LONDON – Readers of the IMF's latest annual review of the US economy will be startled to learn that, in the Fund's estimation, US government debt is on a sustainable path. That assessment makes sense – but it is only as good as the assumptions that underpin it. One of the more amusing exercises on the economic calendar is the ...

ISTANBUL – The dollar's strength, particularly against major Asian currencies, has triggered a wave of skittishness in financial markets. Can anything be done to stem the greenback's rise, and even if something can be done, should it? The dollar has strengthened sharply in recent months, against Asian currencies in particular. A rising ...

HONG KONG – Labor productivity growth in the US has been more than double that of the eurozone for the past 20 years. A forthcoming report from Mario Draghi will recommend removing barriers to competition, which would intensify the pressure on firms to innovate, but Europe desperately needs newer ideas than this if it is to see its ...

Any problem on payments is better solved through more practical alternatives. Central bank digital currencies are the bad idea that won’t go away. There are simpler, more straightforward ways of solving the problems that CBDCs are deemed to address. Yet upwards of 130 countries worldwide are exploring the currencies. If you are in search of ...

SINGAPORE – With interest rates on ten-year US Treasuries close to 5%, more than triple the levels of two years ago, bond yields are attractive once again. If the fundamental factors driving them haven't changed dramatically, then it's possible that interest rates will fall and bond prices will recover now that the inflation scare has passed. ...

Whether the dollar retains its global role will depend not simply on the United States' relations with Russia, China, or the BRICS countries. Rather, it will hinge on whether the US brings its soaring debts under control, avoids another unproductive debt-ceiling showdown, and gets its economic and political act together more generally.




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BERKELEY – The outcome of the US presidential election next year, like most before it, will almost certainly turn on domestic economic conditions, or, more precisely, on perceptions of economic conditions. And recent polling suggests that the disconnect between perception and reality may be President Joe Biden's biggest problem. US President ...

BERKELEY – In the month since Silicon Valley Bank collapsed, four possible culprits have emerged. But as long as we have banks, we will always have bank failures, which is why we need regulators to draw the right lessons from the SVB debacle, incorporate them into their procedures, and get back to work. When a banking crisis erupted in ...

BERKELEY – China was supposed to be the main beneficiary of a shift away from the dollar by countries fearing its "weaponization" by US authorities. So why isn't diversification toward the renminbi visible in data on foreign reserves and international payments? When the United States and its G7 partners imposed sanctions on Russia's central ...

STOCKHOLM – The release of ChatGPT, a new artificial-intelligence chatbot, is forcing us to rethink what tasks can be carried out with minimal human intervention. If an AI is capable of passing the bar exam, is there any reason it can’t give sound legal advice? With hindsight, 2022 will be seen as the year when artificial intelligence ...

If the economy and inflation weaken, the Fed is likely to pause and the US currency will reverse direction. The dollar has had a spectacular run, having risen more than 10 per cent against other major currencies since the start of the year. Actually, not a few governments and central banks would prefer the adjective “disastrous” ...

BERKELEY – Before Russian President Vladimir Putin's attack on Ukraine, Europe's recovery from the damage wrought by the COVID-19 pandemic was solidifying. But now European policymakers have exactly zero control over whether their economies' rebound continues. Europe's economy is finely poised between recession and growth. The knife edge is ...

Central banks are diversifying reserves beyond the US currency, euro and renminbi. The decision by the US and allies to freeze Russia’s foreign reserves has unleashed an intense debate about the future of the international monetary system. That debate is vigorous because the stakes are high and because it is at least 75 years, and the ...

BERKELEY – The sanctions imposed on Russia in response to its invasion of Ukraine are financially and economically devastating, which is precisely their intent. Having witnessed this demonstration of financial shock and awe, will other countries re-think how and where they hold their foreign assets? Russia’s invasion of Ukraine is ...

BERKELEY – Major economic forecasters like J.P. Morgan and S&P Global Ratings are painting a rosy picture of emerging markets’ growth prospects this year. But there are multiple reasons to believe that the consensus view will soon prove to be unsustainable. The wildfire spread of the Omicron variant adds a new element of uncertainty to the ...

BERKELEY – The debates about investment in physical and social infrastructure are precisely what the US needs to decide what kind of society it should be and the appropriate role of government. Where there should be no debate is how best to finance such investment. The US Congress has just taken an important step toward implementing President ...

BERKELEY – When the International Monetary Fund announced last month a new $650 billion allocation of special drawing rights, the hope was that high-income countries would transfer their SDRs to developing countries in need. With the Fund's annual meetings coming in October, it's time for all parties to step up. In August, the ...

BERKELEY – Some say that issuance of central bank digital currencies will transform the international monetary status quo by eroding the US dollar's dominance of cross-border payments and greatly reducing transaction costs. But this is not going to happen. August 13-15 marks the 50th anniversary of "the weekend that changed the world," when ...

BERKELEY – An obscure corner of the digital sphere that was poorly understood two years ago is now subject to increasingly intense scrutiny by central bankers, regulators, and investors. Unfortunately, more intense scrutiny has not necessarily meant better understanding. The debate over stablecoins has come a long way since Facebook announced ...

BERKELEY – When the US effectively floated the US dollar in 1971, many foresaw the end, or at least the beginning of the end, of the Bretton Woods system and, with it, American monetary and economic hegemony. Yet the dollar-based system survives – along with the same old criticisms of it. August 15 is not a red-letter day on most calendars. ...

BERKELEY – US President Joe Biden clearly has bet on faster productivity growth to pay for his $4.1 trillion American Jobs Plan and American Families Plan. But history suggests that any acceleration of productivity growth is likely to be delayed – perhaps by decades. Productivity growth changes everything. In advanced economies with a ...

BERKELEY – In an old parable about banks and regulators, the banks are greyhounds – they run very fast – while the regulators are bloodhounds, slow afoot but faithfully on the trail. In the age of the platform economy, the bloodhounds are at risk of losing the scent. In 2009, in the midst of the global financial crisis, Paul Volcker, the ...

BERKELEY – Recently, the idea of a digital greenback elicited support from US Treasury Secretary Janet Yellen and Federal Reserve Chair Jay Powell. Ultimately, the advantages of a digital dollar will need to be weighed against the potentially high costs and significant risks to the financial system that come with it. The idea of a digital ...

BERKELEY – In weighing the options for additional stimulus, President-elect Joe Biden's $2 trillion infrastructure investment plan has much to recommend it. If accompanied by a new independent commission to ensure that the money isn't wasted on pork-barrel projects, it is a better approach than sending more checks to every household. With ...

BERKELEY– If global growth resumes in 2021, aided by the rollout of vaccines and the Fed's continued commitment to ultra-low interest rates, some developing countries may be able to avoid default, because yield-hungry investors will continue to buy their bonds. But other countries will not be so lucky. Last March, when COVID-19 infected the ...

BERKELEY – The dollar’s fall in July to a two-year low against the euro was the catalyst for sensational headlines shouting that the dollar would soon meet its doom. But too much should not be read into the dollar's recent moves, which reflect readily explicable fluctuations, not the greenback's terminal decline. The dollar is in free-fall! ...

BERKELEY – The transition to the world being created by COVID-19 was always going to be difficult for workers in the worst-affected sectors. The main question now is whether policymakers will take the steps – including apprenticeship programs and expanded funding for community colleges and technical schools – that are most likely to make ...

BERKELEY – The economic crisis that has befallen emerging and developing economies is being treated as temporary, with a moratorium on interest payments and a promise of commercial credits remaining valid only through the end of the year. In other words, the policy response is woefully inadequate to these countries' situation. The developing ...

BERKELEY – Unlike a hurricane or earthquake, the coronavirus pandemic has caused no damage to physical capital stock. But firm-specific skills have no value when the firm that uses them goes out of business, which is one reason why US productivity, wages, and economic growth are likely to be affected for years to come. US President Donald ...

BERKELEY – In the fight against the COVID-19 pandemic, economists, economic policymakers, and bodies like the G7 should humbly acknowledge that "all appropriate tools" imply, above all, those wielded by medical practitioners and epidemiologists. Coordination, autonomy, and transparency must be the watchwords. Last week, G7 finance ministers ...

SASKATOON – How can the eurozone get the fiscal stimulus it needs, and which European Central Bank President Christine Lagarde is urging, in the face of the refusal by some countries, starting with Germany, to run budget deficits? There is a good answer, but it doesn't involve attempting to cicumvent the intent of the ECB's statute. The ...

ZURICH – Amid much discussion of the challenges facing the Chinese economy, the line-up of usual suspects typically excludes the most worrying scenario of all: popular unrest. While skeptics would contend that widespread protest against the regime and its policies is unlikely, events elsewhere suggest that China is not immune. For over a ...

CAMBRIDGE – While having a president with specialized training as a monetary economist would benefit the European Central Bank, such training is not essential. If Christine Lagarde is confirmed for the position, Europe will learn that other attributes matter much more. The selection of the International Monetary Fund's managing director, ...

KONSTANZ – Defenders of central-bank independence argue that quantitative easing should have been avoided last time and is best avoided in the future, because it opens the door to political interference with the conduct of monetary policy. But political interference is even likelier if central banks shun QE in the next recession. The ...

FRANKFURT – Public debt is not a free lunch in an economy close to full employment. But when investment demand tends to fall short of saving, as it does when monetary policymakers are unable to push inflation higher to reduce real interest rates, there is a risk of chronic underemployment – and a stronger argument for deficit spending. Five ...

EDINBURGH – The US Federal Reserve's pause on further monetary-policy tightening has fueled a revival of capital inflows. But, given the uncertainties about US policy and Chinese growth prospects, it is too early to conclude that emerging economies are out of the woods. Suddenly it seems that emerging-market economies have gained a ...

BERKELEY – The world economy is visibly sinking, and the policymakers who are supposed to be its stewards are tying themselves in knots. Or so suggest the results of the G-20 summit held in Shanghai at the end of last month. The International Monetary Fund, having just downgraded its forecast for global growth, warned the assembled G-20 ...

NEW YORK – For months now, China's exchange-rate policy has been roiling global financial markets. More precisely, confusion about that policy has been roiling the markets. Chinese officials have done a poor job communicating their intentions, encouraging the belief that they don't know what ...

BERKELEY – The silly season that is a presidential election campaign in the United States has taken a particularly absurd turn as the candidates offer their proposals for monetary-policy reform. This is not the first time, of course, that presidential candidates have proposed changing how US monetary policy is conducted. But the radical, ...

NEW YORK – Recent trends in productivity growth make it hard to be optimistic about the future. In 2014, the global growth of total factor productivity, or TFP, which measures the combined productivity of capital and labor, was essentially zero for the third consecutive year. This was down from 1% in 1996-2006 and 0.5% in the crisis years ...

AMSTERDAM – For much of the year, investors have been fixated on when the Fed will achieve "liftoff" – that is, when it will raise interest rates by 25 basis points, or 0.25%, as a first step toward normalizing monetary conditions. Markets have soared and plummeted in response to small changes in Fed statements perceived as affecting ...

BERKELEY – On August 11, China devalued its currency by 2% and modestly reformed its exchange-rate system. This was no earth-shattering event, but financial markets responded as if a meteorite had struck them. The negative reaction is no mystery: China's devaluation was a textbook example of how not to conduct ...

MONTEVIDEO – Central bankers continue to fret about frothy asset markets – as well they should, given the financial crisis of 2008-2009. Having been burned once, they are now doubly shy. And China's recent stock-market plunge has certainly not eased their fears.

Securities prices are extraordinarily high, considering the backdrop of flaccid economic growth. Bond prices have soared on the back of quantitative easing by the Bank of Japan, the Federal Reserve, and the European Central Bank. Property prices from London to San Francisco ...

Greece's debt is unsustainable. The International Monetary Fund has said so, and it's hard to find anyone who disagrees. The Greek government sees structural reform without debt reduction as politically and economically toxic. The main governing party, Syriza, has made debt reduction a central plank of its electoral platform and will find it ...

BERKELEY – Whatever one thinks about the tactics of Greek Prime Minister Alexis Tsipras's government in negotiations with the country's creditors, the Greek people deserve better than what they are being offered. Germany wants Greece to choose between economic collapse and leaving the eurozone. Both options would mean economic disaster; the ...

CAMBRIDGE – The economics profession was arguably the first casualty of the 2008-2009 global financial crisis. After all, its practitioners failed to anticipate the calamity, and many appeared unable to say anything useful when the time came to formulate a response. But, as with the global economy, there is reason to hope that the discipline is ...

CAMBRIDGE – The Federal Reserve is under attack. Bills subjecting the United States' central bank to "auditing" by the Government Accountability Office are likely to be passed by both houses of Congress. Legislation that would tie how the Fed sets interest rates to a predetermined formula is also being considered.
Anyone unaware of the ...

Around the world, central banks' balance sheets are becoming an increasingly serious concern – most notably for monetary policymakers themselves. When the Swiss National Bank (SNB) abandoned its exchange-rate peg last month, causing the franc to soar by a nosebleed-inducing 20%, it seemed to be acting out of fear that it would suffer ...

The European Central Bank is moving, hesitantly but ineluctably, toward quantitative easing. The threat of deflation – and the ineffectiveness of its previous measures – leaves it no choice. The question is whether the ECB will be able to move quickly enough.The ECB has already attempted to ease credit conditions by purchasing ...

With Jeremy Stein’s return to his academic post at Harvard at the end of May, the US Federal Reserve Board lost its leading proponent of the view that monetary policy should be used to lean against financial excesses.

Stein’s view, expressed in a a speech earlier this spring, is that central banks should be less aggressive in their pursuit of full employment in an environment of heightened financial risk. His position is a refutation of former Fed Chairman Alan Greenspan’s doctrine that ...

This month marks the fourth anniversary of the May 2010 financial rescue of Greece. Previously, the idea that a eurozone member would seek emergency assistance from the International Monetary Fund, along with the European Commission and the European Central Bank, was unthinkable. The rescue thus marked Europe’s descent into full-blown ...

Two of the world’s most prominent economic institutions, the International Monetary Fund and Former US Treasury Secretary Larry Summers, recently warned that the global economy may be facing an extended period of low interest rates. Why is that a bad thing, and what can be done about it?Adjusted for inflation, interest rates have been falling ...

Since December, when the US Federal Reserve began tapering its monthly purchases of long-term assets, emerging-market currencies have fallen across the board.

The main exception, until recently, was China’s indomitable renminbi. But now the renminbi, too, has been falling against the dollar. So is this more evidence of the disruptive impact of the Fed’s policy? ...

The US Federal Reserve is being widely blamed for the recent eruption of volatility in emerging markets. But is the Fed just a convenient whipping boy?It is easier to blame the Fed for today’s global economic problems than it is to blame China’s secular slowdown, which reflects Chinese officials’ laudable efforts to rebalance their ...

The start of 2014 marks ten years since we began fretting about global imbalances, and specifically about the chronic trade and current-account imbalances of the United States and China. A decade later, we can happily declare that the era of global imbalances is over. So now is the time to draw the right lessons from ...

Is Europe’s economic crisis mutating once again? If debt fears are now being superseded by the danger of deflation, as recent data suggest, the European Central Bank has its work cut out for it – and there is nothing to suggest that it is up to the task.The numbers are alarming. Core inflation (the consumer price index after excluding ...

As the Third Plenum of the 18th Central Committee of the Chinese Communist Party convenes in Beijing, China stands at a crossroads. Its recent growth record is stupendous; no country in history can match it. But China’s economic imbalances are also stupendous. The country has sustained its output growth by investing fully one-half of GDP, ...

The dollar is the world’s go-to currency. But for how much longer? Will the dollar’s status as the only true global currency be irreparably damaged by the battle in the US Congress over raising the federal government’s debt ceiling? Is the dollar’s “exorbitant privilege” as the world’s main reserve currency truly ...

August 2 marked the first anniversary of the European Central Bank’s “outright monetary transactions” program, under which it stands ready to purchase government bonds on the secondary market. The ECB announced OMT in response to last summer’s panicked sales of southern European sovereign debt, which threatened to blow apart ...

The United States Federal Reserve and the People’s Bank of China are not typically seen as two peas in a pod. But they have had similar experiences in recent weeks – and neither has been a pleasant one.

The Fed’s bout of indigestion started with Chairman Ben Bernanke’s June 19 press conference, where he warned that the Fed’s purchases of long-term securities might start to taper off if the economy continued to perform well – specifically, if unemployment fell to 7%. Stock ...

A visit to Greece leaves many vivid impressions. There are, of course, the country’s rich history, abundance of archeological sites, azure skies, and crystalline seas. But there is also the intense pressure under which Greek society is now functioning – and the extraordinary courage with which ordinary citizens are coping with ...

The brouhaha over Carmen Reinhart’s and Kenneth Rogoff’s article “Growth in a Time of Debt” may be the most conspicuous and incendiary scholarly controversy since 1974, when two earlier economists, Robert Fogel and Stanley Engerman, published a notorious book, Time on the Cross, defending the efficiency of American ...

Imagine two central banks. One is hyperactive, responding aggressively to events. While it certainly cannot be accused of ignoring current developments, its policies are widely criticized as storing up problems for the future.

The other central bank is unflappable. It remains calm in the face of events, seeking at all cost to avoid doing anything that might be construed as encouraging excessive risk-taking or creating even a whiff of inflation. ...

Sentiment in European financial markets has turned. For the moment, the possibility of a Greek exit from the eurozone is off the table. If interest-rate spreads on Spanish and Italian government bonds are any guide, bondholders are no longer betting on a eurozone breakup. European stocks even rose in the week following last month’s ...

The economics profession has not had a good crisis. Queen Elizabeth II may have expected too much when she famously asked why economists had failed to foresee the disaster, but there is a widespread sense that much of their research turned out to be irrelevant. Worse still, much of the advice proffered by economists was of little use ...