Thursday, November 1, 2018

Global Thrift Paradox

LUCA FORNARO, Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI), Barcelona Graduate School of Economics (Barcelona GSE)
LUISS Guido Carli University
This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy cannot stabilize the economy because it is frequently constrained by the zero lower bound. Now imagine that governments complement monetary policy with prudential financial and fiscal policies, because they perceive that limiting private and public borrowing during booms will help stabilize the economy by reducing the risk of financial crises and by creating space for fiscal interventions during busts. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In a financially integrated world, in fact, prudential policies generate a rise in the global supply of savings, or equivalently a drop in global aggregate demand. In turn, weaker global aggregate demand depresses output in countries whose monetary policy is constrained by the zero lower bound. Due to this effect, the world might paradoxically experience a fall in output and welfare following the implementation of well-intended prudential policies.

Friday, March 23, 2018

Which criteria should a measure of global activity satisfy

LUTZ KILIAN, University of Michigan at Ann Arbor - Department of Economics, Centre for Economic Policy Research (CEPR)
Bank of Canada
It is widely understood that the real price of globally traded commodities is determined by the forces of demand and supply. One of the main determinants of the real price of commodities is shifts in the demand for commodities associated with unexpected fluctuations in global real economic activity. There have been numerous proposals for quantifying global real economic activity. We discuss which criteria a measure of global real activity must satisfy to be useful for modeling industrial commodity prices, we examine which of the many alternative measures in the literature are most suitable for applied work, and we explain why some popular measures are inappropriate for modeling commodity prices. Given these insights, we reexamine in detail the question of whether global real economic activity has declined since 2011 and by how much. Drawing on a range of new evidence, we show that the global commodity price boom of the 2000s appears to have been largely transitory. Our analysis has important implications for the design of structural models of commodity markets, for the analysis of the transmission of commodity price shocks to commodity-importing and exporting economies, and for commodity price forecasting. 

Global firms

STEFAN AVDJIEV, Bank for International Settlements (BIS)
Central Bank of Ireland
Trinity College (Dublin) - Department of Economics, Centre for Economic Policy Research (CEPR), Central Bank of Ireland
Bank for International Settlements
As the global economy becomes more integrated, there is a growing tension between the nature of economic activity and the measurement system that attempts to keep up with it. Many policies are still determined by measuring economic activity at the national level. Since the typical unit of analysis is the economic area (the “island”), economic activity is measured within the island and in terms of transactions between islands. But, increasingly, companies and their ownership are global, with economic activity taking place in a geographically dispersed way. We analyse several important issues created by this tension, show how they manifest themselves in the data and draw lessons from them.

Saturday, January 27, 2018

New data from the Maddison project

New data are available on Earth's per capita income. This project of Groningen University provides data for 169 countries and several world regions including World. The Maddison series provides estimates dating back to the year 1 AD. The series cgdppc is based on international comparisons of income levels; rgedpnapc (what's in a name) is based on growth rates according to National Accounts

Thursday, December 14, 2017

World Inequality Report 2018

Economic inequality is widespread and has been growing since the 1980s, calling economic growth policies around the world into question, according to new research from the World Inequality Lab. The study findings are detailed in the first World Inequality Report.

  • The full report is available in English, but the 20-page summary is available in 8 languages: English, French, Spanish, German, Russian, Arabic, Hindi and Chinese -

The research relies on the most extensive database on the historical evolution of income and wealth inequality. It aims to contribute to a more informed global democratic debate on economic inequality by bringing the most up-to-date and comprehensive data to the public discussion.
The report was coordinated by economists Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

Thomas Piketty, coordinator of the report, stressed:
"For the first time ever, this report examines how global growth
has been shared among individuals in the entire world since the 1980s,
with a particular focus on emerging countries
where inequality data had previously been sparse or nonexistent."

The primary research findings indicate that income inequality has increased in nearly all world regions in recent decades, though at different speeds, highlighting the important roles of governments to mitigate inequality. Since 1980, income inequality has increased rapidly in North America, China, India, and Russia, while growing moderately in Europe. However, there are exceptions to this pattern: in the Middle East, sub-Saharan Africa, and Brazil, income inequality has remained relatively stable, at extremely high levels.

Lucas Chancel, general coordinator of the report, emphasized:
"The fact that inequality trends vary so greatly among countries,
even when countries share similar levels of development,
highlights the important role of national policies in shaping inequality.
For instance, consider China and India since 1980: China recorded
much higher growth rates with significantly lowerinequality levels than India. 
The positive conclusion of the World Inequality Report is that policy matters, a lot."

The report also reveals the dramatic decline in the net wealth of governments over the past decades and the challenges this poses for tackling inequality. Based on the data, the report discusses promising options to tackle income and wealth inequality—starting with the importance of economic data transparency.

Gabriel Zucman, coordinator of the report, said:
"The establishment of a global financial registry to record the ownership
of financial assets would deal severe blows to tax evasion
and money laundering, and would enhance the effectiveness
of progressive taxation, which is an essential tool in reducing economic inequality."

The report stresses the need for more ambitious policies to democratize access to education and well-paying jobs in rich and emerging countries alike. Public investments in health and environmental protection are also necessary to empower younger generations. To finance these investments in the future, capital taxes on the wealthiest or debt relief have regularly been used by governments throughout history.
Key results of the report include the following

- Strikingly, since 1980 the richest 1% captured twice as much as the poorest 50% of the world's population. In other terms, since 1980, 27% of all new income generated worldwide were captured by the richest 1%, while the poorest 50% of the world's population captured only 13% of total growth. These figures are brought into sharp contrast considering the top 1% currently represents 75 million individuals while the bottom 50% represents 3.7 billion individuals. The population in between, largely comprised of lower- and middle-income earners in North America and Europe, experienced sluggish or even zero income growth rates.

Since 1980 there have been large shifts in the ownership of capital. Who owns this capital is crucial in determining inequality. Net private capital--the assets of individuals minus their debts--has risen enormously in recent decades, but conversely, net public capital--the assets of governments minus their debts--has declined in nearly all countries since the 1980s due to large scale privatizations and rising public debts. Public capital is now approaching or below zero in rich countries. This exceptional situation by historical standards has strong implications on policy. In particular, it becomes extremely challenging for governments to invest in education, healthcare or environmental protection.

Wealth inequality among individuals also increased sharply since 1980. Significant increases in top wealth shares have been experienced in China and Russia following their transitions from communism to more capitalist economies. The top 1% wealth share doubled in both China and Russia between 1995 and 2015, from 15% to 30% and from 22% to 43%, respectively.

Emmanuel Saez, coordinator of the report, stressed:
"The combination of privatizations and increasing income inequality
has fueled the rise of wealth inequality—within countries and at the global level, private capital is increasingly concentrated among a few individuals.
This rise was extreme in the U.S., where the share of wealth
held by the top 1% rose from 22% in 1980 to 39% in 2014."

- Global income and wealth inequality will steadily rise if countries continue to follow the same trajectory they have been on since 1980, despite strong growth in emerging countries. By 2050, the share of global wealth held by the world's 0.1% richest (representing 7.5 million individuals today) be equal to that of the middle class (3 billion individuals).

However, rising global inequality is not inevitable in the future and limiting it will have tremendous impacts on global poverty eradication. If all countries follow the same inequality trend as Europe since 1980, the incomes of the bottom half of the world population could rise from €3 100 in 2017 to €9 100 in 2050. Alternatively, if countries were to follow the U.S. trend, the incomes of the bottom 50% would rise to just €4 500 by 2050.

The data presented in the report combines in a systematic and transparent manner all available economic data sources, including household surveys, tax receipts, and income and wealth national accounts (including offshore leaks, when available). This enterprise relies on the analysis of more than 175 million data points on inequality.

Facundo Alvaredo, coordinator of the report, said:
“This enterprise relies, in one way or another, on the inequality statistics
collected in −The World Wealth and Income Database−
since its inception as the World Top Incomes Database in 2011.
These databases would not have been possible
without the cooperation of more than 100 researchers around the world.”

World Inequality Report 2018 Highlight
More about

An international team relies on the combined effort of an international network of over a hundred researchers from all continents...

Funding & Partners

The World Wealth and Income Database is funded by public and non-profit institutions..., DATA aims to provide open access to the most extensive available database on the historical evolution of the world distribution of income and wealth...