Stress testing the EU fiscal framework

This study evaluates the efficiency of the cyclically-adjusted budget balance (CABB) as the central gauge in the reinforced European fiscal framework for evaluating fiscal discipline. We do this by means of a simulation experiment. We use an estimated DSGE model to simulate all the macroeconomic data needed to assess the CABB according to the official EC methodology. Additionally, the model contains an expenditure fiscal rule that accounts for non-automatic variation in the budget, which allows us to observe the true discretionary measures of fiscal policy. Our results indicate that the EC methodology frequently fails to identify the true fiscal policy stance and also frequently fails to correctly signal potential violations of the SGP limit on structural deficit. In the latter case triggering corrective fiscal contractions to comply with the SGP results in increased macroeconomic instability. In addition, we show that allowing for a bigger role for stability-oriented discretionary policy and thus relaxing the SGP limit on structural deficit could enhance the stabilization efficiency of fiscal policy without reducing the degree of compliance with the Maastricht Treaty. These conclusions apply to small countries in a monetary union as well as large countries with independent monetary policy.     

The Fed’s reaction to the stock market during the great depression: Fact or artefact?

A notable feature of the 1920s and 1930s is the volatility in several key macroeconomic aggregates, and this feature used to econometrically identify the reaction of the Fed to stock market developments. The volatility of economic activity may have contributed to deepening the divisions among policy-makers about how the Fed ought to respond to stock price developments. Relying on the technique of [Rigobon, R. 2003. Identification through heteroskedasticity. Review of Economics and Statistics 85, 777–792], volatility is used as an instrument to estimate the Fed’s response to the stock market. Other identification assumptions based on structural VARs produce compatible results. Fed behavior appeared to have changed following the stock market crash of 1929. Consistent with the Riefler-Burgess doctrine, interest rates and stock returns are negatively related. I conclude that, prior to the stock market crash of 1929, a form of benign neglect explains Fed behavior. Thereafter, the Fed reacts only slightly more aggressively to stock market developments.     

浅谈广西南丹县新纳力水电站大坝复合土工膜心墙的施工

文章主要叙述广西南丹县新纳力水电站复合土工膜心墙堆石坝复合土工膜作为防渗心墙的施工。解决复合土工膜与大坝坝体填筑之间交叉作业的矛盾,以达到大坝快速优质上升的目的,为类似的工程提供了借鉴。     

Neoliberalism is Dead … Long Live Neoliberalism!

In this essay I argue that the ideology of neoliberalism may have failed, but that neoliberal practice is alive and kicking. Most of the ‘solutions’ to the crisis are in the spirit of neoliberalism, rather than enraptured by neoliberal spirit. Yet, this neoliberal solution is not a solution; it is part of the problem in the sense that it is leading to more problems — not just today but also in decades to come. This so‐called solution is often presented as Keynesian, but it is only partly so. A better way to classify this solution is as an attempt to save the existing, neoliberal, system. The big crisis of our time did not become a crisis of the hegemony of neoliberalism, because actually existing neoliberalism is flexible enough to influence policy in other ways than through the mantra of free markets: it thrives on presenting existing socioeconomic conditions as failing and neoliberalism as the best solution. Considering the many blows neoliberal ideology has received during this crisis, it should already be dead, but like a creeping cancer neoliberal practice is able to resurface and show up in both new and unexpected, and old and predictable, ways.     

Not-quite-great depressions of Turkey: A quantitative analysis of economic growth over 1968–2004

Following the great depressions methodology suggested by Kehoe and Prescott (2002, 2007), we use growth accounting and perfect foresight dynamic general equilibrium models to study growth performance of Turkey from 1968 to 2004. Our benchmark model without any frictions and taxes accounts for 86% of the observed change in the growth rate of GDP per-working age person and once we extend the model with taxes and capital adjustment costs it accounts for 60% of the observed reduction in hours worked per-working age person and 35% of the change in the growth of capital-output ratio. Also, we identify that the Turkish economy experienced a depression from 1976 to 1984 and the extended model performs remarkably well to account for the depression period. Our findings generally suggest that rigidities affecting capital accumulation and government policies using distortionary taxes have a crucial role in the evolution of various variables of the Turkish economy.     

Structural evolution of the postwar U.S. economy

We consider a time-varying parameter vector autoregressive model with stochastic volatility and mixture innovations to study the empirical relevance of the Lucas critique for the postwar U.S. economy. The model allows blocks of parameters to change at endogenously estimated points of time. Contrary to the Lucas critique, there are large changes at certain points of time in the parameters associated with monetary policy that do not correspond to changes in “reduced-form” parameters for inflation or the unemployment rate. However, the structure of the U.S. economy has evolved considerably over the postwar period, with an apparent reduction in the late 1980s in the impact of monetary policy shocks on inflation, though not on the unemployment rate. Related, we find changes in the Phillips curve tradeoff between inflation and cyclical unemployment (measured as the deviation from the time-varying steady-state unemployment rate implied by the model) in the 1970s and especially since the mid-1990s.     

The impact of monetary policy in the midst of big shocks

This paper studies the impact of Federal Reserve policies that created the largest deviations from price stability during the Fed׳s first 100 years: the post-World War I deflation, the deflation of the Great Depression, the inflation of World War II, and the Great Inflation of the 1970s. In terms of their macroeconomic impacts, I find that deflation was uniquely depressing in the 1930s because of cartel policies that prevented nominal prices and wages from adjusting to clear markets, and not because deflation is generically depressing. I find that the biggest impact of monetary policy during World War II was in debasing debt through inflation. I find that the main drivers of the 1970s economy were long-run changes in productivity and the labor market, and that there may have been little that the Fed could have done at this time to expand employment and output. More broadly, I find that macroeconomic performance would have been better over the Fed׳s first century had the Fed followed a monetary policy to deliver stable prices.     

DID INEQUALITY CAUSE THE U.S. FINANCIAL CRISIS?

In his widely discussed book ‘Fault Lines’ (2010), Raghuram Rajan argues that many low and middle income consumers have reduced their saving and increased debt since income inequality started to soar in the United States in the early 1980s. This has temporarily kept private consumption and employment high, but it also contributed to the creation of a credit bubble. This surge in household indebtedness turned out to be unsustainable in the financial crisis starting in 2007. Although Rajan and others emphasize the role of government in promoting credit to those households with declining relative (permanent) incomes, other strands of the literature have focused more explicitly on the implications of rising inequality for aggregate demand and households’ demand for credit. These differences in emphasis may explain why the literature on the inequality‐crisis nexus appears somewhat disparate, even though the various strands are far from mutually exclusive but rather complement each other. We therefore place the ‘Rajan hypothesis’ in the context of competing theories of consumption, and survey the empirical literature on the effects of inequality on household behaviour. We conclude that the empirical evidence calls for a renaissance of the relative income hypothesis of consumption.     

A Comparative Study of Two Global Crises

This article identifies the differences and common features of two global crises: the Great Depression of 1929 and the international financial crisis of 2008. The circumstances of the two crises differ in terms of the demographic structure, the technological conditions, the economic and social systems in developed countries, the extent of globalization and other global economic situations. Among the common features, both crises were preceded by unprecedented economic booms, laisse-faire regulatory policies, easy monetary and credit policies, asset bubbles and yawning income gaps. Moreover, the crises had a strong redistribution effect, which would cause shifts of power among large countries and major changes in international economic order.     

In Praise of Expansionary Fiscal Contraction

Textbook orthodoxy maintains that increases in the cyclically adjusted budget balance (i.e. reductions in the deficit) withdraw demand from an economy. Those Keynesian economists who believe that fiscal policy is the most powerful single influence on changes in demand expect ‘fiscal contraction’ to be accompanied by below‐trend growth or even declines in output. This article, a response to Martin Wolf's 2013 Wincott Memorial Lecture, considers this Keynesian view. Using a database prepared by the International Monetary Fund, it shows that since the 1980s ‘expansionary fiscal contractions’ have been the norm and not the exception in the USA and the UK. Keynesian support for fiscal activism is unsupported by a large body of recent evidence.