Archive for December 6th, 2011

Linking Asset Price Booms with Current Account Deficits

December 6, 2011

A nice note from  Paul Bergin of UC Davis. He says before the crisis some countries ran huge current account deficits and had asset price booms. Both are linked:

(more…)

Advertisements

Evaluating Optimum Currency Areas: US vs. Europe

December 6, 2011

Ben Emons of PIMCO writes a fab piece on the topic.

He points how labor mobility is one of the major factors which makes US a more optimum currency area compared to Eurozone. Even though US is a better OCA, ECB delivers better inflation performance and growth rate of EU is just 0.5% lower than US (in period 1999-07). So it is not as if a more optimum Currency area helps gain big benefits. This crisis should push Eurozone leaders into more labor mobility:

  • Research shows that wage rigidity — defined as wage freezes or cuts as a fraction of total workers —  is much lower in the U.S. than the eurozone. Eliminating these rigidities is crucial for the eurozone’s growth as an optimum currency area.
  • Albeit painful, the intensity of the debt crisis in Europe may force a quicker progress of reform implementation, which could be a competitive advantage for the EMU in the future. 
  •  Although the U.S. appears to be more of an “optimum currency area” than the EMU, this advantage does not necessarily translate into higher and more sustainable economic growth for the future.
Barring labor mobility, EU also needs some serious political mobility as well. The way they have been reacting to the crisis has been nothing short of a political thriller..

An economic theory of Switzerland and lessons for Eurozone

December 6, 2011

Charles B. Blankart  professor emeritus of economics at the Humboldt University of Berlin writes this superb paper on why Swiss economy is so different. It is an amazingly federalist country whose all government units are supposed to balance their budgets. Each one understands that they will not be bailed out and hence manage things accordingly.

(more…)


%d bloggers like this: