Are Jobs and Growth Still Linked?


Prakash LounganiBy Prakash Loungani 

(Version in Español)

Over 200 million people are unemployed around the globe today, over a fifth of them in advanced economies. Unemployment rates in these economies shot up at the onset of the Great Recession and, five years later, remain very high. Some argue that this is to be expected given that the economy remains well below trend and press for greater easing of macroeconomic policies (e.g. Krugman, 2011, Kocherlakota (2014)). Others suggest that the job losses, particularly in countries like Spain and Ireland, have been too large to be explained by developments in output, and may largely reflect structural problems in their labor markets. Even in the United States, where unemployment rates have fallen over the past year, there is concern that increasing numbers of people are dropping out of the labor force, thus decoupling jobs and growth.

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The Ties That Bond Us: What Demand For Government Debt Can Tell Us About the Risks Ahead


by Serkan Arslanalp and Takahiro Tsuda

It’s not news that emerging markets can be vulnerable to bouts of market volatility. Investors often pull sudden stops—they stop buying or start selling off their holdings of government bonds.

But what has become apparent in recent years is that advanced economy government bond markets can also experience investor outflows, and associated runs. At the same time, some traditional and new safe haven countries have seen their borrowing costs drop to historic lows as they experience rising inflows from foreign investors.

Our new research shows that advanced economies’ exposure to refinancing risk and changes in government borrowing costs depend mainly on who is holding the bonds— the demand side for government debt.

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The Power of Cooperation


by iMFdirect

The planet’s most successful species are the great cooperators: ants, bees, termites, and humans.

In an article in the new issue of Finance & Development magazine, President Bill Clinton shares his experience working with governments, business, and civil society as part of his Clinton Global Initiative.

He says they are making the most progress in places where people have formed networks of creative cooperation where stakeholders come together to do things better, faster and cheaper than any could alone.

Can Policymakers Stem Rising Income Inequality?


By David Coady and Sanjeev Gupta

The issue of rising income inequality is now at the forefront of public debate. There is growing concern as to the economic and social consequences of the steady, and often sharp, increase in the share of income captured by higher income groups.

While much of the discussion focuses on the factors driving the rise in inequality—including globalization, labor market reforms, and technological changes that favor higher-skilled workers—a more pressing issue is what can be done about it.

In our recent study we find that public spending and taxation policies have had, and are likely to continue to have, a crucial impact on income inequality in both advanced and developing economies.

In advanced economies, this is especially important given that the ongoing fiscal adjustment needs to be continued for many years to reduce public debt to sustainable levels. But it is equally important in developing economies where inequality is relatively high.

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Beyond the Austerity Debate: the Deficit Bias in the post-Bretton Woods Era


By Carlo Cottarelli

(Version in Español)

The austerity vs. growth debate has raged in recent months, pitting those who argue that fiscal policy should be tightened more aggressively now to bring down high levels of debt, even though economic growth remains weak, against those who want to postpone the adjustment to better times. This is a critical issue for policymakers, perhaps the most important one in the short run.

And yet, this debate—which, mea culpa, I have myself contributed to―is attracting too much attention.

This is bad for two reasons:

  • The debate is driven, to some degree, by ideology and is therefore more focused on the relatively limited areas of disagreement than on the far broader areas of agreement. Most economists would agree that fiscal consolidation is needed in advanced economies, and that the average annual pace of adjustment during 2011-12―about 1 percentage point―is neither too aggressive nor excessively slow. Most economists would also agree that countries under pressure from markets have to adjust at a faster pace, while those that do not face such constraints have more time. Of course, there is disagreement on some aspects of the fiscal strategy, but it relates to specific country cases.
  • The debate is detracting attention from policy issues that may seem less urgent, but which are nevertheless critical in the medium term. I am referring to what I would call the institutional gaps in fiscal policymaking that still exist in most advanced and emerging economies. These gaps have contributed to a bias in the conduct of fiscal policy in favor of deficits that is behind many of the current problems.

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No Country is an Island: Ireland and the IMF


by iMFdirect

Speaking to the pain and anger of the Irish people at the toll the economic adjustment has taken on their daily lives, the IMF’s mission chief Ajai Chopra was clear during a press conference today in Dublin:  the end goal is to protect the poor and most vulnerable people in society while restarting the economy.

“We would all agree the key objective is to get growth going again, to create jobs, and bring down unemployment and that will be the true mark of success,” said Chopra.

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After the Crisis, Much Still at Stake for Eurozone


By Marek Belka

(Version in ελληνικά)

What a difference a year makes. January 2009 marked 10 years since the introduction of the euro. That anniversary fell in the midst of the worst global financial crisis in the past half century.

The euro—and the European Central Bank—proved important safeguards against the spread of the crisis. Countries whose currencies would likely have been subject to severe market gyrations had they not been part of the eurozone held their ground. And the ECB used innovative approaches, along with central banks around the world, to help provide liquidity and calm markets.

But as the crisis progressed, it became clear that the eurozone countries were affected in very different ways.

Markets took notice and the premia charged on sovereign bonds diverged. This month, as the euro turns 11 and even as the crisis is receding and an economic recovery is underway, prominent commentators—including Martin Wolf and Paul Krugman—are concerned that the strains within the eurozone are serious, and will need serious attention.

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