Unless the global financial system is radically reformed – and the necessary reforms are looking increasingly unlikely to occur – it will continue to be conducive to financial crises. Government rhetoric and actions can often influence in desirable ways both the speculative actions that now determine the exchange rate and the effect of exchange rate movements on the domestic economy. Managing the exchange rate should start with Australian support for measures such as the Tobin tax that dampen speculation. In 2008 and 2009, exchange rate changes were helpful in reducing the impact of the global financial crisis on Australia, largely because of a very clear commitment by the Australian government to make preservation of jobs its top priority. In 2009, a rapid rise in the exchange rate was unhelpful. In the short run, little can be done about this, but in the longer run, it is possible to offset the adverse effects.

This article understands contemporary austerity through historical comparisons informed by Marxist insights into the nature of the state. It argues that austerity policies make sense from the perspective of capital–labour, inter-capitalist and international competition. Differences among states over time, in terms of their size and international situation and contested domestic relations, produce varied imperatives towards austerity and prospects of effective resistance.

These books, different in style and content but united in purpose and major conclusions, analyse events from 2007 to 2010 to ascertain why the economic disaster happened and what must be done to put the United States economy (on which both books focus) on a more secure footing, and prevent any recurrence of the extended crisis of those years. Both target the increasing influence of market liberalism over the last 30 years, and the institutions of capitalist economies which they have encouraged. Taylor focuses more on the regulation of the international financial sector, and Palley on labour market policy. They agree that both need to be addressed if the United States economy is to be restored to health. Both argue that growing income inequality in the US must be reversed before the US economy can significantly improve. Finally, they stress the interrelationship between political ideology and economic explanation, and argue that value free positive economics is a myth.

An earlier ‘conversation’ with Professor J.W. Nevile was published in Essays in Economics, in Honour of Professor J.W. Nevile: Presented to Him on His Retirement. We now bring the story up to date covering the period roughly between Nevile’s appointment as Emeritus Professor at the University of New South Wales in 1993 to the present.

In this article, we consider the mainsprings of John Nevile’s many contributions to economics. John has repeatedly argued that because ‘economic actions, institutions and policies affect people’, they have an ethical dimension (Hawtrey and Nevile, 1986: 1), and he has stressed the importance of understanding the value judgements on which economics rests. His policy suggestions are aimed at improving social justice and the well-being of the most vulnerable. Apart from his deep knowledge of economic theory, his Christian faith provides an important foundation for his analysis, particularly of policy.

Inflation rates and their convergence within Euro area have been a major concern, since well before the advent of the single currency. Inflation differentials are a normal phenomenon in any monetary union and even in long-established monetary unions. The aim of this research is to examine the main factors of inflation differentials in the Euro-zone for the period 1999–2018. Our empirical estimates appear to suggest that a one-percentage-point increase in the positive output gap typically leads to an increase of about 20 basis points in the inflation rate of EMU countries. We also find three structural breaks, in 2004, 2008 and in 2010. Since the monetary policy of the European Central Bank is geared at maintaining low and stable inflation, the productivity growth should be increased, and the real effective exchange rates should be decreased and become more homogeneous among EMU. Therefore, countries’ inflation differentials may become less persistent.

The existing output gap measures for the US economy rely on aggregate data and assume a constant output gap over sectors (see Coibion et al. [(2018) Brookings Papers on Economic Activity, 333–441] and Owyang et al. [(2018) Federal Reserve Bank of St. Louis Review, 297–316]); however, each sector has its cycle, which does not necessarily match the business cycle (Burns and Mitchell [(1946) National Bureau of Economic Research]). By modeling sectoral cycles based on their investment cycles with a nonparametric method, I estimate output gaps of 20 US sectors over 1948–2020. The weighted mean output gap indicates a persistent spare capacity in the last business cycle, pointing to insufficient stabilization policies behind secular stagnation. Phillips curve estimations with the weighted quartiles of sectoral output gaps show that the output gap of bottleneck sectors (weighted Q3) is correlated strongly with inflation over 1950–2020. Policymakers can track bottleneck sectors to mitigate inflationary pressures while supporting the sectors with negative output gaps to stabilize the output at its potential. My findings show that it is possible to produce more output by sector-level demand supporting policies without generating inflation.

This paper examines the effectiveness of forward guidance shocks in the US. We estimate a New Keynesian model with imperfect central bank credibility and heterogeneous expectations using Bayesian methods and survey data from the Survey of Professional Forecasters (SPF). The results provide important takeaways: (1) The estimated credibility of the Fed’s forward guidance announcements is relatively high, but anticipation effects are attenuated. Accordingly, output and inflation do not respond as favorably as in the fully credible counterfactual. (2) The so-called “forward guidance puzzle” arises partly from the unrealistically large responses of macroeconomic variables to forward guidance under perfect credibility and homogeneous fully informed rational expectations, assumptions which are found to be jointly inconsistent with the observed US data. (3) Imperfect credibility provides a plausible explanation for the empirical evidence of forecasting error predictability based on forecasting disagreement found in the SPF data. Thus, we show that accounting for imperfect credibility and forecasting disagreements is important to understand the formation of expectations and the transmission mechanism of forward guidance.

Carbon taxes are likely to play a key role in meeting greenhouse gas emission targets that are consistent with the Paris Agreement. In this article, we assess the macroeconomic effects of a carbon tax on the global economy, paying particular attention to the terms-of-trade implications for importers and exporters of fossil fuels. We use a modified version of the National Institute’s Global Econometric Model, NiGEM. In the stylized scenarios, all countries and regions impose a permanent and uniform carbon tax immediately. Our simulations show that demand for fossil fuels falls substantially in response to the tax, global (pre-tax) prices of fossil fuels decline, and the tax can raise substantial revenue for the government. The overall impact on GDP growth and inflation in each country depends on the fossil fuel intensity of output, the net losses/gains in terms of trade and the macroeconomic policy reaction.

This paper aims to estimate the government investment fiscal multipliers in select European countries for the period 1970–2016. To do this, we combine Structural Vector Autoregression (SVAR) modeling with the Local Projections (LP) approach. We estimate models by also controlling for fiscal foresight, excluding the postcrisis period and distinguishing between Northern and Southern countries. Our findings suggest that an increase in government investment generates a “Keynesian effect” by engendering positive and permanent effects on the GDP level, even when government expenditure expectations are considered. Fiscal multipliers are close to 1 on impact and increase in the years after the implementation of a discretionary fiscal policy.

Explaining cross-country differences in current accounts is difficult. While pay-as-you-go pensions reduce the need to save for retirement, contributions to capital-funded pensions are saved for future consumption. An overlapping-generations analysis shows that capital-funded pensions increase net foreign assets holdings. With a multi-pillar system whose capital-funded part accounts for 18% of pensions, the Austrian current account balance would be 1 percentage point of gross domestic product (GDP) higher than with pure pay-as-you-go pensions in 20 years. By comparison, the Austrian current account surplus averages 1.8% of GDP. Empirically, I find that the current account of high-income countries increases with the coverage and replacement rates of capital-funded pensions.

As a wide-reaching institutional reform, China's fiscal decentralization was launched in the early 1980s to encourage provincial economic growth by granting more financial autonomy to provincial governments. In this paper, the impact of fiscal decentralization on China's environmental quality is investigated both theoretically and empirically. A neoclassical model is developed based on the primary characteristics of China's fiscal decentralization. Using provincial panel data for the period 1995-2015, a two-equation regression model is employed to empirically verify the three propositions of the theoretical model: (1) there exists an inverted-U shaped relationship between fiscal decentralization and GDP per capita; (2) fiscal decentralization is positively related to GDP per capita at the steady state; (3) there is an inverted-U shaped Environmental Kuznets Curve relationship between pollution emissions and economic growth.

This article explores the global cycle hypothesis by testing whether the US stock market serves as an explanatory variable for the evolution of expansions and contractions in the UK stock market from 1922 until 2016. Alternatively, it tests an index that groups the stock markets of advanced economies to identify whether this driving force is international. Second, regarding co-movement with the US, the article explores whether its time-varying nature is contingent on the domestic and international economic policy regimes. I find evidence that there is a strong and contemporaneous co-movement between the US and UK stock markets. Additionally, through a VAR model, I identify that the movements in the UK stock market cause, in the Granger sense, changes in the index for advanced economies up to two years later. Furthermore, in the short-run co-movement between the US and UK stock markets is contingent on the macroeconomic trilemma while, in the long run, both domestic and international policy regimes affect the relationship. A final contribution is the design of a new methodology for describing the evolution of financial time series as risk-adjusted above or below average returns to different time horizons: the Local Bull Bear Indicators (LBBIs).

The aim of this paper is to investigate the role that the marital status of children has in shaping the living arrangements of their widowed mothers and themselves and to explain the increase in the proportion of elderly widows living alone, which grew by 23.2% in the USA between 1970 and 1990. We propose a model where living arrangements are determined as the outcome of a game between the mother and her child, and where the fundamentals of the model depend on children's marital status. We estimate the model using 1970 data. We calculate the accuracy of the estimation and we obtain an excellent fit. Using the same measure of accuracy, the estimated model predicts that changes in the incomes of both the widow and her offspring and changes in the children's marital status generate more than the 83% of the increase in the number of widows living alone.

I reconstitute the spending obligations and revenue sources of colonial New Jersey's provincial government for the years 1704 through 1775 from primary sources using forensic accounting techniques. I identify and analyze the methods for raising revenue to meet normal peacetime and emergency wartime expenses. I calculate the provincial tax burdens imposed on New Jersey's citizens. I identify how Britain interfered with New Jersey's fiscal structure. I estimate what the revenues and tax burdens would have been without this interference. New Jersey paid for war expenses by issuing bills of credit, spreading the tax burden of redeeming these bills into the future. New Jersey paid its yearly administrative costs with current property taxes and with current interest earnings from loaning paper money. In the absence of British interference and wars, New Jersey could have driven tax burdens to zero by using interest earnings to pay for all its provincial administrative costs.

This article examines food price volatility in Greece and how it is affected by short-run deviations between food prices and macroeconomic factors. The methodology follows the GARCH and GARCH-X models. The results show that there exists a positive effect between the deviations and food price volatility. The results are highly important for producers and consumers because higher volatility augments the uncertainty in the food markets. Once the participants receive a signal that the food market is volatile, this might lead them to ask for increased government intervention in the allocation of investment resources and this could reduce overall welfare.

Nous introduisons le concept d'empreinte carbone dans un modèle d'offre globale et demande globale avec formation imparfaitement concurrentielle des prix et salaires et en examinons les propriétés de l'équilibre en présence d'une politique climatique. Nous étudions deux instruments possibles de cette politique, une taxe carbone ou un quota de permis de pollution. Nous montrons qu'à court terme, la politique climatique (ou son durcissement) constitue à la fois un choc d'offre globale négatif et, ceteris paribus, un choc de demande globale positif. Elle provoque donc des effets inflationnistes mais a un impact ambigu sur l'activité économique, l'emploi et le chômage. Ce n'est que dans une économie avec des ridigités nominales suffisantes que la politique climatique stimulera -sous certaines conditions- l'activité à court terme. Dans tous les cas de figure, elle pèsera négativement sur les salaires réels.

Nous étudions encore les interactions entre la politique climatique et les politiques macroéconomiques traditionnelles de demande (stimulus budgétaire ou monétaire) et d'offre (baisse des cotisations sociales). Les effets multiplicateurs de ces politiques sont influencés par l'existence d'une politique climatique et diffèrent selon l'intrument choisi (taxe ou permis).

Nous montrons les conditions sous lesquelles une réforme combinant durcissement de la politique climatique et baisse des cotisations sociales sur le travail peut atteindre le double objectif de réduire l'empreinte carbone de l'économie et le chômage, sans pénaliser les salaires réels des travailleurs. Une telle politique a toutefois des effets incertains sur le solde des finances publiques.

The incoming Labour Government of 1997 promised a new approach to the conduct of fiscal policy. Two lessons to be learnt from previous experience were: (1) adjust for the cycle and build in a margin for uncertainty; (2) set stable fiscal rules and explain clearly fiscal policy. Although the claims for novelty were exaggerated there was a serious attempt to expand the supporting explanatory material at the time of the Budget and the Pre-Budget Report (which was itself an innovation). It started well, with the most significant tightening of fiscal policy occurring in 1997–8; but it ended with a record postwar deficit, a debt/GDP ratio heading for more than 75 per cent of GDP and the suspension of the fiscal rules. While the Treasury was not alone in failing to forecast the financial crisis and its consequences, doubts about the policy were being raised before 2007. Although the fiscal rules were met over the preceding period and projected to be met in future, a succession of current budget deficits and a tendency, from 2001 onwards, for over-optimism in fiscal projections left the UK less well equipped than it might have been to meet the challenges of the crisis.

The successes of the first decade of European Economic and Monetary Union are impressive, but it is fair to stress these were achieved in a relatively benign economic environment characterised by steady global growth, supportive financial conditions and fiscal windfalls associated with booms in asset markets. Although all this has come to an abrupt end with the financial crisis, there is a silver lining of fiscal stimulus being more effective in EMU than without the single currency, with offsetting exchange rate responses absent, trade multipliers stronger and the fiscal framework credible. But the financial crisis also clearly demonstrated the need for stronger coordination of national policy actions to internalise cross-border spillovers. Meanwhile, the European Commission has a major role to play in striking the right balance between short-term emergency measures and longer-term priorities. Against this backdrop, this article sheds light on the longer-run challenges and the policy agenda for meeting them.

On compare deux cas d'incertitude qui ont abouti à des arguments de référence en faveur de moins d'activisme de la politique monétaire : celui où l'incertitude porte sur l'effet global de la politique, comme dans Brainard (1967) ; et celui où elle porte sur ses délais d'action, comme dans Friedman (1960). On montre que l'approche bayésienne donne des résultats similaires dans les deux cas, mais que ce n'est qu'avec une incertitude sur les délais d'action qu'une approche en termes de robustesse (critère du minimax) conduit nécessairement à moins d'activisme. De plus, dans ce cas, l'activisme de la politique robuste est encore plus faible que ce que donne l'approche bayésienne.