Everyday the blogosphere offers an enormous amount of in-depth analysis on any imaginable topic. The world of macroeconomics and economic forecasting is no exception. To keep themselves updated on the latest information, our in-house team of economists scan the world wide web and gather what they consider the most interesting, appealing, informative or just curious blog posts from experts in the field of global economics. Here’s the list of the Top 4 posts from this week. Check it out!
- Conversable Economist – Timothy Taylor: ‘A Tripartite Mandate for Central Banks?‘
Timothy Taylor, managing editor of the Journal of Economic Perspectives, takes a look at why the Federal Reserve’s decisions are guided by a dual mandate of controlling inflation and unemployment but not by the risk of financial crisis. Taylor leans on a recent article in the JEP by colleague Ricardo Reis, who points out that the two most severe recessions in the US during the last century were associated with financial crises. Despite the clear association, Reis’ argument is that in order for financial stability to be considered as a unique central banking goal it must meet three criteria: a measurable definition, a convincing case that monetary policy can achieve a more stable financial system, and a trade-off with the other two goals that can justify a change in policy. Taylor mentions the dot-com bubble of the 90s to illustrate that the Fed was in no position determine whether tech stocks were too high at the time and changing monetary policy just to address this bubble would not have been justified. Taylor adds that researchers have begun to develop more sophisticated ideas of how to define the rising risk of financial crises, including the build up of leverage and interconnectedness between intermediaries. However, many of these issues fall under the domain of financial regulators. Consequently, it appears unlikely that the Fed will be expanding beyond its dual mandate. – Carl Kelly
- Renewing America – Michael Spence: ‘What’s Stopping Robust Recovery?’
In this article written as a guest, the 2001 Nobel Prize recipient Michael Spence considers the role of the external sector in the recovery of both the US and the Eurozone. In particular, Spence explains that in the pre-crisis scenario, both the US and the Eurozone had been growing mainly pushed by debt-boosted domestic demand. Amid this process, the tradable sector of the economy started to loose importance for the non-tradable sector. Spence argues that the sustainability of the recovery in the US and the Euro countries will depend to a very significant extent on how the tradable sector revives again, a process that seems to be taking place in the US, thanks to the depreciation of the dollar. In the Eurozone—Spence continues—the process is likely to take more time as the Eurozone has just started to show some signs towards unit labor costs convergence, the chosen policy substitute for currency depreciation, which is out of reach for the Eurozone. – Enrique Jorge
- The Economic Policy Institute Blog – David Cooper : ‘Either AEI Has Forgotten Basic Statistics or They Are Advocating For More Collective Bargaining’
In one of his latest blog posts, David Cooper talks about the relationship between the minimum wage and the jobless rate. Using a sample of 18 countries in Western Europe, he argues that the theory claiming higher jobless rates in the countries with a minimum wage is not backed by empirical evidence. In addition, he says that even if it appears to be a negative pattern between the two variables—minimum wage and jobless rate—the suspected relationship becomes nonexistent once you “control” for all the variables which are endogenous to the statistical regression model. – Dirina Mancellari
- VOX Research-based policy analysis and commentary from leading economists – Ignacio Munyo and Ernesto Talvi: ‘Are the golden years for Latin America over?‘
Global economic growth continues to show sluggishness following the Lehman crisis and even after the counter cyclical measures adopted by many governments and central banks around the world. Weak global growth certainly affects economic growth in Latin America. However, economic activity in the region is cooling off sharply, according to the authors, not because of external factors, but rather internal ones. Using LatinFocus Consensus Forecast projections for the region and by building an External Conditions Index (ECI), the authors suggest that he cooling-off in Latin America’s growth rates has occurred despite the fact that the current combination of external conditions remain somewhat favorable as during the so-called Latin American Golden Years. – Ricardo Aceves
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