International Macroeconomics in the Wake of the Global Financial Crisis (eBook)

Laurent Ferrara is head of the International Macroeconomics Division at the Banque de France and adjunct professor of Economics at the University of Paris Nanterre. He holds a PhD in Applied Mathematics from the University of Paris North (2001) and a postdoctoral  qualification in Economics from the University of Paris 1 – Panthéon – Sorbonne (2007). His academic research mainly focuses on international economics, macroeconomic forecasting, non-linear econometric methods and business cycle analysis.Ignacio Hernando has been head of the International Economics Division at Banco de España since 2010. He received his B.A. in Economics at Universidad Complutense de Madrid, an M.A. in Monetary Economics at CEMFI, and a PhD in Economics at UNED. He is a member of the International Relations Committee of the European System of Central Banks. His main research interests are international macroeconomics and monetary policy.Daniela Marconi is a senior advisor at Banca d’Italia. Since 2002, she has worked in the International Relations and Economics Directorate, conducting macroeconomic analysis and research on emerging markets. She holds an M.A. in Economics from CORIPE Piemonte (Turin, Italy) and an M.A. in Economics from Duke University (NC, USA). Her main academic interests are international macroeconomics, technological advances, economic growth and environmental economics. She has authored numerous papers and articles in these areas.

Foreword 6
Contents 9
Editors and Contributors 11
Introduction 15
1 The Slowdown in Global Growth: Supply-Side Factors 16
2 The Slowdown in Global Growth: Demand-Side Explanations 19
3 Challenges for Monetary Policy After the GFC 20
4 External Developments 24
References 26
Global Growth Slowdown: Supply-Side Factors 28
The Productivity Slowdown and the Secular Stagnation Hypothesis 29
1 Introduction 29
2 Sources of Post-war U.S. Growth 32
2.1 Total Factor Productivity 34
2.2 Human Capital 35
2.3 Employment Ratio 38
2.4 Capital-Output Ratio 39
2.5 Summing Up 40
3 Growth, Research Intensity and Size Effect 41
4 Insights from Economic History 43
4.1 TFP and Population 45
4.2 Human Capital 48
5 Conclusion 50
References 51
Growth Potential in Emerging Countries 54
1 Introduction 54
2 The Recent Growth Phases of EMEs 55
3 Cyclical and Structural Components of the Slowdown in Major EMEs 57
4 Labour Productivity 59
5 Labour Productivity Gains: Within- and Across-Sector Effects 60
6 Labour Supply: Quantity and Quality Issues 64
7 Conclusion 66
References 68
What are the Drivers of TFP Growth? An Empirical Assessment 69
1 Introduction 70
2 Growth Accounting Methodology and Data 71
3 TFP Growth Determinants 73
4 The Econometric Strategy 75
4.1 Bayesian Model Averaging (BMA) 76
5 Empirical Results 77
5.1 BMA: Pooled OLS 77
5.2 Advanced Versus Emerging 77
5.3 TFP Growth Decomposition 78
6 Concluding Remarks 80
Appendix 1. Commodities Export Price Index (CEPI) 80
Appendix 2. TFP Convergence 81
References 82
The Unintended Consequences of Globalization and Technological Progress 83
1 Introduction 83
2 Data 85
3 Evolution of Global Inequality 90
4 Causes of Rising Within-Country Inequality 96
5 Policy Options 102
References 104
Global Growth Slowdown: Demand-Side Explanations 107
Trade Weakness: Cycle or Trend? 108
1 Introduction 109
2 Building Intuition 111
3 Trade Weakness: The Cycle and the Trend 115
4 Forecasting Trade 119
5 Conclusion 122
References 122
The Role of Debt Dynamics in US Household Consumption 124
1 Introduction 124
2 Illusions About Private Consumption and Debt Sustainability 127
2.1 A Credit and Asset Prices Boom that Boosts US Private Consumption and GDP 127
2.2 An Illusion of Household Balance Sheet Sustainability Caught Back by the Deleveraging Reality 128
3 A Consistent Stock-Flow Approach for Debt Dynamics 130
4 Modelling US Private Consumption with Debt Flows Dynamics 132
5 Conclusions 136
References 136
Explaining Weak Investment Growth After the Great Recession: A Macro-Panel Analysis 138
1 Introduction 138
2 The Model for Investment and the Data 140
3 Results 146
3.1 Time-Invariant Coefficients: Model Selection 146
3.2 The Determinants of Investment Over Time: Sample Split 151
3.3 The Determinants of Investment over Time: Time-Varying Coefficients 154
4 Robustness and Further Analysis 159
5 Concluding Remarks 163
References 163
New Challenges for Monetary Policies at a Time of High Uncertainty, Low Inflation and Low Real Interest Rates 165
Uncertainty Fluctuations: Measures, Effects and Macroeconomic Policy Challenges 166
1 Introduction 166
2 Measuring Uncertainty Fluctuations 168
2.1 Uncertainty on Financial Markets 169
2.2 Micro-level Measures of Uncertainty 170
2.3 Economic Policy Uncertainty 171
2.4 Macroeconomic Uncertainty Based on Forecasting 173
2.5 Macroeconomic Uncertainty Based on Surveys Among Forecasters 174
2.6 Discussion 175
3 Understanding the Effects of Uncertainty Fluctuations 176
3.1 Irreversible Investment 176
3.2 Precautionary Saving 179
3.3 Financial Frictions 180
3.4 Discussion 182
4 Policy Implications: Three Lessons from the Literature 183
References 185
Determinants and Implications of Low Global Inflation Rates 189
1 Introduction 190
2 Global Inflation Trends 191
3 Determinants of Low Global Inflation 195
3.1 The Effect of Commodity Prices and Exchange Rates 196
3.2 Cyclical Sensitivity of Inflation 199
3.3 Influence of Global Factors on Inflation 204
3.4 The Role of Inflation Expectations 205
3.5 Empirical Analysis of the Factors Determining Inflation 208
4 Implications of Low Inflation 211
4.1 Adverse Economic Effects of Low Inflation 211
4.2 Monetary Policy Implications 213
5 Concluding Remarks 215
Appendix: Definitions and Sources of Variables 217
References 218
The Global Real Interest Rate: Past Developments and Outlook 223
1 Introduction 224
2 The Global Interest Rate 225
3 Determinants of the Global Real Interest Rate 227
3.1 Socio-Demographic Changes and Investment Shifts in the Advanced Economies (1980–2000) 229
3.2 The Growing Importance of the Emerging Market Economies (2000–2007) 230
3.3 The Impact of the Global Financial Crisis (2008–2015) 231
4 The Medium and Long-Term Outlook 233
References 234
Exchange Rate Shocks, Capital Flows and International Spillovers 236
The Nature of the Shock Matters: Some Model-Based Results on the Macroeconomic Effects of Exchange Rate 237
1 Motivation 237
2 ‘Good’ Versus ‘Bad’ Currency Appreciations 239
2.1 Literature Review 240
2.2 The ‘Good’ and the ‘Bad’ (in NiGEM): Model-Based Simulations 242
3 Lessons for the Recent Dollar and Euro Fluctuations (2014–16) 245
3.1 Identification of the Shocks 245
3.2 Macroeconomic Impact of the Dollar and Euro Shocks 247
4 Conclusions 249
References 250
International Financial Flows in the New Normal: Key Patterns (and Why We Should Care) 252
1 Introduction 253
2 Global Financial Flows: Dwindling to a Trickle 257
2.1 The Rise and Fall of Global Financial Flows 257
2.2 The Geographical Pattern of Global Financial Flows: Stylized Facts 259
3 When the Composition of Capital Flows Matters 262
3.1 Different Components, Different Degrees of Resilience 262
3.2 Changing Composition of International Financial Flows: Explanatory Factors and Implications 266
4 Conclusion 270
References 271
International Spillovers of Non-standard Monetary Policy: Evidence From Central and Eastern Europe 273
1 Introduction and Main Conclusions 274
2 Transmission Channels of UMPs 275
3 Some Stylized Facts 276
3.1 The ECB’s Asset Purchase Programmes 276
3.2 The Impact on CESEE Economies of the Series of Shocks Hitting the Euro Area 277
4 Empirical Results 279
4.1 Event Study Analysis 279
4.2 Longer-Term Analysis: The Portfolio Rebalancing and Banking Liquidity Channels 281
5 Conclusion and Policy Considerations 292
Appendix 1: The ECB’s Asset Purchase Programmes 294
Appendix 2: The ECB’s Asset Purchase Programmes 298
References 298