World real interest rates

New and exciting information appears in a new voxeu publication on secular stagnation
Global interests on average have moved into unknown territories. This makes the concept of the liquidity trap very relevant.

Book 5.1 pp 53-4
Book 7.3 pp. 81-84

Global perspective on macroprudential policies

"Macroprudential Policies in a Global Perspective" 
CEPR Discussion Paper No. DP9875

OLIVIER JEANNE, Johns Hopkins University - Department of Economics
Email: ojeanne@jhu.edu

This paper analyzes the case for the international coordination of macroprudential policies in the context of a simple theoretical framework. Both domestic macroprudential policies and prudential capital controls have international spillovers through their impact on capital flows. The uncoordinated use of macroprudential policies may lead to a "capital war" that depresses global interest rates. International coordination of macroprudential policies is not warranted, however, unless there is unemployment in some countries. There is scope for Pareto-improving international policy coordination when one part of the world is in a liquidity trap while the rest of the world accumulates reserves for prudential reasons. 

Book: chapters 6 and 9

A nuanced view on globalisation

"The Evidence on Globalization" 
CESifo Working Paper Series No. 4708

NIKLAS POTRAFKE, CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Email: potrafke@ifo.de

Globalization is blamed for many socio-economic shortcomings. I discuss the consequences of globalization by surveying the empirical globalization literature. My focus is on the KOF indices of globalization (Dreher 2006a and Dreher et al. 2008a), that have been used in more than 100 studies. Early studies using the KOF index reported correlations between globalization and several outcome variables. Studies published more recently identify causal effects. The evidence shows that globalization has spurred economic growth, promoted gender equality, and improved human rights. Moreover, globalization did not erode welfare state activities, did not have any significant effect on labor market interaction and hardly influenced market deregulation. It increased however within-country income inequality. The consequences of globalization thus turn out to be overall much more favorable than often conjectured in the public discourse. 

Book: 152-154

Growth in the global economy. Why does the industrialzied world continue to stagnate?

In a recent working paper "Sluggish Postcrisis Growth: Policies, Secular Stagnation, and Outlook"  Canuto, Nallari, and  Griffith investigate why  advanced economies continue to have low growth. Is this slow postcrisis growth the result of a policy response that was overly reliant on monetary policy, which ran into the zero interest rate lower bound before growth was restored? Looking deeper, is secular stagnation, which is related to the zero lower bound and was recently brought to the fore by Larry Summers, another potential cause for advanced economies’ failure to return to pre-crisis growth levels? This note seeks to answer these questions as well as identify what alternative policies might be pursued by advanced economies to escape secular stagnation, should stagnation proponents be proven correct. After a brief review of secular stagnation, Summers’ hypothesis is tested through a review of academic literature and opinion pieces. However, the secular stagnation theory is not without its critics; moreover, there is a debate between “Keynesian versus Schumpeterian” economists, which could help to shed light on the medium-term postcrisis outlook.

Book: 
Liquidity trap pp. 104-106.
Saving glut (Paradox of Thrift) p. 46.
Secular slowdown (Long Wave), pp. 140-144.

Paperback Earth Economics

Just released and note that Edward Elgar gives an additional 20% rebate when you order direct through www.e-elgar.com

Global liquidity as an early warning indicator of asset price booms

377 - DNB Working PaDate 22 May 2013 pers We test the performance of various measures of global liquidity as early warning indicators of booms in house and equity prices in 20 OECD countries between 1970 and 2010. We use a panel probit approach to test the relative performance of global liquidity measures based on two aggregation schemes: the traditional measures, based on G5 data, and broader measures, based on data for up to 26 countries/currency areas. Our results show that, in the last decade, global liquidity measures outperformed domestic measures as early warning indicators. Between the two global liquidity measures, G5 aggregates often outperformed broader global liquidity measures. The search for the best early warning indicator showed that the G5 real narrow money gap performed best for booms in house prices, while the global real private credit growth gap performed best for booms in equity prices, either when aggregated over G5 or over a broader sample of countries. Nevertheless, given the rising importance of the emerging market economies and a declining share of G5 in global liquidity, the current superior performance of G5 measures may not warrant their superior performance in the future. Therefore, given the importance of global liquidity measures in warning about asset price booms, the need for constructing broader global liquidity measures is warranted. Keywords: Early Warning Indicators, Asset Price Booms, Global Liquidity. JEL Classification: E44, E51, F65, C53. DNB working paper 377- Global liquidity as an early warning indicator of asset price booms ww.dnb.nl

Secret message?

IMF watchers all around the world are puzzled. Why a desert? What does the Fund know what we do not know?