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. VOX – Paul de Grauwe: ‘Revisiting the pain in Spain

    In this post, Paul de Grauwe offers a revised version of a previous article about the public debt spiral that Spain has been facing since the beginning of the crisis. In addition, he offers a comparison with the UK. In the case of Spain, public debt was lower than in the UK prior to the crisis. However, after 7 years, Spain’s public debt has outpaced the UK’s. Why did that happen if Spain implemented stronger austerity measures? De Grauwe points to the fact that Spain could not count on a central bank that would increase the money in circulation in order to boost the economy. The Bank of England, on the contrary, helped the government by introducing a monetary stimulus in the economy. The most important point that De Grauwe makes is that despite that the European Central Bank (ECB) announced in 2012 that it would play as the lender of last resort in the bond markets and this drove the Spanish 10-year bond yield down, the fundamentals of the economy failed to improve. According to De Grauwe, this was because austerity was not coordinated with monetary stimulus, and deflation remains the main threat to the sustainability of Spain’s public debt.  ” –  Enrique Jorge

  2.  Stumbling and Mumbling – Chris Dillow: ‘LUMPY MARKETS & MENTAL MODELS’

    In this blog post, Chris Dillow explains the arguments on why the labor market is a mix between a flat and a lumpy model. First, in a lumpy market, the workers are not perfect substitutes to each other. This means that an increase in the labor supply does not necessarily translate to a wage reduction. This is the reason why immigration does not depress wages. Second, the relationship between vacancies and unemployment isn’t a 100% fit. As a matter of fact, unemployment can be higher than what the number of vacancies could suggest. That’s why sometimes economists argue that aggregate demand is not the whole story. Third, in a lumpy market wages and profits depend upon bargaining over how to divide the surplus that results from the match between the firm and the worker. This fact justifies minimum wage laws or the exercise of trade unions. – Dirina Mançellari

  3.  The Market Monetarist – Lars Christensen : ‘Stock picker Janet Yellen’

    During testimony before Congress this week, Fed Chair Janet Yellen mentioned that stock valuations in some sectors, “appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries.” This comment has further fuelled the debate about the role of a central bank and the foundations of monetary policy. Lars Christensen thinks that it is a foolish idea for the Fed to include stocks in their reaction functions. He asks, “will the Fed tighten monetary policy if Facebook stock rises “too much”? Christensen acknowledges that misallocation of credit and capital is a problem but does not believe that central banks should be dealing with this. He thinks central banking decisions about the economy should be linked to a nominal inflation anchor, and not depend on perceived risks of stock bubbles.” – Carl Kelly

  4. Angry Bear – Kenneth Thomas: ‘Piketty on the minimum wage’

    Kenneth Thomas engages in the discussion on whether or not a minimum wage is a job killer. This debate has been in the news recently because Germany introduced a minimum wage for the first time and new evidence from the United States provides some new insights. He refers to evidence given in Thomas Piketty’s “Capital in the Twenty-First Century” to point out a strong decline in the real value of the U.S. minimum wage since the 1970s and to show that it currently is far below the real French minimum wage. That is why according to the author an increase in the U.S. minimum wage would make far more sense in the U.S. than in France since at this low level of minimum wage the potential negative impact on the number of jobs is far less troubling. In addition, the author shows that too low wages can cause inefficiencies at the firm and at the economy-wide level as it provides little incentives for workers to acquire specific skills. To underpin this argument, the author claims that a recent  study found that the 13 U.S. states which raised the minimum wage at the beginning of this year registered higher rates of job growth in recent months than those that did not. –  Teresa Kersting

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