Last week, the International Monetary Fund published a working paper by Olivier Blanchard and Daniel Leigh revisiting the estimates of the effect of austerity that caused such a stir in the October World Economic Outlook. Many people took the box in the WEO as proof of the absurdity in attempts at deficit reduction.
At the time, I published an article and a technical blog in the FT, casting some doubt on the robustness of the IMF’s work. It also caused a minor stir. I included all the data so people could play around with the numbers themselves if they wished.
In December, another part of the IMF published a working paper using different methodology, which found much smaller multipliers. It is not the first time that different parts of the fund disagree. It will not be the last.
What does the new working paper say and what conclusions should we draw?
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More QE from the Bank?
The Bank of England‘s Monetary Policy Committee meets on Wednesday and Thursday, when the decision is due out at noon UK time (11am GMT).
Will the MPC vote for more QE? Read more
St Peter's Square. Image by Getty.
Tired of all the talk of currency wars, the Holy See wants peace.
The Vatican this week called for G-20 leaders, meeting in Cannes early next month, to set up a global central bank. The Pontifical Council for Justice and Peace’s statement is only available in Italian but here’s an article from the Telegraph:
Such an authority would have “universal jurisdiction” over governments’ economic strategies.
Existing financial situations such as the World Bank and International Monetary Fund were outdated and no longer able to deal with the scale of the global financial crisis, which had exposed “selfishness, greed and the hoarding of goods on a grand scale”.
The global financial system was riddled with injustice and failure to address that would lead to “growing hostility and even violence”, which would undermine democracy.
The church’s call for action is not dissimilar to a point made by some of the world’s leading economists. Read more
The latest warning on the fate of the global economic recovery today came from the International Monetary Fund, which rather ominously stated that the risks of a slowdown have risen considerably in recent months.
In that context, I came across a fascinating – and worrying - note by John Makin, a visiting scholar at the American Enterprise Institute, a Washington think-tank, and former consultant to the Treasury department.
Mr Makin, who is also a partner at Caxton, the hedge fund, is firmly in the camp of economists who believe deflation is emerging as the biggest danger to the economic recovery, and he eloquently lays out his case. Read more
A communique that more or less acknowledged disagreement over the great bank taxes debate and a Canadian finance minister, Jim Flaherty, thinking that the debate was swinging Canada’s (anti-bank levy, pro-contingent capital) way. I think one of two things could happen at this point:
1. The US and Europeans who support the bank tax will keep pushing it at G20 level, perhaps soft-pedalling until after the Canadian-hosted G7/G20 summit in June and then resuming the campaign in the second half of the year.
2. As Secretary Geithner suggested tonight, the US might just forge ahead anyway and hope that the rest of the world follows behind once they see what a great idea it is. My notes (not precise quote) say: “We are going to move in the US and I suspect you will find when other countries see what we do, they are going to take similar measures”.
Not entirely sure that 2. is a sustainable option, since other countries might well think it is worth taking the risk of funding a bank bailout down the line to steal business from American and European banks now. Then again, Canadian banks aren’t particularly known for buccaneering adventurism in other developed country markets (some are quite big in emerging markets), so perhaps they are an exception that can be tolerated without too much risk of being undercut. Japan, on the other hand, another opponent of bank taxes, could be a different matter. Read more