Reis, Ricardo, (2016), “Fiscal crises as pretexts for quantitative easing”, VoxEu, 14 October Conventional economic theory predicts that, outside of a financial crisis, quantitative easing should have no effect on real outcomes or inflation. This column proposes two theoretical channels through which quantitative easing might also work in a fiscal crisis. In this case, quantitative easing can be a valuable tool because it can control the path of inflation over …Read More

Mody, Ashoka, (2016), “Europe after Merkel”, Project Syndicate, 13 October Next year, Germany will hold a federal election, and the new Bundestag will choose the country’s next chancellor. Whether or not Angela Merkel retains the role – at the moment, things are not looking good for her or her Christian Democratic Union (CDU) – one thing is certain: Germany’s chancellor will no longer be de facto Chancellor of Europe. That will …Read More

Masten, Igor, Grdović Gnip, Ana, (2016), “Stress testing the EU fiscal framework”, VoxEU, 13 October Fiscal policies in European Economic and Monetary Union states are being reinforced. This column argues that the cyclically adjusted budget balance will be an imprecise tool for measuring fiscal discipline, and structural deficit rules limits are too stringent. If the official methodology is used to trigger corrective fiscal contractions, it may increase macroeconomic instability. Relevant Posts …Read More

Fatás, Antonio, Summers, Lawrence,  (2016), “Hysteresis and fiscal policy during the Global Crisis”, VoxEu, 12 October Conventional wisdom on supply and demand suggests that demand shocks are cyclical or transitory, and that only technology shocks are responsible for trend changes. This column argues that cyclical events can have permanent effects on demand, and therefore GDP. It is time for policymakers to start considering the possibility of hysteresis seriously. Relevant Posts Ubide, Ángel, …Read More

Ubide, Ángel, (2016), “The case for an active fiscal policy”, VoxEU, 11 Οctober The pre-crisis consensus was, and remains, very strong – the business cycle would be managed by monetary policy, while fiscal policy would focus solely on debt sustainability. In a world of zero interest rates, however, fiscal policy has to contribute to supporting aggregate demand and protecting against deflationary risks. This column outlines three ways in which a well-designed expansionary …Read More