Economy & Markets

Edited by Donato Masciandaro and Gianmarco Ottaviano

2021-08-27 Donato Masciandaro

ECB: The New Route Between Hawks and Doves

Last July, the president of the European Central Bank Christine Lagarde announced a strategy review of ECB monetary policy. There was great anticipation of what the new inflation target would be. The expectations were understandable: explicitly stating the inflation target, as we will see later, is the key to monetary policy, representing the main tool to orient expectations. The importance of the link between the inflation target and management of expectations is an issue on which hawks and doves can generally agree. But things change when we question the quantitative formulation of that target. It ...

2021-08-13 Gianmarco Ottaviano

Brexit and the City

In Italy, we cut red ribbons at Christmas when we open gifts. Across the Channel, cutting red ribbons is an obsession that dominates public debate, reaching a fever pitch when the European Union is involved. Naturally, we’re not talking about the ribbons used for holidays, but of “red tape,” the term used in the United Kingdom to refer to an apparently infinite series of bureaucratic procedures that prevent the animal spirits of the market from giving free play to their creative instincts. The use of the term red tape comes from the fact that in the past, legal documentation was in fact ...

2021-07-12 Donato Masciandaro

Interest Rates, Inflation, and Central Banks: Words Matter

Since last spring, the spotlight has been on the dynamic of interest rates, and on the effect they can have on the risk of inflation. Everything began last May, when the data relating to consumer price growth in the United States showed the largest increase since 2008. It was a sign of an economy with exuberant aggregate demand, that is reflected in both real and nominal economic growth. So it is normal for interest rates on US government bonds to have risen, along with the dollar exchange rate. From that time, the crucial question has been to understand how temporary this phenomenon of price ...

2021-06-07 Gianmarco Ottaviano

G7: The Big Step Forward on Global Taxation of Multinational Corporations

A “big step forward... towards an unprecedented global agreement on tax reform.” This is how the European Commission for Economy Paolo Gentiloni greeted the agreement reached in London during the last meeting of the finance ministers of the G7, the group of seven large countries formed by Canada, France, Germany, Japan, Italy, the United Kingdom, and the United States, in which Gentiloni represented the European Union. The aim of the agreement is to work together to fight a certain type of tax avoidance at the international level, that according to some estimates, subtracts 240 billion dollars ...

2021-05-10 Donato Masciandaro

Sovreignism and Currency: Istanbul Today, Byzantium Yesterday

If a country goes through three central bank governors in two years, as happened in Turkey, it means that its monetary policy is not credible. So it's no wonder that the Turkish lira is suffering and inflation is galloping. At the end of March, Turkish President Recep Tayyip Erdoğan fired the central bank governor Naci Ağbal, who had been appointed in November 2019, to take the place of Murat Uysal. In turn, Uysal had been appointed in July 2019 to replace Murat Çetinkaya. How can we explain this waltz at the central bank? Let's start from the beginning. The decree that removed Çetinkaya did ...

2021-04-14 Gianmarco Ottaviano

Brexit, Northern Ireland, and the Risks for Trade between the United Kingdom and the EU

What is the price of Brexit, and what has the United Kingdom gained from it? The violence seen in Northern Ireland starting last Good Friday is there to remind us that calculating the costs and benefits of a decision made on the tenuous boundary that separates economics and politics is not only premature, but also very complicated. The reason is that the context is unsettled, and while we begin to take stock of the first months since Brexit, unexpected clouds are forming on the horizon. We will start with what has happened so far to trade between the United Kingdom and the European Union. In January ...

2021-03-08 Donato Masciandaro

Biden and the Fed: a Bubbly New Deal?

Since January, the Fed has entered a new economic phase: it will have deal with the economic policy actions of Joe Biden, assisted by Janet Yellen. Many expect a "New Deal"; perhaps it is no coincidence that a portrait of Franklin Delano Roosevelt now hangs in the Oval Office, behind the new president. But what are the implications for fiscal and monetary policy? Let us start with the similarities and differences between the situation that the Biden-Powell duo must address and the situation Roosevelt faced ninety years ago. The common element could be the considerable economic recession. In truth, ...

2021-02-15 Gianmarco Ottaviano

After Brexit: A (Still) Long and Winding Road

The "long and winding road" (as the Beatles would say) of the United Kingdom's divorce from the European Union was begun over four years ago, and its principal stages have been summarized in a document that can be downloaded from the website of the Library of the House of Commons.[1] In a referendum held on June 23, 2016, the majority of voters chose to leave the European Union. On March 29, 2017, in a letter to the President of the European Council Donald Tusk, the conservative Prime Minister Theresa May formally activated Article 50 of the Treaty on the European Union (TEU), that allows each ...

Inflazione 2
2021-01-07 Donato Masciandaro

Inflation: A Premature Funeral?

Has the time come to celebrate the funeral of inflation and think that monetary and fiscal policy must deal exclusively with economic growth and employment? The debate is not only underway, but also lively: on the one side, the doves, ready with the requiem; on the other, the hawks, ready to swear to the resurrection. What arguments does each side have? Let us start with what we know. Economic analysis tells us in general that a pandemic recession can have both deflationary and inflationary effects. In fact, it all comes from a non-economic shock, in which the unpredictable event (the outbreak ...

2020-12-09 Gianmarco Ottaviano

From Trump to Biden: What Changes for Foreign Trade?

Although the transition is difficult, the world is preparing for a change at the top in the United States, from the Republican president Donald Trump to the Democrat Joe Biden. What can we expect on the international economic relations front once the transition is completed? The question was posed a few days ago by Hillary Clinton, secretary of state with Barack Obama and then the Democratic candidate in the 2016 presidential elections, on the occasion of the opening of the academic year at the European University Institute of Florence. The premise is that before Trump, it was easier for the rest ...