Ireland and World Economy

Ireland and the World Economy Guest Lecture from Stephen Kinsella on Vimeo.

Robert Reich at Google

Robert Reich on his new book After Shock

It hurts some times

IMF on fiscal contractions;

Second, external adjustment is not driven solely by the fall in domestic demand from fiscal consolidation. The contractionary effect of fiscal consolidation is now well established, with consequent effects on import demand, and this is something policymakers cannot ignore—fiscal consolidation hurts. But the current account also improves because exports get a boost from the real exchange rate depreciation that tends to accompany fiscal consolidation.

Chapter 4 of WEO- The Twin Budget and Trade Balances

How do changes in taxes and government spending affect an economy’s external balance? Based on a historical analysis of documented fiscal policy changes and on model simulations, this chapter finds that the current account responds substantially to fiscal policy—a fiscal consolidation of 1 percent of GDP typically improves an economy’s current account balance by over a half percent of GDP. This comes about not only through lower imports due to a decline in domestic demand but also from a rise in exports due to a weakening currency. When the nominal exchange rate is fixed or the scope for monetary stimulus is limited, the current account adjusts by as much, but the adjustment is more painful: economic activity contracts more and the real exchange rate depreciates through domestic wage and price compression. When economies tighten fiscal policies simultaneously, what matters for the current account is how much an economy consolidates relative to others. Looking ahead, the differing magnitudes of fiscal adjustment plans across the world will help lower imbalances within the euro area and reduce emerging Asia’s external surpluses. The relative lack of permanent consolidation measures in the United States suggests that fiscal policy will contribute little to lessening the U.S. external deficit.

We find that fiscal policy has a substantial and long-lasting effect on the current account. A fiscal consolidation of 1 percent of GDP improves the current account by over a half percent of GDP within two years, with the improvement persisting into the medium term. The improvement in the current account comes not only through lower imports due to falling domestic demand, but also from an increase in exports arising from a weaker domestic currency.

See chapter 4

Something to think about?

'We call the negative outliers "rogue traders". What do we call the positive outliers?

From Junkcharts

Target what you can hit- follow up

In case you don't have time to read the entire chapter 3 , please read the two boxes
- Box 3.1. Inflation in Sub-Saharan Africa during the 2008 Commodity Price Surge 
- Box 3.2. Food Price Swings and Monetary Policy in Open Economies

What accounts for the relative stability of nonfood inflation? As Table 3.1.4 indicates, the macroeconomic environment was broadly neutral during this period. There was a small increase in government spending. On the monetary front, there was a small increase in the growth rate of monetary aggregates; money targets were missed in eight countries for which there are data; and nominal interest rates stayed constant—all of which is broadly consistent with an accommodation of first-round effects.

Target what you can hit

The analytical chapters of the WEO is out. The 3rd chapter address the following questions;

-What are the effects of international commodity price swings on inflation across a variety of economies? What economic factors influence these effects?

-What is the appropriate monetary policy response to commodity price shocks? In particular, how does the approach of targeting underlying inflation rather than headline inflation perform in terms of delivering macroeconomic stability in different types of economies? Should central banks respond to persistent commodity price shocks any differently than to one-time shocks?

-Finally, what are the implications for monetary policy in today’s environment, with excess demand pressures in some emerging and developing economies and economic slack in advanced economies?

These are the main findings of the chapter:

-Food price shocks tend to have larger effects on headline inflation in emerging and developing economies than in advanced economies. On a related note, because medium-term inflation expectations are weakly anchored in many emerging and developing economies, food price shocks have larger effects on inflation expectations in these economies.

-The measure of inflation used to define a central bank’s target matters because of its effect on the central bank’s credibility. In economies with low initial monetary policy credibility and high food shares in the consumption basket, focusing on underlying inflation—that is, a measure that reflects the changes in inflation that are likely to be sustained over the medium term—rather than on headline inflation, makes it easier to build credibility. The reason is that it is harder to hit headline inflation targets when commodity prices are volatile. Higher credibility, in turn, leads to better-anchored inflation expectations and lower volatility of both output and headline inflation.

-The desirability of setting and communicating monetary policy based on a measure of underlying inflation depends on the relative importance of headline inflation and output to a country’s welfare. A headline framework can lower the volatility of headline inflation, but at the cost of significantly higher volatility in output (and hence in household income).

-Finally, in economies where central bank credibility is still limited and the share of food in consumption is high (as in a number of emerging and developing economies), a food price shock is likely to have even larger second-round effects and require a more aggressive policy response when excess demand pressures are high and inflation is running above target. This assumes that the economic costs rise as the gap increases between actual inflation and the target. In contrast, in economies where the central bank’s credibility is strong, where food accounts for a low share in consumption baskets, and where there is substantial economic slack (as in major advanced economies today), the monetary policy tightening required to stabilize inflation is more gradual.

Nepal can expand external debt?

The debt reduction has created fiscal space, but in the short run maintaining the peg calls for containing domestic borrowing close to current levels. With external debt within thresholds, the debt sustainability analysis indicates that Nepal is at moderate risk of debt distress (see Annex 1). This fiscal room could be used for building infrastructure and human capital, and for the peace process, provided spending quality is ensured. But, in the short term the worsening external position requires that domestically financed deficits remain close to current levels, while the overall deficit could be expanded provided it is funded with external grants or concessional debt. The main considerations in determining the appropriate fiscal stance are;

Debt level target. Nepal’s external debt, with an NPV of debt-to-GDP ratio of 21¾ percent, and an NPV of debt-to-exports-and remittances ratio of 63 percent, is well within DSA thresholds. Nepal’s public debt is well below the average of comparators. However, contingent liabilities of some 2–3 percent of GDP arising from the required recapitalization of state-owned banks, and potential additional liabilities stemming from the weak financial sector suggest that adequate cushions be maintained. In sum, a public debt target of around 40 percent would be appropriate to anchor fiscal policy. To stabilize the public debt-to-GDP ratio in the long run at this level, the overall deficit could rise to 3½ percent of GDP, and the domestically financed deficit would be in the range of 2¼–2½ percent of GDP, higher than in previous years.

Support for the peg and demand management. The expected slowdown in output growth would suggest a more expansionary fiscal stance in the short term. However, inflationary pressures remain high, and the peg to the Indian rupee requires that domestically financed deficits remain contained.

Crowding out and borrowing costs. A high money-to-GDP ratio suggests that, in the longer run, a somewhat higher domestic debt burden can be accommodated. However, in the short run, the expected slowdown in money growth due to the deteriorating external position, public sector borrowing may need to be contained to leave sufficient room for private credit and control interest costs

Source: Nepal: 2010 Article IV Consultation and Request for Disbursement Under the Rapid Credit Facility - Staff Report

Random Data- Nepal's Government Revenues

Random Data- What's Bhutan's Government Revenues

The answer is it depends. See also the latest Economic Update on Bhutan from the World Bank

Government Debt in Europe

Egypt, Israel and Spain

Having a bit too much fun with Google Data Explorer

Google Data Explorer is cool

Government Revenues and Expenditures

 Note to Self: IMF DataMapper users the following definitions for public revenues and expenditures.

General government revenue (National currency)
Revenue consists of taxes, social contributions, grants receivable, and other revenue. Revenue increases government’s net worth, which is the difference between its assets and liabilities (GFSM 2001, paragraph 4.20). Note: Transactions that merely change the composition of the balance sheet do not change the net worth position, for example, proceeds from sales of nonfinancial and financial assets or incurrence of liabilities.

General government total expenditure (National currency)
Total expenditure consists of total expense and the net acquisition of nonfinancial assets. Note: Apart from being on an accrual basis, total expenditure differs from the GFSM 1986 definition of total expenditure in the sense that it also takes the disposals of nonfinancial assets into account.

What's the quickest way to find public finance data on the web?

So whats the quickest way to find International Public Finance data on the web? Is it
A- Wolfram Alpha
B- World Development Indicators
C- IMF Data Mapper

Homework: Try finding the latest estimates of Bhutan's government revenues estimates?

Something for Nothing

Something for Nothing-A Novel
Michael W. Klein

David Fox (Ph.D. Economics, Columbia, Visiting Assistant Professor at Kester College, Knittersville, New York) is having a stressful year. He has a temporary position at a small college in a small town miles from everything except Albany. His students have never read Freakonomics. He thinks he is getting the hang of teaching, but a smart and beautiful young woman in his Economics of Social Issues class is distractingly flirtatious. His research is stagnant, to put it kindly. His search for a tenure-track job looms dauntingly. (The previous visiting assistant professor of economics is now working in a bookstore.) So when a right-wing think tank called the Center to Research Opportunities for a Spiritual Society (CROSS)--affiliated with the Salvation Academy for Value Economics (SAVE)--wants to publish (and publicize) a paper he wrote as a graduate student showing the benefits of high school abstinence programs, fetchingly retitled "Something for Nothing," he ignores his misgivings and accepts happily. After all, publication is “the coin of the realm,” as a senior colleague puts it.

But David faces a personal dilemma when his prized results are cast into doubt. The school year is filled with other challenges as well, including faculty politics, a romance with a Knittersville native, running the annual interview gauntlet, and delivering the culminating "job talk" lecture under trying circumstances. David’s adventures offer an instructive fictional guide for the young economist and an entertaining and comic tale for everyone interested in questions of balancing career and life, success and integrity, and loyalty and desire.

When Fiscal Adjustment is not enough

The mission and the authorities agreed that fiscal adjustment alone will not
ensure debt sustainability (MEFP, paragraph 10). It was recognized that attempts to achieve higher primary fiscal targets over the medium term would not be sustainable unless accompanied by a meaningful reduction in the public debt service burden, which will require burden sharing by all stakeholders. In this context, the authorities have retained debt and legal advisors, publicly announced to seek a comprehensive and substantive restructuring of the public debt, initiated discussions with creditors, and obtained financing assurances from the Paris Club. The authorities’ strategy (Box 4), developed with the assistance of their debt advisors, emphasizes dialogue with all creditors and information transparency (including publishing relevant information on the debt restructuring on their website).

- St. Kitts and Nevis: 2011 Article IV Consultation and Request for Stand-By Arrangement - Staff Report

Ideas for PhD

PhD in Political Economy & Government;

The PhD in Political Economy and Government is designed for students interested in the impact of politics on economic processes and outcomes, and the reciprocal influence of economic conditions on political life. It is appropriate for students whose academic interests are not served by doctoral studies in Economics or Political Science alone...

Things to consider before applying

Required quantitative preparation for the PhD in Political Economy and Government includes:

Minimum two semesters of Calculus.
Mathematics preparation up to and including Multivariable Calculus.

I want to work for IMF/WB?

A certain Praveen Kishore comments on the Dani Rodrik's blog sometime back- which worries me a bit about the type of people who get attracted to jobs at multi-lateral institutions.

For past three months, I have been collecting information regarding Ph.D. in Eco. and MPA/ID and similar other programs. I have gone through other blogs as well. However,I am still not decided about Ph.D. or MPA/ID. I like economics. I have basic undergraduate degree in Eco.and Mathematics. Thereafter, I got MBA(Finance) from Calcutta University (India) and Masters in Public-policy and Management from IIMB (Indian Institute of Management, Bangalrore, India). I am part of permanent Indian civil service (IRS - Indian Revenue Service, to be precise) with around 10 years of experience in Central (Federal) direct tax department, Ministry of Finance, Govt. of India - at operational as well as policy level. I am aged 35 years.

I want to work for IMF/WB or consulting organization. I also like academics/research.

In such a situation -What should I do? MPA/ID or Ph.D.in Eco?

Justin Lin on Esther Duflo

Justin Lin summarizes the Jackson Hole conference;

Esther Duflo, meanwhile, posited that a long term strategy to balance growth with equity should entail policies that maximize the chance for the poor to fully participate in markets. Her paper describes market failures in finance, insurance, land, and education in developing countries, and discusses what is known, and not known, about how best to tackle them.

My view is that fixing all those market failures that are biased against poorer people might not be sufficient. Poor people’s income comes mostly from their labor earnings, while the rich people derive a large portion of their income from capital. If a developing country can follow its comparative advantage and starts its structural transformation by developing labor-intensive industries, the poor will have better employment opportunities, the economy will be competitive and dynamic, labor will turn from relatively abundant to relatively scarce, and the increase in wage rates will be much faster than the return to capital. In this way, the country may achieve growth with equity as Japan, Korea, Taiwan-China, and Singapore achieved during their catching up process.

September is going to be David Henderson month

Plan to finish reading two books by David Henderson next month- so will be blogging extensively about the books in the coming month.

Justin Wolfers says good bye to DC

Life in D.C. is not just about public policy debates, it is also a wonderful city to live in. My usual running route takes me home past the White House, the Washington Monument, perhaps the Lincoln Memorial and Reflecting Pool, and for hill work, I head to the Capitol. There’s something special about running past monuments. There’s terrific trail running, too. Great restaurants are on every corner, although perhaps too many expense-account steakhouses. The cupcake scene is incredible. I would say something about the happy hour culture, but, well, I’m now a parent. So instead, I can say that a typical weekend might involve taking my daughter to visit the dinosaurs at the Natural History Museum, burn off steam in the atrium at the National Portrait Gallery, picnic in the Sculpture Garden, or take a twirl on the Carousel on the National Mall.

Justin Wolfers is one of our favorite economists!

Do check-out Wolfers' parenting habits;

OK, so one randomized trial that we actually did read had a huge impact on us, which was teaching babies sign language. And it turns out that this is a great way of even increasing their vocab before their speaking skills kick in. And Matilda speaks terrific sign language and his been able to sort of communicate her needs whether she wants milk or Cheerios, you know, for about a year now. No not a year, I misspoke, six, seven months now. But you know, preverbal. We made that a priority.

What Steven Landsburg been reading

It's all fiction

;

The Brothers Karamazov (Fyodor Dostoevsky) (for the fourth time!). Arguably the greatest novel ever. The issue with the Brothers K is always the choice of a translation. The last time around (maybe ten years ago or so), I went with Pevear and Volokhonsky, and pronounced it by far the best. This time I went back to the classic Constance Garnett translation that I last read at age 16 — and reminded myself that this one is also great.

Alan Krueger to replace Austan Goolsbee

Mr. Krueger has been on Princeton's faculty since 1987, the year he earned his Ph.D. in economics from Harvard University. He did a stint as chief economist at the Labor Department during the Clinton administration.

The work he has done in academia ranges from attempts to explain why job growth wasn't stronger during the 2000s, to findings that increases in the minimum wage don't depress employment, to a work showing that terrorists often come from middle-class—and often college-educated—backgrounds.

While at Treasury, Mr. Krueger worked on analyses of a variety of programs, including tax incentives to encourage employers to hire the employed, the "cash for clunkers" initiative to jump-start auto purchases and Build America taxable municipal bonds.

Treasury Secretary Timothy Geithner, through a spokeswoman, said that "given his expertise in labor economics, he is precisely the right choice to lead the CEA at this moment in history."

Martin Feldstein, who was CEA chairman in the Reagan White House, praised the choice. "His experience at the Treasury will give him a running start in his new job," he said. "Alan is an expert in labor-market problems, taxation and the economics of terrorism. I hope the president listens to him."

-Labor Economist to Fill Key Post

Leon Levy Lecture - The Lot of the Unemployed

A closer look at Alan Krueger’s academic work;

The minimum wage: Krueger might be most famous for the paper he did with David Card back in 1992 showing that an increase in the minimum wage doesn’t always increase unemployment, as most economists had long believed. Krueger and Card compared fast-food restaurants in New Jersey and western Pennsylvania and found that New Jersey, which had hiked its minimum wage from $4.25 to $5.05, didn’t lose jobs as expected. In fact, in some conditions, an increase in the minimum wage can actually boost employment. As Robert Waldmann explains, “Their logic is basically that firms can choose to pay a low wage and have a high quit rate and take a long time to fill vacancies or pay a high wage and have fewer quits and fill vacancies more quickly.” That said, Waldmann adds, this research doesn’t appear to be relevant to current labor-market conditions.

Unemployment: In 2011, Krueger and Andreas Muller conducted a survey of 6,025 unemployed workers and found a couple of interesting things. One, “the amount of time devoted to job search declines sharply over the spell of unemployment.” Second, out-of-work job-seekers tend to be picky: The minimum wage a worker will accept tends to be pretty close to the wage of his previous job, and it doesn’t drop very much over time, even if he stays unemployed.

Krueger to CEA

Reading for the Weekend- paper by Kashik Basu on Indian Inflation

Understanding Inflation and controlling it