the inflation targeting regime in the united kingdom a view from threadneedle street the recent financial crisis and subsequent deterioration in macroeconomic outcomes have raised question marks over the framework for monetary policy in the united kingdom this paper examines the performance of the uk s monetary policy framework in the light of these questions far from concluding that inflation targeting needs to be replaced we argue in the paper that the regime has provided a clear policy compass that facilitated strong and decisive monetary policy decisions during the financial crisis we argue that it should remain the mainstay of the uk macroeconomic policy framework even so lessons need to be learnt to prevent financial market excesses from destabilizing the economy in future the single most important being the need to expand the range of instruments available to policy makers copyright 2010 oxford university press

making the same mistake again or is this time different the world faces an economic crisis of unprecedented proportions but much of the policy response has certainly not lacked for precedent national governments and international organisations including the international monetary fund imf have looked to crises of the past for solutions to the present and austerity has become a familiar theme the inability to effectively resolve the current crisis however gives rise to the question is this time different this article provides a broad overview to the origins and development of the recent economic crisis and the resort to policies of austerity although there is historical precedent for the resort to austerity such as the uk treasury view during the 1920s and 1930s this time things are different many of the current problems are deeply rooted and reflect the impact of the shift towards free market economics that started in the 1970s 2 the origins of the crisis since the beginning of the 1970s the private sector finance in particular has reorganised on an increasingly global scale it has innovated in terms of both structure and products and it has experienced significant growth as tridico 2012 this issue shows this financialisation was characterised by a ballooning of stock exchanges as many firms decided not only to list their shares but also to become involved in speculative finance in response to pressures on firms to maximise shareholder value together with the progressive erosion of worker and trade union rights and influence labour markets became more flexible and real wages stagnated concurrently profits rebounded leading to burgeoning inequality in this context aggregate demand and consumption were bolstered by easy credit and the wealth effects of speculative bubbles first in stocks and shares and then in housing

triple win for trade in renewable resource goods by use of export taxes abstract we challenge the free trade paradigm in particular for developing countries exporting natural resource goods by demonstrating positive economic and environmental effects of an export tax for renewable resource goods the two sector general equilibrium model designed has an open access renewable resource industry and a manufacturing industry the economic environmental and social effects of using an export tax on goods from the open access renewable resource industry are analysed it is demonstrated that the gross domestic product the steady state resource stock and the domestic consumption of both products increase with the resource export tax compared to free trade with no trade taxes

remaking macroeconomic policy after the global financial crisis a balance sheet approach this paper describes the origins of the global financial crisis and how the prevailing new keynesian macroeconomic orthodoxy failed to anticipate its severity this failure we argue stemmed from an incomplete understanding of the pivotal role of financial institutions in the amplification of the crisis and its transmission to the wider economy low global interest rates and a consequent search for yield in the pre crisis period encouraged financial institutions to build highly leveraged balance sheets which in turn generated extremely large asset price movements when a small event the downturn in the us sub prime mortgage market triggered the crisis the paper then briefly describes the element of the broadly successful and coordinated macroeconomic policy response to the crisis before turning to the medium term challenges facing policymakers in sustaining global recovery at the national level we focus on the resolution of fiscal imbalances which contributed in part to the crisis and which then worsened because of the policy actions which have been taken to deal with it at the international level we emphasise the need to rectifying the imbalances between savings and investment in many significant countries this will require greater coordination of macroeconomic policy across the world s major economies it will also involve strengthening the role and the governance of the international monetary fund

the role of the media in fiscal consolidation programmes the case of ireland a number of european countries have implemented austerity programmes since the onset of the current economic crisis this paper focuses on fiscal consolidation a central aspect of such programmes using the case of ireland it investigates the significant role of the mass media in presenting such policies to the public a role which has so far remained unexamined conceiving of the irish experience over the past few decades as a case of neoliberalisation it uses a critical political economic conceptualisation of news organisations to consider 431 editorials and opinion articles discussing fiscal consolidation in three leading irish newspapers between 2008 and 2012 it finds that the majority of articles present viewpoints in favour of fiscal consolidation and display a preference for spending cuts over tax hikes which substantiates the claim that ireland has adopted neoliberal policies to address the crisis only a minority of articles oppose fiscal consolidation these mostly contest specific spending cuts but usually fail to criticise fiscal consolidation itself by calling for economic alternatives such as keynesian stimulus differences between newspapers are also discussed highlighting their ideological cleavages

renewable resource economists and policy what differences have we made abstract this paper surveys developments in fisheries economics and fisheries policy over the past half century early work clarified the nature of the economic issues associated with open access laying the groundwork for changes in policies after coastal nations expanded their jurisdictions in 1976 perhaps the most important point made by economists is that property rights matter and that open access conditions create economic as well as biological problems the policy process has begun to create property rights systems although many of the world s fisheries still operate under mixed systems of regulations and open access incentives

sustainability aid and material welfare in small south pacific island economies 1900 1990 abstract the paper discusses the concept of sustainability and puts forward the argument that conventional notions of what constitutes economic development cannot be applied mechanistically to the very small island economies of the pacific in practice what matters is whether the entitlement of island communities to rent incomes remains sustainable this in turn requires that labor access to the modern capitalist economies of the region continues or is opened up and that the major regional powers continue to subsidize consumption levels in the small island countries unless or until those countries achieve a satisfactory level of rent income both of these conditions hinge upon the long run political commitment of aid donor governments to the welfare of island communities and on the skills of island politicians and officials in negotiating and maneuvering for access to aid funds from competing donors

country size and the medium term growth process some cross country evidence abstract this paper summarizes the findings of an empirical study of the influence of country size and remoteness on the sources of growth and nature of the growth process in industrializing countries various hypotheses were investigated in the study in the context of a model of disequilibrium growth which allows for technological spillover between sectors and between countries the model was estimated for a large sample of developing economies for 1973 1985 the stability of the model s parameters for various dimensions of size and remoteness was tested evidence of significant structural breaks permitted inferences to be drawn about how the nature and extent of technological spillovers are influenced by country size this paper reports on the results and implications of the empirical tests

small states small problems income growth and volatility in small states abstract small states have attracted a large amount of research in this paper we test whether small states are any different from other states in terms of their income growth and volatility outcomes we find that controlling for location small states have higher per capita gdp than other states this income advantage is largely due to a productivity advantage constituting evidence against the idea that small states suffer from an inability to exploit increasing returns to scale small states also do not have different per capita growth rates than other states small states do have greater volatility of annual growth rates which is in part due to their greater volatility of terms of trade shocks this terms of trade based volatility is in turn due to small states greater openness their greater openness on balance has however a positive net payoff for growth the one differential policy measure that might be relevant for small states is to further open up to international capital markets in order to better diversify risk but the benefits of even that are still unresolved in the literature we conclude that small states are no different from large states and so should receive the same policy advice that large states do

policy selectivity forgone debt and donor behavior in africa authors assess the dynamics behind the high net resource transfers by donors and creditors to sub saharan african countries analyzing the determinants of overall net transfers for a panel of 37 recipient countries in 1978 98 authors find that country policies mattered little donors especially bilateral donors actually made greater transfers to countries with high debt largely owed to multilateral creditors when policies were bad authors conclude that comprehensive debt relief has the potential though not the certainty to restore selectivity in support of good policies that would make development assistance more effective going forward and increase public support in donor countries

avoiding invasives trade related policies for controlling unintentional exotic species introductions abstract international commodity trade serves as the primary conduit for unintentional introductions of damaging exotic species we use a simple model of contaminated goods trade to analyze the optimal mix of tariffs and inspections as means of controlling damage from this negative externality among other policy relevant results we find that 1 while it is always optimal to employ tariffs there are non trivial cases in which inspections should optimally be set to zero 2 a higher infection rate requires a higher tariff but beyond a point optimal inspections decrease in the infection rate and finally 3 taking a dynamic view and considering future effects of current introductions leads unambiguously to more stringent inspections but may give rise to higher or lower tariffs

illegal landings an aggregate catch self reporting mechanism to solve the problem of illegal landings this article proposes a new tax mechanism based on the regulator s own aggregate catch estimates and ex ante self reports of planned catch by fishermen we show that the mechanism avoids illegal landings while ensuring nearly optimal exploitation and generating nearly correct entry and exit incentives finally we simulate the mechanism for the danish cod fishery in kattegat to obtain a rough indicator of the size of the tax it turns out that the average tax payment as a percentage of profit is surprisingly low

keynes and the confidence faeries budgetary constraints were never the primary object of policy for john maynard keynes they were constraints not objectives however keynes identified the psychological channels through which budgetary discipline and other policy conventions might influence investment he even accepted that in rare circumstances the psychological factors might overwhelm direct policy interventions unfortunately the polarisation of the current debate means traditional keynesians are unlikely to search out this aspect of his work and the confidence faeries are unlikely to read any of keynes s work this article draws attention to this aspect of his work

the euro crisis undetected by conventional economics favoured by nationally focused polity this article interprets the initial success of the launch of the euro and its muddling through since the outbreak of the greek sovereign debt crisis two interrelated processes interacted to deliver a quite complex idiosyncratic systemic crisis first new classical macroeconomics had diffused the belief that market economies are structurally stable money is neutral financial markets are efficient and that the only culprit is public finance the euro crisis was thus inaccurately diagnosed second in the political arena monetary integration has been used by many governments as a justification for liberalisation reforms opposed by various domestic social groups at the european level most governments have been defending national interests whereas the european commission and european parliament had lost most of their expertise and legitimacy in defending a common community in line euro ambitions crisis resolution calls for leadership from a key collective actor to return coherence to the eurozone s institutional setting copyright oxford university press

the special problems of small countries abstract the paper describes the characteristics of small economies and discusses the advantages and disadvantages arising from these characteristics it is shown that small economies by their very nature tend to be less diversified and to have relatively high foreign trade risks in spite of these drawbacks a number of small economies have achieved high rates of economic growth some reasons given to explain this success are the relatively small size of the agricultural sector concentration on labor intensive exports and sociological and psychological factors such as the ability to respond in a flexible manner to changes the paper ends with a discussion on whether the drawbacks of small size can be overcome by economic integration it is argued that the experience in this regard is disappointing

aid volatility and real business cycles in a developing open economy this article analyzes the impact of the unpredictability of foreign aid on macroeconomic fluctuations in the recipient country i build a small open economy business cycle model that accounts for foreign aid shocks with no preference shocks the model is calibrated to reflect the structural empirical regularities of cote d ivoire a typical aid dependent developing country the parameters of the exogenous shocks are estimated using bayesian methods and time series data for cote d ivoire the model produces business cycle patterns that are consistent with the data and key stylized facts specifically the excess volatility of consumption with respect to output is successfully replicated the results suggest that the unpredictability of foreign aid contributes to explain the volatility of business cycles in the recipient economy and has negative welfare effects

asian currency and financial crises lessons from vulnerability crisis and collapse this paper presents an analytical framework for understanding the east asian crises we argue that vulnerability was created by the boom and bust incurred under pegged exchange rates and by liberalisation in the presence of a bank based financial regime with implicit promises of bail out these vulnerabilities were interconnected negative shocks precipitated both currency devaluation and financial crisis and the latter created obligations for the government to bail out the financial sector the critical feature which led to collapse was we argue the fact that currency depreciation led to a worsening of the financial crisis due to massive unhedged borrowing in foreign currency to which the fixed exchange rate regime had led financial collapse resulted when the currency devaluation was sufficiently large that those who had lent to the financial system came to believe that government guarantees could not be honoured this in turn triggered fears of sovereign insolvency which turned currency depreciation into currency collapse

in search of a smoking gun macroeconomic policies and the crisis this paper looks at macroeconomic factors behind the current crisis the first part looks at how global macroeconomic trends including sustained strong growth low real interest rates and high saving rates provided an environment conducive to increased financial risk taking the second part examines macroeconomic policies and the international monetary system assessing whether too easy monetary policy contributed to asset price bubbles whether excessive reserve accumulation contributed to a glut of global savings whether the us dollar s reserve currency status aggravated financial excesses and whether policies in capital importing countries were sufficiently countercyclical we do not find a single factor that can explain the crisis and account for differences in countries experiences leading up to it instead the contribution of macroeconomic policy choices seems complex and ambiguous however there are still important policy lessons for in particular rebalancing economies away from export dominated growth and having monetary policy place greater weight on macrofinancial stability copyright 2009 oxford university press

aid and income another time series perspective summary this study provides a replication of the empirical results reported by nowak lehmann dreher herzer klasen and martinez zarzoso 2012 henceforth ndhkm we uncover that ndhkm relied on a regression model which included a log transformation of variables that are not strictly positive this led to nonrandom omission of a large proportion of observations furthermore we show that ndhkm s use of co integrated regressions is not a suitable empirical strategy for estimating the causal effect of aid on income evidence from a panel var model estimated on the dataset of ndhkm suggests a positive and statistically significant long run effect of aid on income

inflation targeting during asset and commodity price booms the recent global economic crisis originated in the midst of a commodity price boom that had triggered sharp increases in inflation in many world countries the crisis also came in the context of a rally in asset prices and large domestic imbalances in the united states this paper uses a small open economy dynamic stochastic general equilibrum dsge model to design the correct monetary policy response to a protracted supply shock and examines how that response would change when many become credit constrained like in a credit crunch and when spending of those who can still borrow becomes very sensitive to the interest rates because of overleveraging using a version of the model with kalman learning the paper also evaluates the implications of a loss of target credibility showing how rules must be adjusted when the authorities commitment to the inflation target has been eroded the appropriate response to future evolutions of the price of oil including to large downward corrections from the current level is also evaluated copyright 2010 oxford university press

the new uk monetary arrangements a view from the literature this paper considers the likely operating characteristics of the new uk monetary arrangements introduced in may 1997 the paper first argues that the time inconsistency of policy is not an issue provided the bank of england is properly independent however the current inflation remit from the chancellor to the bank specifies a numerical target for the inflation rate but does not specify how quickly deviations from the target are to be corrected it is thus an incomplete contract and there is a danger that the bank may choose to stabilise inflation at the cost of excessively volatile movements in output or vice versa we estimate the optimal policy frontier for the uk economy and show that in practice it is close to rectangular consequently all the bank needs to assume is that the government s preferences are reasonable in order to know approximately where to locate on this frontier the incompleteness of the remit therefore need not be a cause for concern

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

foreign aid and domestic absorption this paper introduces a new supply push instrument for foreign aid to be used together with an instrumental variable estimator that filters out unobserved common factors we use this instrument to study the effects of aid on macroeconomic ratios and especially the ratios of consumption investment imports and exports to gdp we cannot reject the hypothesis that aid is fully absorbed rather than used to build foreign reserves or exiting as capital flight nor do we find evidence of dutch disease effects aid leads to higher consumption while the evidence that it promotes investment is less robust

renewable resources and the gains from trade the brander taylor small open economy model of trade in a renewable resource and other goods is modified to allow for diminishing returns in the other goods sector it is shown that opening up for trade may result in steady state gains from trade even when there is open access to the resource and the country does not specialize fully in resource extraction it is also shown that transition to optimal management with price taking behaviour may result in a welfare loss resources renouvelables et gains en provenance du commerce international l auteur modifie le modele brander taylor de commerce international d une ressource renouvelable et d autres biens dans le cas d une petite economie ouverte afin de tenir compte des rendements decroissants dans le secteur des autres biens on montre que i ouverture au commerce international peut entrainer des gains en provenance de l echange international en regime permanent et ce meme quand l acces a la ressource est ouvert et que le pays ne se specialise pas dans l extraction de la ressource on montre que dans la periode de transition vers un management optimal quand il y a ajustement aux prix de marche il peut y avoir perte de bien etre

the revenge of the market on the rentiers why neo liberal reports of the end of history turned out to be premature starting from the perspective of heterodox keynesian minskyian kindlebergian financial economics this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis these include excess liquidity income polarisation conflicts between financial and productive capital lack of appropriate regulation asymmetric information principal agent dilemmas and bounded rationalities however the paper then proceeds to argue that perhaps more than ever the macroeconomics that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated taking the perspective of critical social theories the paper concludes that ultimately the current financial crisis is the outcome of something much more systemic namely an attempt to use neo liberalism or in us terms neo conservatism as a new technology of power to help transform capitalism into a rentiers delight in particular into a system without compulsions on big business i e one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy while doing the opposite to workers and small firms a key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever increasing rent seeking practices of oligopolistic capital the architects of this experiment include some capitalist groups in particular rentiers from the financial sector as well as capitalists from the mature and most polluting industries of the preceding techno economic paradigm some political groups as well as intellectual networks with their allies including many economists and the new left although rentiers did succeed in their attempt to get rid of practically all fetters on their greed in the end the crisis materialised when markets took their inevitable revenge on the rentiers by calling their blatant bluff

small island developing states and their economic vulnerabilities abstract many small island developing states sids face special disadvantages associated with small size insularity remoteness and proneness to natural disasters these factors render the economies of these states very vulnerable to forces outside their control a condition which sometimes threatens their very economic viability the gdp or gnp per capita of these states often conceals this reality in this paper the major vulnerabilities faced by sids are discussed and when possible quantified in the form of an index an attempt is also made to construct a composite index of vulnerability

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

the macroeconomic role of fiscal policy this article examines the new consensus that fiscal policy should have no macroeconomic role in flexible inflation targeting regimes there is little basis for this presumption fiscal policy remains important in setting the policy mix and in managing shocks and imbalances the credibility of an inflation targeting regime should be enhanced rather than reduced if fiscal policy plays its proper role it is true nevertheless that the costs of focusing fiscal policy narrowly on public sector concerns may not be very great most of the time however when interest rates cannot be used the role of fiscal policy must be different with interest rates at their lower bound of zero there is no plausible alternative for asymmetric shocks and adjustments in emu fiscal policy needs ideally to substitute for the interest rate policy reaction function of the consensus but the difficulties are very great we suggest a policy focus on real exchange rates as a way of resolving some of the dilemmas there is a serious danger that orthodox views about fiscal policy drawn from the consensus will be inappropriately applied especially in europe copyright 2005 oxford university press

unilateral resource management in a two country general equilibrium model of trade in a renewable fishery resource we explore the effects of free trade in a renewable natural resource between two countries in the presence of incomplete property rights while resource management by one country may benefit one or both trading partners we demonstrate that resource management by only one of the partners may reduce welfare for both when compared to the case in which neither manages its resource sector these trade induced losses may be reduced through import tariffs and production subsidies on the resource good or by permitting harvest beyond the rent maximizing level our preliminary work suggests that the world trade organization wto and north american free trade agreement nafta policy makers should not always insist on free trade and resource management rather they must pay careful attention to the particular relationships between trade conditions and natural resource policies among trading nations

trade policy and ecology trade sanctions on product exports are often used as measures for conservation of stocks of living resources two opposing approaches are investigated the harvest approach argues that sanctions reduce the harvest and thus protects the stock it is shown that this does not consider the long run effects nor the effects of sanctions on the management system the investment approach argues that increased price protects the stock making the species a profitable investment it is shown that this approach does not consider the asset effects of price changes and that the sanctions usually increase the stock in an one species analysis if the wildlife competes for land the conclusions may be different but still sanctions usually works if the manager has a joint management of several species the stock effects of sanctions are ambiguous depending on both the species interaction and the profitability of the harvesting from each of them in this case it is not possible to use intuitive reasoning sanctions give distortions to all stocks simultaneously the threat of extinction depends crucially on the unit cost in harvesting of depleted stocks the paper concludes that trade policy is a too general measure for the management of living resources and may implicate important economic distortions to the ecological system

environmental degradation and economic openness in ldcs the poverty linkage the connection between growth economic policies and the environment in developing countries has become a primary concern for economists and policy makers this is because of the fact that environmental degradation in the third world has accelerated dramatically over the last few decades deforestation biomass degradation and air emissions in developing countries are now a serious concern for the industrialized world the world ecological system has been able to tolerate well the almost total elimination of natural forests and biomass as well as the massive generation of air and water pollution by the developed countries but it is not clear that a duplication of this process in the developing world would not induce radical changes could imply significant costs in terms of human lives public health and other investments in the industrialized countries 18 refs

fish trade liberalization under 21st century trade agreements the ceta and newfoundland and labrador fish and seafood industry abstract both classical ricardo and neo classical heckscher ohlin theories of international trade assume that free trade results in welfare gains for all involved a more recent literature dedicated to liberalization of trade in renewable resources finds that welfare effects depend on certain factors such as the country s status as importer or exporter the state of the renewable resource stocks and the size of the country on the world market chichilnisky 1993 brander and taylor 1997a emami and johnston 2000 hannesson 2000 or remain theoretically indeterminate and require empirical analysis nielsen 2009 fish trade liberalization is provided in the comprehensive economic and trade agreement ceta concluded by the canadian government in 2013 with the european union eu this new type of 21st century trade agreement challenges both the conventional theory of international trade and renewable resource based sectors of economic activity such as fish and seafood by opening them up to industrial type international competition and integration the paper uses the theoretical framework of ecological economics costanza et al 2015 to demonstrate that the declining newfoundland and labrador nl fish and seafood industry is not ready to participate gainfully in implementation of the ceta it also uses the concept of policy space rodrik 2007 pauwelyn 2008 to recommend some policy changes that can prepare the nl fish and seafood sector for competitive and beneficial participation in the ceta restructuring the fish and seafood sector with a focus on small scale elimination of harmful subsidies and redirecting them to achieve lower costs of operation better trained labor force and more just and sustainable supply marketing networks will make it fit to benefit from the gains from trade and to contribute to a more equitable distribution of the benefits of the fishery to the fishers and local communities

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

a comparison of the economic performance of different micro states and between micro states and larger countries the economic performance of micro states and those sub national regions enjoying a high degree of autonomy is a generally under researched area this paper builds on earlier research armstrong and read 1995 by employing quantitative techniques to test 1 a the extent to which the economic performance of micro states differs by comparing their gnp per capita with that of the region in which they are located and with the countries to which they are adjacent 2 b whether some micro states perform better than others as a result of differences in their economic structure and 3 c whether the rates of growth of micro states have been faster or slower than those of larger countries considerable diversity among micro states is revealed although most exhibit strong economic performance

macroprudential policy what can it achieve this paper examines both the objectives and the available instruments for new macroprudential policy making bodies it argues that the objective financial stability is best understood as avoiding widespread disruption of financial flows achieving this objective requires that policy makers carry out two different but related tasks first they must ensure the resilience of the financial system to external shocks second they must respond in a timely fashion to future unsustainable expansions of credit and growth of asset prices these are old policy challenges what has changed is the emergence of new vulnerabilities in our innovative and relatively lightly controlled financial system exposed by the recent global financial crisis macroprudential policy can be effective in addressing these vulnerabilities but will not remove the major political and institutional obstacles to the effective control of unsustainable credit expansions 136 words

macroeconomic policy in light of the credit crunch the return of counter cyclical fiscal policy this paper begins by arguing that the 2007 8 credit crunch does not require a fundamental reevaluation of monetary policy the crunch occurred because regulation was too lax and we need to develop new and more effective tools of regulatory control to focus on current account imbalances or mistakes in setting interest rates as a prime cause of the credit crunch is unconvincing and has the danger of diverting attention away from the need to increase financial regulation the current recession does require a re evaluation of the role fiscal policy can play when interest rates hit a zero bound an expansionary fiscal policy is required because monetary policy makers are reluctant to promise higher future inflation and the impact of quantitative easing is likely to be small although rising debt may place a limit on how much conventional fiscal policy can do not all expansionary fiscal measures require additional borrowing there are two important lessons for the future first although monetary policy should remain the primary tool to stabilize the business cycle the combination of fiscal implementation lags and uncertainty means that some precautionary fiscal action may be appropriate during the early phase of some economic downturns second to play this backstop stabilization role effectively a policy that results in the government debt to gdp ratio declining albeit gradually and erratically in normal times seems appropriate

how can we explain the persistence of the great recession a balanced stability approach the great recession gr brings about a stalemate in macroeconomics on the one hand while describing the immediate effects of the gr standard models fail to account for its persistence on the other heterodox approaches do not regain consensus as they fail to devise an alternative method for capturing the deep causes of the gr that account for its persistence in a systematic way this paper fills this gap by proposing a new framework called balanced stability approach unlike standard macro which takes stability for granted it provides a balanced assessment of stability considering both threats and opportunities for phenomena such as the so called new economy ne on a par on these grounds the paper draws the conclusion that the persistence of the gr is due to a low level of aggregate demand rooted in the structural changes generated by the ne

the assessment macroeconomic policy this paper describes the emerging consensus about the reaction function approach to macroeconomic policy the first section of the paper describes the historical emergence of this consensus as a synthesis of pre keynesian keynesian and monetarist ideas the theoretical part of the paper presents the basic framework of the approach and explains a number of extensions including finding the optimal reaction function avoiding the problem of inflation bias the relevance of the taylor rule forward looking expectations extensions to the open economy and the interconnections between monetary and fiscal policy the later parts of the paper contain a detailed discussion of some of the practical and institutional issues involved in the implementation of this new framework

trade liberalisation resource sustainability and welfare the case of east baltic cod abstract recent research has warned that liberalising trade in capture fish products originating from inefficiently managed fisheries might cause over exploitation reduced fish stocks and thereby a reduced steady state of welfare this paper qualifies the warning in a case study of the east baltic cod market by developing an age structured bio economic supply model combined with basic theory of trade between two countries welfare effects of trade liberalisation are identified taking fishing quotas input limitations mesh size regulations and shared ownership of stocks into account it is shown that although liberalising trade in products supplied by such a fishery might cause steady state welfare reductions in the supplier countries these welfare reductions are small compared to the welfare gains from a hypothetical change to optimal management hence the introduction of better fisheries management is much more important than trying to meet potential negative consequences of trade liberalisation since even small improvements in fisheries management may offset the negative effects of trade liberalisation

modelling the global financial crisis this paper models the global financial crisis as a combination of shocks to global housing markets and sharp increases in risk premia of firms households and international investors in an intertemporal dynamic stochastic general equilibrium or dsge global model the model has six sectors of production and trade in 15 major economies and regions the paper shows that a switching of expectations about risk premia shocks in financial markets can easily generate the severe economic contraction in global trade and production currently being experienced in 2009 and subsequent events the results show that the future of the global economy depends critically on whether the shocks to risk are expected to be permanent or temporary the best representation of the crisis may be one where initial long lasting pessimism about risk is unexpectedly revised to a more moderate scenario this suggests a rapid recovery in countries not experiencing a balance sheet adjustment problem copyright 2009 oxford university press

the optimal export tax for a primary commodity in a vertical market the conventional formula for the optimal export tax derived from a partial equilibrium model that ignores importers welfare is extended to include the deadweight loss to the domestic economy associated with the tax applying the extended formula to the tax russia imposes on its exports of logs results suggest ignoring the marketing channel causes the optimal export tax for a primary commodity to be understated the degree of understatement increases as the supply of logs and processing marketing inputs become less price elastic and as buyer and seller power in the downstream lumber industry increases for plausible values of model parameters however the degree of understatement is modest less than 19

volatility of development aid from the frying pan into the fire summary the paper building on the authors previous analysis examines the relative volatility of aid flows into developing countries and their domestic revenue using new data and three alternative measures of aid instability relative volatility vis a vis fiscal revenue unpredictability of aid disbursement relative to commitments and failure of aid to smooth fluctuations in aggregate income it finds that the volatility of aid flows is still much greater than that of domestic revenue and that this difference is not decreasing especially in very poor aid dependent countries this high volatility of inflows makes the macroeconomy hard to manage further the influence of aid has been procyclical and not countercyclical aid has failed to act either as a stabilizing force or as an insurance mechanism we argue that to counter these unwelcome trends donors need to be able to respond more speedily and effectively to large adverse shocks and their conditionalities need to become more flexible possibilities explicitly discussed elsewhere in this special section

the short run macroeconomic impact of foreign aid to small states an agnostic time series analysis abstract this paper investigates the short run macroeconomic impact of aid in small developing countries sdcs by using a vector auto regression var model to study the impact of aid on net import absorption and domestic demand spending we focus on average country effects within two country sub groups and find substantial differences between aid dependent sdcs and other sdcs that are more dependent on natural resources tourism or financial services in aid dependent sdcs aid absorption more or less equals spending although only half of the aid flow is absorbed and spent in the non aid dependent group aid does not seem to be absorbed or spent in any systematic fashion

the interactions between fiscal policy and monetary policy this paper studies the interactions of fiscal policy and monetary policy when they stabilize a single economy against shocks in a dynamic setting if both policy makers are benevolent then in our model the best outcome is achieved when monetary policy does nearly all of the stabilization if the monetary authorities are benevolent but the fiscal authority discounts the future or aims for an excessive level of output then a nash equilibrium will result in large welfare losses after an inflation shock there will be excessively tight monetary policy excessive fiscal expansion and a rapid accumulation of public debt however if in these circumstances there is a regime of fiscal leadership then the outcome will be very nearly as good as when both policy makers are benevolent

trade tragedy and the commons we develop a theory of resource management where the degree to which coun tries escape the tragedy of the commons and hence the de facto property rights regime is endogenously determined three forces determine success or failure in resource management the regulator s enforcement power the extent of har vesting capacity and the ability of the resource to generate competitive returns without being extinguished the model can explain heterogeneity across coun tries and resources in the effectiveness of resource management and it predicts that changes in prices population and technology can cause transitions to better or worse management regimes jel p14 q21 q22 q23 q32 many of the world s major renewable resource stocks are in a state of decline this is true for capture fisheries for forests in developing countries and for many measures of the biosphere s health other renewable resources including many species of wildlife marine mammals and coral reefs are also under threat while poverty and government corruption are surely respon sible for some of this record particular emphasis is often placed on the potentially damaging role played by international trade this emphasis is not surprising given that natural resource products are a key export for much of the developing world and property rights over renewable resources are both difficult to define and poorly enforced but property rights are not an immutable country characteristic such as weather mineral deposits or topography they are instead market institutions developed to facilitate transactions and protect scarce resources consequently changes in prices technology and other effects of market integration may alter the de facto property rights regime and lead to impacts quite dif ferent from those predicted by existing analyses the purpose of this paper is to examine renew able resource use within a framework where the enforcement of property rights and hence the efficacy of resource management is endogenously determined we develop a theory where an existing government regulates the use of a renewable resource by a set of agents who have a right to harvest the resource could be a fishery forest stock aquifer etc and we assume it is local and therefore contained within one country the govern ment sets rules limiting harvests but agents may cheat on these allocations and risk punishment property rights are endogenous in this framework because the government must account for agents incentive to cheat as a result the effective protection for the resource or what we refer to as the de facto property rights regime may be far from perfect even though property rights would be perfectly enforced if there was no monitoring problem

schumpeter meeting keynes a policy friendly model of endogenous growth and business cycles this paper studies an agent based model that bridges keynesian theories of demandgeneration and schumpeterian theories of technology fueled economic growth we employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply demand and the fundamentals of the economy we find profound complementarities between factors influencing aggregate demand and drivers of technological change that affect both short run fluctuations and longterm growth patterns from a normative point of view simulations show a corresponding complementarity between keynesian and schumpeterian policies in sustaining long run growth paths characterized by milder fluctuations and relatively lower unemployment levels the matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct regimes of growth or absence thereof characterized by different short run fluctuations and unemployment levels

the four fallacies of contemporary austerity policies the lost keynesian legacy the contemporary wide scale austerity measures are likely to fail in most countries the first fallacy derives from the false diagnosis that the present crisis is the outcome of lax public spending policy when it is actually the outcome of a private credit led speculative boom the second fallacy assumes the possibility or even the generality of the so called expansionary fiscal contractions this neglects the short term negative effects on domestic demand and overestimates the generality of ricardian equivalence the importance of crowd in effects related to lower interest rates and the positive impact on trade balances the third fallacy one size fits all is problematic since greece and portugal cannot replicate the hard won german success their productive institutional and political configurations differ drastically and thus they require different policies the fourth fallacy states that the spill over from one country to another may resuscitate the inefficient and politically risky beggar my neighbour policies from the interwar period

aid instability as a measure of uncertainty and the positive impact of aid on growth this article contributes to the literature on aid and economic growth we posit that uncertainty measured as the instability of aid receipts will influence the relationship between aid and investment how recipient governments respond to aid and will capture the fact that some countries are especially vulnerable to shocks when we account for uncertainty which is negative and significant we find that aid has a significant positive effect on growth largely due to its effect on the volume of investment the finding that uncertainty of aid receipts reduces the effectiveness of aid is robust when the regression is estimated for the sub sample of african countries these findings hold although the effectiveness of aid appears weaker than for the full sample

property rights renewable resources and economic development this paper analyzes the role of endogenous property rights in the development of an open resource based economy i incorporate renewable resources and endogenous decisions on property rights into a convex growth model with the formal and informal sectors i find that along the transition path to steady state property rights enforcement is not constant but improves with time as well as involves intermediate property rights specification between open access and perfect property rights international trade and labor market are driving these endogenous changes property rights improve with favorable terms of trade when the economy exports resource services and stronger property rights help maintain the resource stock by deterring illegal harvest this pushes labor away from the informal harvest sector toward greater participation in the formal sector of the economy in turn more labor participation in the formal sector along with capital formation increase the country s output and consumption overall with an open economy and well functioning institutions renewable resources have a positive impact on economic growth

leverage and asset bubbles averting armageddon with chapter 11 an iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to overshoot equilibrium when an asset bubble bursts threatening widespread insolvency and what richard koo calls a balance sheet recession besides interest rates cuts asset purchases and capital restructuring are key to crisis resolution the usual bankruptcy procedures for doing this fail to internalise the price effects of asset fire sales to pay down debts however we discuss how official intervention in the form of super chapter 11 actions can help prevent asset price correction causing widespread economic disruption