4 replies on “Olivier Blanchard. 2011 In Review: Four Hard Truths”
[i]”Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.”[/i]
One wonders who is helping the Irish Government balance this? Who is providing the advice that is carrying the day?
John Bruton previously said it would be better ot over-achieve on consolidation. Leo Varadkar said the same thing before the election and the view has been endorsed by a number of economists. It now seems to be the guiding principle in budgetary policy. Of course, political expediency also leans towards front loading the pain in a 4-5 year term.
I suspect that the IMF feel somewhat constrained in what they say in their reports and that they would not feel comfortable attacking accelerated consolidation for fear of undermining a government in a tough position.
It is obviously a very tough balance to achieve, and we are surely in the ball park of the right approach so long as the EZ gets its bits together. However, if we can do better than the “ball park” then there may be substantial benefits. Politically this fact is a heavy strain on the Labour party which didn’t want to kill the patient with a cure worse than the disease.
Another very good overview.
This and the ECB bank resolution discussion I find cheering – enough to reconsider leaving off the mince pies for a bit.
Slightly fuller quote than zhou:
“• Third, financial investors are schizophrenic about fiscal consolidation and growth.
“They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth—which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.”
Misuse of ‘schizophrenic’ of course. Should be MPD if anything and that’s still tactless. I would say, steady does it, and while I’m hear generalising, I would say from the IMF’s menus on the other thread, the answer is 1A: Enhanced support for aoopropriate public investment. Do I win a prize?
His repetition of marathon vs sprint appears to confirm that for Ireland the resolution will be long and painful
‘Put these four factors together, and you can explain why the year ends much worse than it started.
Well – Yes. But … it doesn’t really address the underlying origin of all these ‘lovely’ multiple equilibria that are of concern to Olivier … The Present Global Rogue Infested Financial System is Clearly Not Fit for Human Purpose.
4 replies on “Olivier Blanchard. 2011 In Review: Four Hard Truths”
[i]”Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.”[/i]
One wonders who is helping the Irish Government balance this? Who is providing the advice that is carrying the day?
John Bruton previously said it would be better ot over-achieve on consolidation. Leo Varadkar said the same thing before the election and the view has been endorsed by a number of economists. It now seems to be the guiding principle in budgetary policy. Of course, political expediency also leans towards front loading the pain in a 4-5 year term.
I suspect that the IMF feel somewhat constrained in what they say in their reports and that they would not feel comfortable attacking accelerated consolidation for fear of undermining a government in a tough position.
It is obviously a very tough balance to achieve, and we are surely in the ball park of the right approach so long as the EZ gets its bits together. However, if we can do better than the “ball park” then there may be substantial benefits. Politically this fact is a heavy strain on the Labour party which didn’t want to kill the patient with a cure worse than the disease.
Another very good overview.
This and the ECB bank resolution discussion I find cheering – enough to reconsider leaving off the mince pies for a bit.
Slightly fuller quote than zhou:
“• Third, financial investors are schizophrenic about fiscal consolidation and growth.
“They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth—which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.”
Misuse of ‘schizophrenic’ of course. Should be MPD if anything and that’s still tactless. I would say, steady does it, and while I’m hear generalising, I would say from the IMF’s menus on the other thread, the answer is 1A: Enhanced support for aoopropriate public investment. Do I win a prize?
His repetition of marathon vs sprint appears to confirm that for Ireland the resolution will be long and painful
‘Put these four factors together, and you can explain why the year ends much worse than it started.
Well – Yes. But … it doesn’t really address the underlying origin of all these ‘lovely’ multiple equilibria that are of concern to Olivier … The Present Global Rogue Infested Financial System is Clearly Not Fit for Human Purpose.