Www.banque-france.fr/fileadmin/user_upload/banque_de_france/publications/Revue_de_la_stabilite_financiere/2013/rsf-avril-2013/14-COUDERT-GEX.pdf. Public debt. Multiple equilibria. Rethinking Macroeconomic Policy. By Olivier Blanchard (Versions in عربي, 中文, Français, Русский, and Español) The IMF has just hosted a second conference devoted to rethinking macroeconomic policy in the wake of the crisis. After two days of fascinating presentations and discussions, I am certain of one thing: this is unlikely to be our last conference on the subject. Rethinking and reforms are both taking place. But we still do not know the final destination, be it for the redefinition of monetary policy, or the contours of financial regulation, or the role of macroprudential tools.
We have a general sense of direction, but we are largely navigating by sight. I shall take six examples, inspired by the conference. 1. There is no agreed vision of what the future financial architecture should look like, and by implication, no agreed vision of what the appropriate financial regulation should be. Another example is capital flows, and by implication, the role of capital controls. 2. 3. We do not have the answer yet. 4. 5. 6. This Time is Different - A Book by Carmen M. Reinhart and Kenneth S. Rogoff.
Reinhart et Rogoff se rebiffent. L'étude sur l'austérité de Reinhart et Rogoff continue à susciter la polémique. (AFP / Dominique Faget) Carmen Reinhart et Kenneth Rogoff (aka "R & R") ne comptent pas se laisser faire. Un mois après qu'un jeune étudiant de l'Université du Massachusetts, Thomas Herndon, a répliqué une de leurs études phare sur l'austérité et a abouti à des résultats fort différents – créant au passage un mini-scandale dans le monde des chercheurs en économie –, les deux universitaires tentent aujourd'hui de recentrer le débat, qui selon eux a pris un "tournant désespérément simpliste" et doit être "reconnecté à la réalité". L'étude remise en cause, "Croissance en période de dette" ("Growth in a Time of Debt" .pdf), publiée en 2010, démontre que la croissance s'est révélée sensiblement inférieure dans les pays dont la dette publique dépassait 90 % du PIB – une assertion démontée par le jeune étudiant en économétrie.
"Il est temps de revenir à la boîte à outils" Anna Villechenon. Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff. Debt and growth: Reinhart-Rogoff reprise. AFTER watching the recent feeding frenzy over challenges to the Reinhart-Rogoff debt-threshold stylised fact—that growth rates slow sharply once public debt rises above around 90% of GDP—I feel like it's worth making a few points. 1) Carmen Reinhart and Kenneth Rogoff did not cause the shift toward fiscal consolidation.
If one had to list contributing factors to that shift in order of importance, I doubt their work would rate the top ten. Easily the most important driver of the shift was the dynamic shown in the chart at right, which shows the level of public debt. I think it was unreasonable to think that governments would accept that increase in debt with insouciance. And indeed, the Reinhart-Rogoff paper that began the threshold discussion, which was published as a working paper in January of 2010, was a contribution to a discussion that was already well under way. In 2009, the IMF's Fiscal Monitor was already sounding the alarm. That's not to excuse analytical errors, of course.
The "Austerity Myth": Gain Without Pain? NBER Working Paper No. 17571Issued in November 2011NBER Program(s): EFG IFM POL As governments around the world contemplate slashing budget deficits, the “expansionary fiscal consolidation hypothesis” is back in vogue. I argue that, as a statement about the short run, it should be taken with caution. I present four detailed case studies, two – Denmark and Ireland – undertaken under fixed exchange rates (the most relevant case for many Eurozone countries today) and two – Finland and Sweden - after floating the currency. All four episodes were associated with an expansion; but only in Denmark the driver of growth was internal demand.
However, after three years a long slump set in as the economy lost competitiveness. In all consolidations interest rate fell fast, and wage moderation played a key role in generating a gain competitiveness and a decline in interest rates. You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery. Acknowledgments. Large Changes in Fiscal Policy: Taxes Versus Spending. NBER Working Paper No. 15438Issued in October 2009NBER Program(s): POL We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007.
Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions.
This paper is available as PDF (244 K) or via email. This paper was revised on December 5, 2011 Acknowledgments Machine-readable bibliographic record - MARC, RIS, BibTeX Users who downloaded this paper also downloaded these: Playing Whack-a-Mole With Expansionary Austerity. The rise and fall of Alesina-Ardagna didn’t make as much of a public splash as the Reinhart-Rogoff saga, but in a fundamental sense it was the same thing.
An academic paper purported to show something austerians very much wanted to hear – in this case that slashing spending in a depressed economy would actually create jobs; the authors were immediately feted and the paper promoted to sacred status; but then the result fell apart under both intellectual scrutiny and the weight of real-world experience. Unlike R-R, however, A-A didn’t crash and burn, it just sort of quietly slunk offstage. And as a result, pieces of their story are still embedded in what all the Serious People know. In correspondence, Kevin O’Rourke points me to Mario Draghi admitting that fiscal consolidation is contractionary, after all, but claiming that it will be less contractionary if it takes the form of spending cuts rather than tax increases.
Where is that coming from? Why, Alesina-Ardagna, of course. IMF, Economist and Roosevelt Institute on Alesina and Ardagna. The IMF put out a paper, recently summarized by The Economist as Does fiscal austerity boost short-term growth? A new IMF paper thinks not. But is it right to claim, as Mr Trichet and other devotees of “expansionary fiscal consolidations” do, that belt-tightening can actually aid growth in the short term? The intellectual backing for these claims comes from a study by two Harvard economists, Alberto Alesina and Silvia Ardagna, which studied past fiscal adjustments in rich countries.
They found that, more often than not, fiscal adjustments that relied on spending cuts boosted growth, even in the very short run. But a new study by economists at the IMF reckons that the Harvard study was seriously flawed.In particular the fund criticises the way Mr Alesina and Ms Ardagna identified periods of deficit-cutting. The Harvard economists defined major fiscal adjustments as episodes during which the cyclically adjusted primary fiscal balance (CAPB) improved by at least 1.5% of GDP. Like this: Will it hurt? MacroeconoMic effects of fiscal consolidation. Pacte budgétaire. Le traité sur la stabilité, la coordination et la gouvernance (dit "Pacte budgétaire")