19 Jul 2015
by Jim Rose
in business cycles, economic growth, economic history, fiscal policy, job search and matching, labour economics, macroeconomics, unemployment
Tags: Celtic Tiger, equilibrium unemployment rate, Eurosclerosis, Germany, Ireland, Italy, natural unemployment rate, Rance, Spain
Figure 1 shows large contrasts in time path of equilibrium unemployment rates. For example, French and Italian equilibrium unemployment rates haven’t changed much since about 1986.
Figure 1: equilibrium unemployment rates, France, Germany, Italy, Ireland and Spain, 1968 – 2016
Source: OECD Economic Outlook June 2015 via OECD StatExtract..
Figure 1 also shows some fortuitous ups and downs in the German equilibrium unemployment rate. This estimate was available only from after German unification.
The equilibrium German unemployment rate rose from 6% to above 8% on the eve of the global financial crisis. Fortunately for Germany, major labour market reforms brought the equilibrium unemployment rate down as Germany moved into the global financial crisis.
The Spanish equilibrium unemployment rate had been terrible since about 1980, started to fall in the 1990s, then skyrocketed even before the onset of the global financial crisis – see figure 1.
There have been ups and downs in the Irish equilibrium unemployment rate – see figure 1. It was as high as 14% at the end of the Irish great depression of the 1970s and 1980s. The equilibrium Irish unemployment rate was 8% at the heyday of the Celtic tiger then slowly rose in the lead up to the global financial crisis.
17 Jul 2015
by Jim Rose
in applied welfare economics, budget deficits, comparative institutional analysis, constitutional political economy, currency unions, economic growth, economic history, economics of regulation, Euro crisis, fiscal policy, income redistribution, macroeconomics, Marxist economics, Public Choice, rentseeking
Tags: Greece, growth of government, Margaret Thatcher, size of government
15 Jul 2015
by Jim Rose
in business cycles, currency unions, economic growth, Euro crisis, fiscal policy, job search and matching, labour economics, macroeconomics, unemployment
Tags: ageing society, demographic crisis, economic reform, employment law, employment regulation, Greece, labour market deregulation, Margaret Thatcher, pension reform, privatisation, Roger Douglas, social insurance, sovereign bailouts, sovereign defaults, welfare state
10 Jul 2015
by Jim Rose
in applied price theory, applied welfare economics, comparative institutional analysis, constitutional political economy, currency unions, fiscal policy, global financial crisis (GFC), income redistribution, liberalism, macroeconomics, Marxist economics, Public Choice, public economics, rentseeking
Tags: Eurosclerosis, expressive voting, Greece, rational ignorance, rational irrationality, sovereign default
09 Jul 2015
by Jim Rose
in economic history, financial economics, fiscal policy, international economics, macroeconomics, monetarism, monetary economics
Tags: Anna Schwartz, bank runs, banking panics, China, contagion, evidence-based policy, financial crises, financial stability, inflation targeting, international systemic risk, Michael Bordo, monetary history, pseudo financial crises, pseudo international systemic risk
If we could take time out from the breathless journalism about the Chinese stock market, which some people may have heard of before this week, it’s crash should be seen through the lens that Anna Schwartz developed in 1987 of a pseudo financial crisis and a financial crisis.
Her paper is written at the same time as the 1987 stock market crash. On financial crises, Anna Schwartz said:
As for those pseudo financial crises, she said:
Schwartz’s principal concern with regard to pseudo financial crisis was:
proposals to deal with pseudo-financial crises is the perpetuation of policies that promote inflation and waste of economic resources
As we are talking about the Chinese stock market, Anna Schwartz also wrote about the concepts of real systemic international risk and and pseudo international systemic risk.
Once again, and as with pseudo financial crises and real financial crises, what distinguishes real systemic international risk and pseudo international systemic risk is a threat to the payment system. The threat of bank runs, which can easily be eliminated through lender of last resort facilities:
As always it is about the security of the payments system – of avoiding bank runs, not private losses:
The lesson for the day is that when people start panicking about the economy or the stock market or international markets, don’t go to a macroeconomist for advice, go to a monetary historian. They have seen it all before.
09 Jul 2015
by Jim Rose
in applied welfare economics, fiscal policy, income redistribution, labour economics, politics - Australia, politics - USA, poverty and inequality, Public Choice, welfare reform
Tags: distributive justice, social insurance, social justice, top 1%, welfare state
06 Jul 2015
by Jim Rose
in applied price theory, applied welfare economics, budget deficits, business cycles, comparative institutional analysis, constitutional political economy, currency unions, economic growth, economic history, Euro crisis, fiscal policy, fisheries economics, global financial crisis (GFC), international economics, macroeconomics, Public Choice, rentseeking
Tags: Euro sclerosis, Greece, insurance attacks, sovereign defaults, speculative attacks
The roots of Greece’s crisis are simple. Before Greece joined the Eurozone, investors treated it as a middle-income country with poor governance — which is to say, a credit risk.
After Greece joined the Eurozone, investors thought that Greece was no longer a credit risk — they figured, if push came to shove, other Eurozone members like Germany would bail Greece out. They were wrong.
Michael Dooley put forward a theory of speculative attacks on currencies as insurance attacks on currencies for emerging markets after the East Asian financial crisis:
First generation models of speculative attacks show that apparently random speculative attacks on policy regimes can be fully consistent with rational and well-informed speculative behaviour.
Unfortunately, models driven by a conflict between exchange rate policy and other macroeconomic objectives do not seem consistent with important empirical regularities surrounding recent crises in emerging markets. This has generated considerable interest in models that associate crises with self-fulfilling shifts in private expectations.
In this paper we develop a first generation model based on an alternative policy conflict. Credit constrained governments accumulate reserve assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets.
Given this policy regime, a variety of internal and external shocks generate capital inflows to emerging markets followed by successful and anticipated speculative attacks.
We argue that a common external shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country specific factors determined the timing of speculative attacks. Lending policies of industrial country governments and international organizations account for contagion, that is, a bunching of attacks over time.
His model was not within the context of a currency union but his basic theory is correct.
There are speculative attacks on a currency or a bank run after foreign markets revises their estimates of the available central bank reserves and international lines of credit to bail out the banking systems and/or foreign debt.
Michael Dooley was dealing with the emerging economies of Southeast Asia and their official lines of credit that insure their foreign exchange liabilities and domestic banking system. Greece is about lines of credit for similar purposes to other European union member states.
via 12 charts and maps that explain the Greek crisis – Vox and The Most Important Graphs of 2011 – The Atlantic.
06 Jul 2015
by Jim Rose
in budget deficits, business cycles, currency unions, economic growth, Euro crisis, financial economics, fiscal policy, global financial crisis (GFC), macroeconomics
Tags: bank runs, banking panics, Eurosclerosis, Germany, Greece, sovereign defaults
Greece is a tiny part of the European economies so it doesn’t matter that much to the rest of the European Union what happens to Greece. The only people will notice the sovereign default of Greece once the breathless journalism has died down are Greeks themselves as they rebuild their banking and monetary system against a background of a government run by coffee shop Marxists.
06 Jul 2015
by Jim Rose
in budget deficits, business cycles, currency unions, economic growth, Euro crisis, fiscal policy, labour economics, labour supply, macroeconomics, unemployment
Tags: Eurosclerosis, Greece
29 Jun 2015
by Jim Rose
in business cycles, currency unions, economic growth, Euro crisis, fiscal policy, global financial crisis (GFC), international economic law, international economics, macroeconomics
Tags: game theory, Greece, Patrick Kehoe, sovereign default
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