Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Macroeconomics"

Macri-economics in Argentina

by Robert Kahn and Ted Liu

While markets have focused attention on China as the primary source of market risk in 2016, Latin America has provided the more significant headlines in recent weeks.  Political turmoil in Brazil has resulted in the resignation of a market-friendly finance minister, and default looms in Venezuela.  But perhaps nowhere in Latin America is more at stake than with the economic revolution now underway in Argentina.

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Addressing Economic Populism in Europe

by Robert Kahn

My latest global economic monthly looks at rising economic populism in Europe and how it constrains the capacity of policymakers to get a robust recovery going and deal with shocks. Some of the drivers of populism—on the left and right, in creditor and debtor countries—are cyclical but many including globalization, income inequality and insecurity are likely to be more persistent and resent a long-term threat to greater European integration. The strong showing of the National Front in last weekend’s French regional elections, Denmark’s referendum rejection of further EU integration, and Britain’s debate over its EU future are recent reminders of the fraying consensus on further integration, which has strong implications for economic cooperation. Easy money from the European Central Bank (ECB) can only do so much, and a broader policy response including a faster pace of economic integration and more flexible fiscal policies now are needed.

ECB and the Limits of QE

by Robert Kahn

Markets were clearly underwhelmed by the European Central Bank’s (ECB) easing announcement yesterday, marginally cutting its (already negative) deposit rate and extending the duration of its asset purchase program (QE). I think the Financial Times had it about right. It would have been better to do more, but what they did was helpful and it retains the capacity for further action. Still, as Ted Liu and I argued yesterday, the main channel through which QE is going to boost activity in Europe (as the Federal Reserve normalizes) is through the exchange rate, which in the context of weak global demand and emerging market capital outflows may be a modest source of stimulus. The market reaction also underscores the challenge for a central bank to communicate its intentions when the governing council is divided and it is trying to be data dependent–i.e., it is hard to communicate what you don’t know. We also agree with the FT’s bottom line: at this time, monetary policy alone cannot be expected to carry forward a robust European recovery.  Fiscal and structural policies must do their part.

APEC Summit Economics: the Case for Trade

by Robert Kahn

The Asia-Pacific Economic Cooperation (APEC) Summit, tomorrow and Thursday, will no doubt see its trade and regional integration agenda overshadowed by new global threats. At this week’s Group of Twenty (G20) summit, the economic agenda rightly took a backseat to the horrific attacks in Paris. Leaders reaffirmed their commitment to strong, sustainable, and balanced growth, and endorsed a range of initiatives underway from climate change to tax and financial reform. But few new economic initiatives were announced. A similar outcome is likely in Manila, though trade and investment deserve a central seat on the stage in the name of preserving global growth.

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Greece’s Bailout Dead End

by Robert Kahn

It should be no surprise that eurozone finance ministers failed to agree to disburse €2 billion in bailout money to the Greek government today or to release bank recapitalization funds. Despite optimism following the recent announcement of a relatively benign program for recapitalizing Greek banks, it is hard to escape the conclusion that the Greek program again is headed off track.  The government has fallen behind its reform commitments, and a substantial number of additional end-year measures look unlikely to be met. Even with substantial forbearance from Greece’s European partners, it now looks likely that conclusion of the first review of its program will be delayed and that the promised debt relief negotiation will come only in 2016. Further, an eventual International Monetary Fund (IMF) program is likely to be small and leave a large unfilled financing gap that will further strain Greece’s relations with its European neighbors.  It is hard to predict how long Greek voters will continue to support a government that cannot deliver on its economic pledges of low debt and sustainable growth.

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Are We Ready for the Next Emerging Market Crisis?

by Robert Kahn

This summer’s market turmoil was a serious jolt to emerging markets, particularly commodity exporters and those countries with strong trade and financial ties to China. Fortunately, there are good reasons for comfort that the tail risks facing these countries do not rise to the level of the Asia financial crisis or the Great Recession. After early missteps, China’s policymakers have been more assured in recent weeks in signaling their commitment to near term stability and support for growth. Financial distress in emerging markets, the most serious channel for contagion, has yet to materialize. Moreover, bolstered by high reserve levels, more flexible and competitive exchange rates (see chart) and in some cases better policies, emerging market buffers against contagion have been strengthened.

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A U.S. Budget Deal that Matters

by Robert Kahn

This is what governing looks like.

When outgoing speaker John Boehner promised to “clean the barn up a little bit” before leaving, there was understandable skepticism that a large number of must-pass pieces of legislation could be sheparded through a sharply divided congress.  From that perspective, last night’s agreement on a budget framework—if it holds—looks to be an important step forward. While far from ideal budgetary policy, it removes substantial tail risk from U.S. economic policymaking between now and the election.

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The Fallacy of Euro-Area Discipline

by Robert Kahn

Throughout the Greek crisis, policymakers have acted on the assumption that Greece’s best chance at sustainable growth is through the conditionality and discipline of an IMF-EU adjustment program. Already, the desire to stay in the eurozone and receive the promised rescue package of at least €86 billion has led to significant legislative measures, and the ESM and IMF programs under negotiation will be comprehensive in the scope of their structural reforms. In contrast, “Grexit” would be chaotic, and at least initially, make it difficult for any government to reach consensus on strong policies needed to restore durable growth. In that environment, the boost to growth from devaluation could prove short-lived.

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Taking Stock of the Greece Crisis

by Robert Kahn

Yesterday, John Taylor and I testified on the Greece crisis before the Senate Foreign Relations Subcommittee on Europe and Regional Security Cooperation.  A summary of my testimony is here (including a link to my written statement), and the full video of our discussion is here. I continue to see Grexit as the most likely outcome, as we are at the very early stage of a complex adjustment effort that will face serious economic and political headwinds in Greece, and will be extraordinarily difficult to sustain. But whether Greece is ultimately better off in or out of the euro, a competitive and growing Greece is an objective the United States shares with our European partners.

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Greece’s Program: First Hurdle Cleared

by Robert Kahn
Prime Minister Alexis Tsipras battled to win lawmakers' approval on July 16 for a bailout deal to keep Greece in the euro. (Alkis Konstantinidis/Reuters) Prime Minister Alexis Tsipras battled to win lawmakers' approval on July 16 for a bailout deal to keep Greece in the euro. (Alkis Konstantinidis/Reuters)

The Greek parliament last night passed the first package of measures required by the government’s agreement with European governments reached over the weekend, winning 229 of 300 votes in the parliament. There were a large number of Syriza defections (39) that would appear at minimum to require a cabinet reshuffling. Some local analysts predict the government could fall, though most expect that if that happened Prime Minister Tsipras would reemerge as prime minister in a new coalition government.

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