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)
Email: lfornaro@crei.cat
FEDERICA ROMEI,
LUISS Guido Carli University
Email: fromei@luiss.it
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)
Email: lkilian@umich.edu
XIAOQING ZHOU,
Bank of Canada
Email: xzhou@bankofcanada.ca
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)
Email: stefan.avdjiev@bis.org
MARY EVERETT,
Central Bank of Ireland
Email: mary.everett@centralbank.ie
PHILIP R. LANE,
Trinity College (Dublin) - Department of Economics, Centre for Economic Policy Research (CEPR), Central Bank of Ireland
Email: plane@tcd.ie
HYUN SONG SHIN,
Bank for International Settlements
Email: hyunsong.shin@bis.org
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