hypothesis that capital flight would be lower in a country whose government adhered to “sound” macroeconomic policies. Analytical considerations fail to support this hypothesis. Second, it develops a growth estimating equation derived from the Harrod-Domar framework. The growth estimations support the conclusion that capital flight had a major impact on growth over the last three decades, 1980–2010. The negative impact was greatest for the petroleum-exporting countries and those affected by internal conflict, but it was also substantial for the other countries, with a few exceptions.
Topic:
Economics, Markets, Global Markets, Economic growth, Economic Policy, Macroeconomics, and Capital Flight
Political Geography:
Africa, Sudan, Nigeria, Angola, Chad, Cameroon, Global Focus, Gabon, and Republic of Congo

16. When will the global economy return to rapid growth?

Author:
Marek Dabrowski
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Center for Social and Economic Research - CASE
Abstract:
More than six years have passed since the subprime mortgage crisis began in the US in the summer of 2007. In the following year, it spread to the entire world economy. Its consequences have not been fully overcome yet. Thus it’s not surprising that economists’ attention has been largely devoted to short-term, crisis-related issues like financial deleveraging and repairing the balance sheets of governments, corporations and households. For the macroeconomic policy debate, this means concentrating on demand management by using monetary and fiscal policy tools in order to return to a pre-crisis growth path. Rarely has the question been asked of whether or not this is a realistic goal, i.e., whether post-crisis growth can return to pre-crisis levels. An analysis of growth perspectives in the medium-to-longterm calls for using the neo-classical growth theory, according to which there are three factors at play: labor, capital and total factor productivity (TFP). In this brief we will try to figure out what their expected dynamics are and how much each of them can contribute to economic growth in the foreseeable future.
Topic:
Economic growth, Global Financial Crisis, Economic Policy, Macroeconomics, and Fiscal Policy
Political Geography:
Global Focus and Global Markets

17. A History of Polyvalent Structural Parameters: the Case of Instrument Variable Estimato

Author:
Duo Qin and Yanqun Zhang
Publication Date:
09-2013
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper investigates the rise and fall of the IV method in macro-econometric models and its subsequent revival in micro-econometric models. The key findings are: (i) the IV method implicitly breaks the contemporaneously circular causality postulated in a simultaneous- equation model (SEM) by redefining the conditional variable concerned as a suboptimal conditional expectation of it; (ii) the IV method falls out of favour in macro-econometrics mainly because of lack of empirical validations for such redefinitions; (iii) the IV method wins its popularity in micro-econometrics by its capacity to produce multiple suboptimal conditional expectations of the latent conditional variables of interest under the disguise of an SEM consistent estimator; nevertheless, (iv) such suboptimal conditional expectations give rise to the insurmountable difficulty of credibly interpreting the IV-based parameter estimates, especially in the case of prognosticated omitted variable bias. The findings highlight the methodological drawback of the estimator-centric strategy of textbook econometrics.
Topic:
Economic Theory, Macroeconomics, and Microeconomics
Political Geography:
Global Focus

18. Lange and Keynes

Author:
Jan Toporowski
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
Lange engaged with Keynes in the matter of Keynes‟s macroeconomics, and over econometrics. Lange‟s interpretation of the Keynesian macroeconomic model laid the foundation for the neo-classical synthesis. But it was limited in its monetary economics. Lange also intervened in the Keynes-Tinbergen dispute over the scope and significance of econometrics. Lange collaborated in a paper that conceded Keynes‟s main point that empirical investigation could not determine theory, but insisted that theories could nevertheless be tested empirically. The paper was never publish and Keynes, unconvinced, planned to recruit Kalecki to his critique of econometrics.
Topic:
Socialism/Marxism, Economic Theory, Macroeconomics, and Keynes
Political Geography:
Global Focus

19. A Note on Mundell-Fleming and Developing Countries

Author:
John Weeks
Publication Date:
03-2008
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper inspects the statement found in macroeconomic text books that under a flexible exchange rate regime with perfectly elastic capital flows monetary policy is effective and fiscal policy is not. The logical validity of the statement requires that the domestic price level effect of devaluation be ignored. The price level effect is noted in some textbooks, but not analysed. When it is subjected to a rigorous analysis, the interaction between exchange rate changes and domestic price level changes render the standard statement false. The logically correct statement would be, under a flexible exchange rate regime with perfectly elastic capital flows the effectiveness of monetary policy depends on the values of the import share and the sum of the trade elasticities. Monetary policy will be more effective than fiscal policy if and only if the sum of the trade elasticities exceeds the import share. Inspection of data from developing countries indicates a low effectiveness of monetary policy under flexible exchange rates. In the more general case of less than perfectly elastic capital flows the conditions for monetary policy to be more effective than fiscal policy are even more restrictive. Use of empirical evidence on trade shares and interest rate differentials suggest that for most countries fiscal policy would prove more effective than monetary policy under a flexible exchange rate regime. In any case, the general theoretical assertion that monetary policy is more effective is incorrect.
Topic:
Monetary Policy, Developing World, Capital Flows, Macroeconomics, and Fiscal Policy
Political Geography:
Global Focus