Frankel, J., Vegh, C. and Vuletin, G., (2013), “On graduation from fiscal procyclicality”, Journal of Development Economics, 100(1):32-47. In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to …Read More
Fiscal Consolidation in the Euro Area: How Much Can Structural Reforms Ease the Pain?
Anderson, D., Hunt, B. and Snudden, S., (2013), “Fiscal Consolidation in the Euro Area: How Much Can Structural Reforms Ease the Pain?”, International Monetary Fund, Working Paper No.13/211, October. The IMF’s Global Integrated Monetary and Fiscal model (GIMF) is used to examine the scope for structural reforms in the euro area to offset the negative impact of fiscal consolidation required to put public debt back on a sustainable path. The …Read More
Bad and Good News on Euro Area Inflation
Watt, A., (2013), “Bad and Good News on Euro Area Inflation”, Social Europe Journal, 16 October. The latest euro area monthly inflation numbers are out and manage to give cause for both gloom and cheer. First the bad news: inflation is too low. The euro area average figure of just 1.1% is a cause for concern because it is so low – only a little over half what the ECB …Read More
The Return of Europe’s Debt Crisis
Das, S., (2013), “The Return of Europe’s Debt Crisis”, EconoMonitor, 16 October. Since mid-2012, the European financial crisis has been in remission, with the symptoms of the underlying disease temporarily suppressed. As treatment is discontinued and drugs lose efficacy, there is a high probability of a relapse. Taking the Waters… A combination of austerity programs, debt write-downs, the European Central Bank’s (“ECB”) commitment to “do whatever it takes” to preserve …Read More
Disentagling the Bond-CDS Nexus: A stress test model of the CDS market
Vuillemey, G. and Peltonen, T., (2013), “Disentagling the Bond-CDS Nexus: A stress test model of the CDS market”, European Central Bank, Working Paper No.1599, October. This paper presents a stress test model for the CDS market, with a focus on the interplay between banks’ bond and CDS holdings. The model enables the analysis of credit risk transfer mechanisms, includes features of market and liquidity risk, and allows for contagious propagation …Read More
Tax policy in (and for) hard times
Kean, M., (2013), “Tax policy in (and for) hard times”, VoxEU, 16 October. Tax policy, like everything else, has been through tough times since the onset of the crisis. First, tax policy was to stimulate the economy (Heady 2011). Now it is to help consolidate the fiscal position – always with considerable urgency and all in the midst of public anger and disquiet. What state has all this left our …Read More
The Periphery Six
Wright, T., (2013), “The Periphery Six”, Project Syndicate, 14 October. Cyprus, Greece, Ireland, Italy, Portugal, and Spain share a problem. With massive debt, no control over monetary policy, and no leeway for fiscal stimulus, they appear headed for a lost decade of high unemployment and low GDP growth. Such a path would drain the political establishment of legitimacy and prevent a real recovery in Europe. With structural reforms having proved …Read More
The IMF and the legacy of the euro crisis
Schadler, S., (2013), “The IMF and the legacy of the euro crisis”, VoxEU, 15 October. The IMF loans to Greece, Ireland and Portugal are considered controversial by some analysts. This column argues that these loans – granted without having agreed on convincing paths to manageable debt levels – constituted a substantial departure from IMF principles. The situation is costly for Europe and, having now permanently changed the principles guiding large …Read More
Proposal for a Stabilisation Fund for the EMU
Delbecque, B., (2013), “Proposal for a Stabilisation Fund for the EMU”, Centre for European Policy Studies, Working Paper No.385, 14 October. This paper argues that it should be possible to complement Europe’s Economic and Monetary Union with an insurance-type shock absorption mechanism to increase the resilience of member countries to economic shocks and reduce output volatility. Such a mechanism would neither require the establishment of a central authority, nor would …Read More
Fiscal Monitor 2013: Taxing Times
IMF, (2013), Fiscal Monitor 2013: Taxing Times, Washington D.C.: International Monetary Fund. Persistently high debt ratios in advanced economies and emerging fragilities in the developing world cast clouds on the global fiscal landscape. In advanced economies, with narrowing budget deficits, the average public debt ratio is expected to stabilize in 2013–14—but it will be at a historic peak. At the same time, fiscal vulnerabilities are on the rise in emerging …Read More