This study shows that budget-neutral measures – i.e. changes in the composition of fiscal revenue and spending that leave the ex-ante total government budget unchanged – can boost economic growth. However, not all households are equally affected by these measures. In addition, measures implemented when monetary policy is accommodative have larger macro effects.

Figure 1: GDP and private investment Figure taken from Bussière et al (2017)

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.

By Yannick Kalantzis and Jean-François Ouvrard

A EUR 10 rise in the price of oil results in a 0.4% increase in consumer prices in France and the euro area. A significant part of this rise can be attributed to the non-energy components of the consumer price index. This indirect effect amounts to 0.1 percentage point in the euro area and 0.15 percentage point in France.

Actual inflation and inflation simulated with a constant oil price in the euro area (% change, yoy) Source: Eurostat, authors' calculations. Note: at each date, the oil price is assumed to be constant over the two previous years.

Since 2008, growth in nominal industry-level wage floors in France has slowed progressively. In a near-zero inflation environment, wage floors have risen by less than 1% per year since 2014. Increases in negotiated wages are largely determined by past inflation and by changes in the national minimum wage (NMW). As a result, the upturn in inflation observed in 2017 could lead to slightly stronger growth in nominal negotiated wages in 2018.

By Edouard Jousselin with Simon Ray

In 2017, the French real estate market continued its recovery. It was fueled by households’ borrowing capacity: household income increased and lending conditions remained favourable. This situation can be explained by low interest rates and long loan terms. After rising by 20% between 2014 and 2016, households’ borrowing capacity stabilised in 2017.

Chart 1: the real estate market recovery continued in 2017 - Year-on-year % change Sources: Insee-Notaires; Ministry of the Environment, Energy and the Sea

Google, Apple, Facebook and Amazon are giant companies that reflect the more general phenomenon of concentration which is intensifying in most sectors in the United States. This trend is contributing to an increase in the share of profits and to a decrease in the share of labour in domestic income, as well as to a deepening of inequalities. It is also associated with a decline in the creation rate of new firms and jobs, which could in the longer term weigh on US growth.

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