Macroeconomic Policy

There is one aspect of health interventions influencing economic growth that has not attracted as much attention as it should have. And that relates to the problem of unbalanced sex ratios that prevail in some parts of the world, particularly China, India and (to a smaller extent) South Korea.

After the conclusion of the Growth Commission workshop on the financial crisis, I wrote the following piece in the Financial Express on how India used its reserves in the financial crisis. I examine whether or not using reserves as a tool to provide insurance is effective. I look forward to your comments.  

Read a recent piece in the Financial Express that I coauthored with Ila Patnaik about how India's economy is dealing with the financial crisis, the need for sustained private sector investment and the need for the incoming government to pursue broad economic reforms. I look forward to your feedback!

Viral Acharya, Matthew Richardson and Nouriel Roubini comment on the financial crisis, and offer recommendations to regulators on how to fix the system. Access the piece in the Financial Times here.

The financial system in the USA and much of Europe had a heart attack in September 2008.  As in the case of a real heart attack, the highest priority has gone to the emergency response and to stabilizing the patient.  Once that is done and the crisis is abating and even to some extent as it is going on, it will be important (economically and politically) for some to focus on two related issues:  What created the rising risk of an attack?  And what combination of actions post-crisis will reduce the risk of a repeat in the future. 

Michael Spence details the necessary steps needed for the Geithner plan to be implemented, and addresses the current criticisms of the plan. Follow the debate over the Geithner plan and comment on Spence's analysis here.

It is difficult at this point in time, with little benefit of hindsight, to determine whether we are passing through yet another financial crisis that has punctuated economic history from time to time, or that we are indeed at a turning point that will change macroeconomic policy and management in fundamental ways.

The ‘Great Moderation’ preceding the current crisis turned out to be simply the proverbial calm before the storm. It seems odd, even appalling, that economists, policy makers and multilateral surveillance bodies like the IMF should not have seen the storm coming, especially since the calm was associated with several macro-economic anomalies.

Nobel Laureates Michael Spence and Paul Krugman offered competing opinions on the potential effectiveness of U.S. Treasury Secretary Tim Giethner's latest proposal to cleanse ailing banks of toxic assets. While Spence acknowledges that the plan is complex, he believes it is a step in the right direction. Krugman on the other hand believes Geithner is following the steps of former Secretary Hank Paulson in offering "cash for trash". Read more about it in Bloomberg's coverage of the debate here.

Growth Commission Chair Michael Spence was a guest on CNBC's Squawk Box this past week, where he discussed the Fed's recent announcement that it will purchase $300 bn in long term U.S. Treasury Bills, adding to the $750 billion worth of agency backed mortgages it plans to purchase this year. Spence lauded this move by the Fed, and stressed that the key to recovery is to unfreeze the credit markets. Additionally, Spence emphasized the attention that must be paid to making sure that developing countries recover from this crisis.  Inevitably, he said, the western countries will recover, but due to an increased propensity to save, they will not likely drive the same levels of aggregate demand that existed before the crisis. This shortfall will only be made up if recovery in the developing world keeps pace with the industrial countries. To watch the interview, please click here.

Not so long ago, it was fashionable to think that the business cycle had been virtually abolished.  Economists came to call this “the great stability” and for a decade or more, it looked as if realized growth outcomes could be taken as good proxies for long-term structural growth trends.  The excitement for development economists was that this time many developing countries were growing significantly faster than rich countries.  It seemed that the secrets of global convergence—which is what the Growth Report tries to tease out—had been discovered by a very large number of countries, including many African countries.