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Gene Ellis

This crisis cannot be resolved while monetary union remains - Telegraph - 1 views

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    important piece quoting Olivier Blanchard
Gene Ellis

IMF's Olivier Blanchard says global recovery is still 'weak' - FT.com - 0 views

  • IMF’s Olivier Blanchard says global recovery is still ‘weak’
  • “There is a strong case to be made for more public investment, for demand-side reasons in the short term, and supply-side reasons in the longer run,” says Mr Blanchard. The US and Germany are prime examples, Mr Blanchard said, of countries where there is a backlog of high-return infrastructure projects. He added that their governments should make the most of record-low borrowing costs and reap the large macroeconomic benefits that come from increasing demand.
Gene Ellis

Why the Baltic states are no model - FT.com - 0 views

  • Olivier Blanchard, the IMF’s economic counsellor, stated last June that “many, including me, believed that keeping the peg was likely to be a recipe for disaster, for a long and painful adjustment at best, or more likely, the eventual abandonment of the peg when failure became obvious.” He has been proved wrong.
  • According to the IMF, Latvia tightened its cyclically adjusted general government deficit by 5.3 per cent of potential GDP between 2008 and 2012,
  • But Greece’s tightening was 15 per cent of potential GDP between 2009 and 2012.
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  • These huge recessions do matter. For Latvia, the cumulative loss from 2008 to 2012 adds up to 77 per cent of the country’s pre-crisis annual output. On the same basis, the loss was 44 per cent for Lithuania and 43 per cent for Estonia.
  • In brief, Latvia, worst-hit of the Baltic countries, suffered one of the biggest depressions in history. It is recovering. But it has not yet fully recovered. Are its policies a model for others? In a word, no.
  • These states have four huge advantages
  • First, according to Eurostat, Latvian labour costs per hour, in 2012, were a quarter of those of the eurozone as whole, 30 per cent of those in Spain and half those of Portugal.
  • Second, these are very small and open economies
  • Its trade partners hardly notice Latvia’s adjustment. But they would notice a comparably large Italian one.
  • Third, foreign-owned banks play a central role in these economies. For the eurozone, this is the alternative to a banking union: let banks with fiscally strong host governments take over the weaker financial systems.
  • inally, the Baltic states have embraced their European destiny as an alternative to falling back into Russia’s orbit.
Gene Ellis

The Nation: Who Will Avert A Euro Collapse? : NPR - 0 views

  • Even as the mainstream media warned that Hollande's populism would be punished by the bond markets, the IMF's chief economist, Frenchman Olivier Blanchard — who is closer to Hollande's heterodoxy than might be expected — confessed that "schizophrenic" investors are now as scared by the impact of austerity on growth as they are of fiscal largesse.
  • "With zero growth and rising interest costs in Spain and Italy, no debt is sustainable," Fitoussi said. "Even France will be challenged if it goes into recession."
  • which, despite their recently elected conservative governments, are aware that only pan-European investment, eurobonds and the full support of the ECB can save the eurozone.
Gene Ellis

Has the U.S. Economy Been Permanently Damaged? : The New Yorker - 0 views

  • Although the study uses some sophisticated statistical methods, its basic point is straightforward: in the long term, economic output (G.D.P.) is constrained by the quantity and the quality of economic inputs (labor, capital, and technology). If the growth rate and quality of these inputs decline, the potential growth rate of G.D.P. will fall, too—it’s just a matter of arithmetic.
  • With hiring rates down, many workers have given up searching for jobs and have dropped out of the labor force.
  • With budgets tight, corporations and government departments have cut back on investments in new plants and machinery, computer hardware and software, and research and development.
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  • The authors come up with a variety of numbers, including one that has received a lot of attention: potential G.D.P.—broadly speaking, the level of G.D.P. consistent with stable inflation—“is currently about 7 percent below the trajectory it appeared to be on prior to 2007.” According to the latest figures from the Commerce Department, the G.D.P. is now close to seventeen trillion dollars, and seven per cent of that figure is $1.2 trillion. This is a lot of money to have gone missing, especially if it will never be recovered. Hence Krugman’s dire conclusion: “By tolerating high unemployment we have inflicted huge damage on our long-run prospects …. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come.”
  • As well as figuring out the current level of potential G.D.P., the authors estimate its growth rate. This is the more important figure, because it’s what determines living standards over the long term
  • In the period from 2000 to 2007, the paper says the average potential growth rate of G.D.P. was 2.6 per cent.
  • For 2012, the authors estimate the potential growth rate at only 1.3 per cent.
  • In the nineteen-eighties, Larry Summers and Olivier Blanchard, who is now the chief economist of the I.M.F., resurrected the idea and gave it a new name, which they borrowed from engineering: hysteresis. Blanchard and Summers examined hysteresis in Europe, where high rates of unemployment have long been a problem.
  • The good news is that things aren’t quite as bad as the figures in the Fed paper might suggest. If we can get policy right and sharply increase the level of over-all demand in the economy, most of the damage done in the past five years is reversible.
  • At the moment, sadly, there is no prospect of any more fiscal stimulus, let alone a war-sized one, and the onus is falling on the Fed to gee up the economy.
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