To Spend or Not to Spend: Is that the Main Question?

The debate over fiscal policy has reached a fork in the road. One way leads to maintaining or increasing the fiscal stimulus. This column argues that policymakers should take the other path. This would mean phasing out government expenditure while phasing in social protection programmes at the risk of a double-dip recession but potentially resulting in a more vibrant economy. 

The current US fiscal policy debate often starts from the assumption that the subprime crisis has brought about a “lack of demand”. From that premise, policies that increase demand look appealing. Fiscal expansion ranks first in line, particularly if the economy is caught in a “liquidity trap” in which conventional monetary expansion runs out of steam (see Krugman 2008). High public debt may become a problem, but the concern is swiftly dismissed by arguing that it will be addressed when full employment returns.

Current Account Surplus in Latin America: Recipe Against Capital Market Crises?

Volatility has sharply declined in Emerging Markets (EM) since the nerve-wracking heights of August 1998, when it reached a staggering 300 basis points (measured by EMBI’s intra-month standard deviation). Recent market volatility in the US sub-prime mortgage market and the April-May 2006 shakeup brought memories of 1998, when the Russian default sent the risk premium […]