Patrick Honohan’s Tokyo speech is a wide-ranging essay on different varieties of economic growth and the transition between fundamentals-based growth and unsustainable growth: you can read it here.
In this new paper, I argue that the current crisis calls for a re-assessment of the optimal conduct of macroeconomic policies during non-crisis normal times. In particular, the risk and costs of crises can be mitigated by macroeconomic policies that lean against the wind in the face of cyclical, sectoral and external shocks. In this paper, I discuss the challenges involved in deploying fiscal policy in pursuit of a broad definition of macroeconomic stabilisation. The main policy conclusion is that pro-stabilisation fiscal policies are likely to be more effective if fiscal policy is determined under a formal fiscal framework that combines a set of fiscal rules and a substantive role for an independent fiscal policy council. (Forthcoming in Nordic Economic Policy Review.)
In this new paper (joint with Gian Maria Milesi-Ferretti of the IMF), we empirically examine the factors explaining the cross-country variation in the severity of the global crisis. We find that the pre-crisis level of income per capita, increases in the ratio of private credit to GDP, current account deficits, and openness to trade are helpful in understanding the intensity of the crisis. International financial integration did little to shield domestic demand from the country-specific component of output declines, while those countries with large pre-crisis current account deficits saw domestic demand fall by much more than domestic output during the crisis. (Forthcoming in IMF Economic Review.)
For an economy that’s supposedly in recovery, the unemployment figures seem to be puzzlingly weak. The July Live Register figures show an increase in the standardised unemployment rate from 13.4% in June to 13.7% in July. Slightly less negative were the July exchequer figures: Tax revenues had fallen from being on target in April to 1.6% behind target in June. The July figures reversed that trend to be only 1.4% behind target.
Still, both sets of figures raise a question. We keep hearing about how GDP figures are supposed to be coming in better than the assumptions penciled into the last budget: How is that to be reconciled with tax revenues being behind budget target and the unemployment rate coming in higher? (The budget assumed a year average unemployment rate of 13.2%, which is the average for the year so far with the figure now moving in the wrong direction.)
Update: I was interested to hear Minister Eamon O’Cuiv explain the increase in the seasonally adjusted unemployment rate on seasonal factors. Sure unemployment always goes up in July, I heard him say on the radio. You’d think the CSO boffins would have factored that in to their calculations …
The aggregate banking data for Ireland has been difficult to interpret due to the large volume of international banking activity that is routed through Dublin but which has little to do with the domestic financial system. In a welcome development, the Central Bank has re-organised how it publishes the aggregate banking data. In addition to publishing data for ‘all credit institutions’, it now also publishes data for ‘credit institutions (domestic group)’. Data and explanations are available here.
In approximate terms for June 2010, the domestic group accounts for 59 percent of the aggregate balance sheet of all credit institutions but 87 percent of domestic deposits and 87 percent of domestic loans (94 percent of loans to domestic private sector).