nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒02‒26
two papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. The theoretical weaknesses of the expansionary austerity doctrine By Botta, Alberto
  2. The Global Role of the U.S. Economy: Linkages, Policies and Spillovers By M. Ayhan Kose; Csilla Lakatos; Franziska Ohnsorge; Marc Stocker

  1. By: Botta, Alberto
    Abstract: In this paper, we provide a critical analysis of the theory of the expansionary austerity. We take the hotly debated contribution by Carmen Reinhart and Kenneth Rogoff on the supposedly negative relationship between public debt and economic growth (when the debt-to-GDP ratio overcomes the 90 percent threshold) as the starting point of our analysis. We then move to analyze those contributions that more directly point to the possible expansionary outcomes of tough fiscal retrenchments. We eventually criticize the main conclusions of the expansionary austerity theory by presenting a simple short-run theoretical model. We show that fiscal consolidation might have expansionary outcomes only under extreme, very specific and uncertain circumstances. Expansionary austerity would hardly take place in the context of monetarily sovereign economies, or in presence of an accommodative monetary policy like that implemented by the ECB since late 2011, or in economic systems that are poorly integrated to international goods markets.
    Keywords: fiscal policy; expansionary austerity theory; post-Keynesian macro models;
    Date: 2016–01
  2. By: M. Ayhan Kose (Development Prospects Group, World Bank; Brookings Institution; CAMA; CEPR); Csilla Lakatos (Development Prospects Group, World Bank); Franziska Ohnsorge (Development Prospects Group, World Bank; CAMA); Marc Stocker (Development Prospects Group, World Bank)
    Abstract: This paper analyzes the role of the United States in the global economy and examines the extent of global spillovers from changes in U.S. growth, monetary and fiscal policies, and uncertainty in its financial markets and economic policies. Developments in the U.S. economy, the world’s largest, have effects far beyond its shores. A surge in U.S. growth could provide a significant boost to the global economy. Tightening U.S. financial conditions—whether due to contractionary U.S. monetary policy or other reasons— could reverberate across global financial markets, with adverse effects on some emerging market and developing economies that rely heavily on external financing. In addition, lingering uncertainty about the course of U.S. economic policy could have an appreciably negative effect on global growth prospects. While the United States plays a critical role in the world economy, activity in the rest of the world is also important for the United States.
    Keywords: United States; uncertainty; trade; business cycles; global economy.
    JEL: C15 E32 E52 F13 H30
    Date: 2017–03

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