Below you’ll find the links to the best publications of our Economic Research team of the past year, related to the theme of globalisation.
For more than 30 years, interest rates have been on a downward trend because of disinflation, the changing balance of savings and investment, and slower potential growth.
Although ultra-loose monetary policies prevented the crisis turning into a depression and supported activity, as well as removing the threat of deflation and a breakup of the eurozone, there is disagreement about how effective they are, and about possible undesirable effects at the current phase of the cycle. They are not the only game in town, which raises the question of other policies that could raise potential growth.
The text deals in turn with the relationship between real interest rates and the balance of savings and investment, the role and limits of monetary policy, and finally measures to increase potential growth.
There is nothing new or surprising about the emphasis on structural reforms in the eurozone: before the crisis, weak supply already seemed restraining European growth. Belonging to a monetary union also requires a certain degree of flexibility when it comes to price and wage formation. Yet the recent attention being given to structural reforms has taken on a new dimension: the aim is to stimulate demand in order to revive inflation. With monetary policy touching its limits, however, the implementation of structural reforms can hurt the recovery.
For many months the prospect of the start of the normalization of US monetary policy has given rise to considerable concerns at the heart of which are three questions: what is the risk of a policy error? What is the risk of a policy surprise? What is the risk of an endogenous disruptive market reaction to a policy stance? The challenge for the Federal Reserve is huge if only because of the asymmetry in case of a policy mistake and the possibility of big reallocations of investment portfolios and global spillovers that could backfire on the US economy.
The United States and the European Union began negotiations in 2013 on a treaty to facilitate trade and investment. These ambitious talks should lead to the ratification of the Transatlantic Trade and Investment Partnership (TTIP). The agreement aims not only to reduce tariffs, but also non-tariff barriers between the two regions, which together account for nearly a third of world GDP.
Rising inequality’s moderating impact on demand can be counterbalanced by heaping on more debt, but only temporarily, as illustrated by America’s experience in the late 2000s. Looking beyond the impact on demand, recent literature highlights inequality’s unfavourable impact on the accumulation of human capital and thus on supply. This argues in favour of income redistribution, as long as it remains reasonable. In contrast, the top 1%’s share of income distribution does not seem to harm long-term growth prospects as long as it is not linked to “seeking rent” but to the reward of successful innovation.
In December the climate conference COP21 will be held in Paris. The main objective is to find a binding agreement on keeping global warming below 2°C. Putting the world economy on a low carbon growth path requires increasing carbon prices and stepping up infrastructure investment. A crucial element in the negotiations is raising USD 100 bn a year from 2020 onwards to support climate action in the developing countries.
If you’re interested in other recent publications, click here.