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March 2018

By Marie-Élisabeth de la Serve, Sophie Haincourt, Clément Marsilli

Less than two months after the adoption of the Tax Cuts and Jobs Act, which cut individual income tax and corporate tax, US Congress passed a budget agreement that increases public spending for 2018 and 2019. The effects on the US economy represent a two-edged sword: an additional 1.4 percentage point of GDP over two years, but a widening of the trade and budget deficits to 4% and 6% of GDP respectively. The recent dollar depreciation may reflect the growing concerns of international investors

Chart1 – United States: federal budget balance and economic cycle since 1960 Sources: Data from the Bureau of Fiscal Service, Bureau of Labor Statistics and CBO; authors' calculations.

Were it easy to predict financial crises, it would be just as easy for the macroprudential authorities to prevent them. The statistical methods used for forecasting financial crises are greatly improving but have to contend with the fact that such events are (fortunately) rare and occur suddenly. In this article, we discuss the usefulness of early warning systems as well as their limitations on the grounds that the financial system is constantly evolving.

By Benoit Mojon and Xavier Ragot

The weakness of wage inflation may result in part from the increasing participation of older workers in the labour market. Over the last two decades, the participation rate of workers aged 55 to 64 has increased from 33% to 55% on average across OECD countries. We observe that, since 2013, the countries where this increase in labour supply has been the largest have also experienced slower wage inflation.

Figure 1: Wage inflation and the participation of older workers in the G7

Certain critics feel that the Eurosystem took excessive risks to fight the crisis by accepting poor quality collateral for its refinancing operations. Exhaustive analysis of the collateral pledged with the central bank disproves these claims. Their quality followed that of assets available on the market and improved significantly after Quantitative Easing was announced.

Chart 1. Average quality of assets pledged as collateral with the Eurosystem and assets available on the market (eligible for the central bank). Sources: Eurosystem, authors' calculations. Note: GIIPS refers to Greece, Ireland, Italy, Portugal and Spain. For the purpose of this article, only marketable securities are considered.

The US term premium (TP) has been very low by historical standards. Would its sudden rise affect the euro area (EA)? Lower US demand and tighter financial conditions would slow down EA activity. A surprise 1pp increase in US TP could reduce US and EA GDP growth by 0.4pp and 0.25pp respectively. Such effects would be smaller if the monetary authorities were to counteract the fall in inflation.

Figure 1: 10-year Term Premia in the United States, Germany and the euro area Note: The term premia of 10-year government bonds are estimated by NIESR. The euro area term premium is here calculated as ECB capital key weighted average of the term premia of the member countries.

By Eric Monnet and Angel Gomez

The difference in core inflation between the United States and the euro area is mainly due to housing rents. Since last year’s blogpost on the issue, this feature has become even more blatant: core inflation excluding housing rents is currently lower in the United States than in the euro area, whereas US core inflation is still much higher.

Chart 1: Core inflation vs. core inflation excluding housing rents (quarterly data). Sources: CPI (BLS) for the United States and HICP (Eurostat) for the euro area

In 2017, several studies revived the debate in the United States on the place of female economists in the profession and on the barriers to progress that had to be lifted. In most countries, women are poorly represented in all fields of economics (19% on average worldwide) and the situation is stagnating over time. However, significant differences exist between countries. In France, for example, women are a little more present, particularly among assistant professors.

Map 1: Proportion of female economists by country Source: Female representation in Economics, RePEc, January 2018.