BLOG MASH-UP OF THE WEEK

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!

  1. China Financial Markets – Michael Pettis: ‘The four stages of Chinese growth

    In this article Michael Pettis argues that China should embark upon a “second liberalization” process in order to free up productive forces and, ultimately, achieve sustainable economic growth. According to Pettis, there are two sets of policies that a developing country has to implement if it wants to become a devolved country. First, the country needs to improve its material conditions (e.g. infrastructure and education), and, second, the country has to stimulate the creation of social capital (e.g. inclusive institutions). Taking into account these parameters, in the last 45 years China experienced three growth stages. A first phase of a gradual liberalization of the economy, which boosted the social capital, a second stage of investment-driven growth and, finally, a latter period of overinvestment supported by soaring debt. Consequently, what China needs now is another round of liberalizing reforms.” –  Ricard Torné

  2.  VOX –   Joshua Aizenman: ‘The euro crisis: Muddling through, or on the way to a more perfect euro union?’

    Joshua Aizenman presents an interesting view of the Eurozone following the global financial crisis. According to Aizenman, after a promising first decade, the Eurozone faced a severe crisis and has fallen short in forming new institutions. He adds that German dominance has allowed the euro to achieve a number of design objectives, and this may continue if Germany does not shirk its responsibilities. Germany’s resilience and dominant size within the EU may explain its ‘muddling through’ approach to the Eurozone crisis. Greater mobility of labor and lower mobility of under-regulated capital may be the costly ‘second best’ adjustment until the arrival of more mature Eurozone institutions.  Ricardo Aceves 

  3.  Five Thirty Eight Economics – Berk Özler : ‘Lessons from Brazil’s War on Poverty’

    Brazil figures among the countries with the highest income inequality in the world, yet from 2001 to 2007 income inequality dropped markedly. In these years, the Gini-coefficient –the most used measure of income inequality– declined from above 0.60 to below 0.55. Berk Özler points out what he believes to be the underlying reasons for this improvement in income equality. He refers to several papers that underpin that a favorable mix of public policy and market forces drove the development. The government expanded access to education and introduced a transfer program to the poor while at the same time wages for low-skilled labor rose disproportionally as demand for low-skilled labor rose on the back of commodity and price booms. As for the relative importance of both factors, the author notes that broadly 55% to 60% of the recorded drop in income equality was brought about by increased wages while the transfer program contributed to broadly 15% to 20% of the overall drop.” – Teresa Kersting

  4. Mainly Macro  – Simon Wren-Lewis: ‘The financial instability argument for raising rates’

    In its latest Minutes of the Monetary Policy Committee, the Bank of England hinted a Bank Rate hike before the year ends, although the language used in its communications remains highly conservative. According to Wren-Lewis, there are two positions in the discussion regarding the convenience of a rate hike and its ideal timing. On the one hand, those who advocate for continuing with the historically low 0.5% Bank Rate, argue that there is still too much spare capacity in the economy and inflation is still low, so any cut in the Rate would come at the expense of growth. On the other, with the Bank of International Settlements (BIS) as the main advocate, stand those who argue that continued periods of extremely low interest rates are giving constant opportunities to imprudent financial behavior among investors. Therefore, those who support the BIS point of view, argue in favor of a rate hike in order to avoid future financial instability. Wren-Lewis, with his characteristic sharp point of view, points to the missing part of the discussion: macroprudential regulation. – Enrique Jorge

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