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What next for us-europe trade policy

What next for us-europe trade policy

What next for US-Europe trade policy?

The economies of Europe and america are inextricably linked and within an ideal world, numerous factors motivate a trade deal like the Transatlantic Trade and Investment Partnership. This column, extracted from a recently available VoxEU eBook, argues, however, that given the Brexit referendum in the united kingdom and the election of Donald Trump as US president, in addition to a number of other pre-existing complications, achieving such agreements will be highly contentious.

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The information channel of monetary policy has disappeared in the us

The info channel of monetary policy has disappeared in america

The info channel of monetary policy theory – whereby economic agents revise their beliefs after an urgent monetary policy announcement not merely because they find out about the existing and future path of monetary policy, but also because they learn new information regarding the economic outlook – could explain the puzzle of output increasing after a contractionary monetary policy shock. This column argues, however, that the info channel has disappeared in america, perhaps because of the improved communication strategies implemented by the Federal Reserve.

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The inertia of monetary policy implications for the fed’s exit strategy

The analytical framework

Since Taylor (1993) macroeconomists have relied on simple interest reaction functions to characterise the endogenous response of monetary policymakers to economic fluctuations. Our very own baseline formula for predicting monetary policymakers’ desired interest can be an extension of the classic “Taylor rule”; it talks about the central bank’s forecast of inflation, the growth rate of output, and the output gap. Our rule departs from the classic Taylor specification for the reason that it permits responses to both output gap and the growth rate of output and in addition in that it permits the central bank to react to the forecast of future macroeconomic variables in keeping with the idea that monetary policy changes remember to affect the economy so policymakers ought to be forward-looking within their policy decisions.

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Fiscal policy responses to crises the social impacts

Counting the social impact

Lost in a lot of the discussion on fiscal-policy procyclicality has been the social impact of contractionary fiscal policy during recessions – things such as for example:

  • the poverty rate,
  • income inequality,
  • the unemployment rate, and
  • domestic conflict.

In a recently available research paper we look at the way the fiscal-policy responses to GDP crises have affected social indicators such as for example those in the above list (Vegh and Vuletin 2014). We find that contractionary fiscal policy during crises has tended to worsen social indicators both in Latin America and, recently, in the Eurozone, which calls into question recent claims on ‘expansionary fiscal austerity.’

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Fiscal policy remains in the stone age

Fiscal policy remains in the stone age

With unemployment remaining saturated in the euro area and core inflation well below target, Simon Wren-Lewis argues that German fiscal policy, specifically, is too tight, calling for stimulus by means of public investment.

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Fiscal policy remains in the stone age.

Or maybe the center ages, but definitely not anything more recent compared to the 1920s. Keynes advocated using fiscal expansion in what he called a liquidity trap in the 1930s. Nowadays we use a different terminology and discuss the necessity for fiscal expansion when nominal interest levels are stuck at the zero lower bound or effective lower bound. (I slightly choose the latter terminology since it is up to central banks to choose at what point reducing nominal interest levels further will be risky or counterproductive.) The logic may be the same today since it was in the 1930s. When monetary policy loses its reliable and effective instrument to control the economy, you must bring in another best reliable and effective instrument: fiscal policy.

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A future agenda for eu trade policy as if the real world really mattered

A future agenda for eu trade policy as if the real world really mattered

Reality Check 1: With regards to the WTO "do no harm."

Of course you like the WTO but everybody knows it really is in serious trouble. Despite their public statements, Heads of Government are simply just not ready to make the trade-offs essential to complete an economically meaningful Doha Round. Without doubt a mouse could possibly be produced if matters get so very bad that people need a Doha Round deal to "save the machine." But, by 2008, it became clear that everyone had learned that there is no basis for a deal.

Thomas Schelling, the Nobel Prize-winning strategist, supplies the best way of taking into consideration the Doha Round stalemate. Schelling showed that if one negotiator was presented with by its government an extremely restrictive negotiating mandate then, under some circumstances, other negotiating parties keen to summarize a deal would do etc the former’s terms. But Schelling also remarked that if many governments tied the hands of their negotiators then stalemate was possible.