The Week That Was in Europe: Recent Episodes
Klaus Adam & Dirk Schumacher
Every week, we discuss topical economic themes from a European perspective and provide perspective on key macro data news.
Germany's industrial powerhouse has long been the backbone of Europe’s economy. But after years of steady growth, manufacturing activity has been on a downward trajectory since 2018. Could this decline suddenly accelerate due to "cluster effects" and local economies of scale unraveling?
In this episode, we dive into the forces shaping Germany’s industrial slowdown and explore whether policy interventions could halt or even reverse the trend. We ask how insights from economic theory help us make sense of these cascading risks.
Join us as we discuss these pressing questions, drawing also on the academic work by David Baqaee, whose paper "Cascading Failures in Production Networks" (Econometrica, 2018) sheds light on how production networks can amplify economic shocks.
We discuss the effects of tariffs on consumers and producers, drawing on evidence from the tariff war during the first Trump administration.
The empirical evidence shows that import tariffs led to increases in domestic prices, reductions in import quantities and a reduction in product variety. This coupled with additional adverse effects on global supply chains and retaliatory tariffs makes it hard to understand how the U.S. can gain in economic terms from tariffs.
We draw our insights from this academic paper:
Amiti, Weinstein, Redding: "The Impact of the 2018 Tariffs on Prices and Welfare"
https://www.aeaweb.org/articles?id=10.1257/jep.33.4.187
Join our discussion of the ECB's decisions and communication following its rate setting meeting on January 30, 2025 and learn about the outlook for Euro Area growth, inflation and interest rates.
In this episode, we welcome Clemens Fuest, President of Germany's Ifo Institute, for an in-depth discussion on economic challenges and the urgent reforms needed to get Germany back on track.
We dissect (i) what’s behind Germany's economic underperformance compared to its Euro Area peers, (ii) whether the upcoming elections deliver a chance for economic recovery, and (iii) what measures might be best suited to achieve a growth rebound.
Join us as we discuss with Dan Breznitz from the University of Toronto the difference between invention & innovation, the various stages of innovation and what different stages imply for the distribution of income across society. We also look at the role that innovation agencies and universities play in fostering innovation and how the divide between China and the West will affect the innovation landscape.
Join us as we discuss with Professor Gabriel Felbermayr, President of the Austrian Institute of Economic Research, the forces reshaping the intricate web of global value chains. Geopolitical tensions, mounting tarrifs and regulatory crackdowns put pressure on global economic exchange and Gabriel shares his expert insights on what the future holds and what it means for businesses and economies worldwide.
In this episode, Dirk Schumacher sits down with Hadrien Camatte from Natixis to dive deep into the fallout of the Barnier government’s collapse.
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Can President Macron cobble together a new government?
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What were Marine Le Pen’s motivations for toppling Barnier, and what does it mean for France’s political future?
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As parliamentary elections loom in mid-2025, will the country see a stable majority—or more uncertainty?
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How would a provisional 2025 budget shape France’s fiscal path and consolidation efforts?
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Will political instability rattle rating agencies—and could that impact bond yields?
Dive into the turbulent world of German politics as we unpack the dramatic collapse of the ruling coalition and what lies ahead in the upcoming elections. While disagreements over economic policies led to the coalition's downfall, the challenges remain unchanged: high corporate taxes, surging labor costs, and stifling bureaucratic inefficiencies. What will it take for Germany's next government to reignite growth and tackle these pressing issues? Join us to find out.
Dive into the turbulent world of German politics as we unpack the dramatic collapse of the ruling coalition and what lies ahead in the upcoming elections. While disagreements over economic policies led to the coalition's downfall, the challenges remain unchanged: high corporate taxes, surging labor costs, and stifling bureaucratic inefficiencies. What will it take for Germany's next government to reignite growth and tackle these pressing issues? Join us to find out.
In this episode, we explore the inflation outlook for the Euro Area, honing in on whether medium-term inflation could once again fall short of the ECB's target, as it did before the pandemic.
While there’s little evidence in current data to suggest an imminent undershoot—thanks to robust wage growth, persistent service price inflation, and ample room for monetary policy easing—some of these factors may ease in the coming year. This makes it crucial to keep a close eye on potential risks of undershooting.
Join us this week as we tackle a pressing issue facing the Euro Area: fiscal consolidation. With debt-to-GDP ratios near historic highs in many economies, reducing deficits is critical—but not without risks to economic growth.
Our special guest, Roel Beetsma, Professor of Macroeconomics at the University of Amsterdam, offers his insights on questions like:
Is there a way to cut deficits without hurting growth?
How does population aging impact public budgets and political pressures?
What new strains are digitalization and the green transition placing on Europe’s fiscal future?
And have we reached a breaking point in Europe’s fiscal stability culture?
Tune in for an in-depth discussion on these challenges and the difficult choices European policymakers are grappling with.
Join us to dive into the challenges and transitions facing Europe’s car industry. Together with Valentin Mory, mobility expert from Natixis, we explore the shifting landscape of electric vehicles (EVs), China's lead in battery technology, and the future of internal combustion engines.
Will Europe keep pace with China’s rapid electrification? Can car manufacturers overcome regulatory hurdles and avoid costly fines? And what’s the real impact of upcoming tariffs on Chinese car imports?
Tune in for an in-depth analysis of the evolving auto industry, the latest on EV penetration rates, and what’s driving change across the globe.
Have you ever wondered why Europe's economic growth seems stuck in slow motion?
Join us as we explore the mystery of Europe's lagging economic growth. We break down the complex factors at play from sluggish investment to slow productivity growth, discuss the struggle to keep pace with the US tech boom, and Europe's shortcomings in fostering innovation, particularly in the Information and Communication Technology sector.
Tune in as we dissect the numbers and analyze the policy challenges ahead for Europe.
Join Dirk Schumacher and Klaus Adam on "The Week That Was in Europe" as they welcome Professor Andrei Levchenko, a leading expert on international trade, to discuss new insights into the gains from international trade, the benefits & drawbacks of tariffs + export subsidies, and international technology transfer.
Tune in to "The Week That Was in Europe" for an insightful discussion on the ever-evolving landscape of international trade, featuring expert analysis and real-world examples.
We provide our perspective on the ECB’s policy meeting: markets expected the ECB's rate cut, the real focus was on the path for interest rates going forward.
In this week's episode of The Week That Was in Europe, hosts Dirk Schumacher and Klaus Adam return from their summer break to analyze Germany's economic underperformance. Why has Europe’s largest economy stagnated post-pandemic, while its neighbors surge ahead? From sluggish consumer spending to declining investments and rising energy costs, they explore the driving factors behind Germany’s struggles. They also discuss the "second China shock," the challenges of transitioning to electric vehicles, and the looming risks of de-industrialization. Tune in to understand the forces shaping Germany's economic future.
Today, we dive into the aftermath of the French parliamentary elections – a pivotal event that has captured the attention of financial markets and the broader public across Europe.
To help us navigate the complexities of the outcome and the future implications, we have a special guest, Hadrien Camatte. Hadrien is an expert on the French economy at Natixis and has been meticulously following every twist and turn of this election.
Before joining Natixis, Hadrien honed his expertise at a central bank in Paris and the French Treasury, where he held various positions.
We dive into the transformative world of Artificial Intelligence and its impact on the financial sector and central banks. AI's rapid advancements and diverse applications are creating a veritable AI bonanza, reshaping the economy and financial systems globally.
Join us as we explore these changes with Hyun Shin from the Bank for International Settlements (BIS). Hyun Shin co-leads the Monetary and Economics Department at BIS and is a member of its Executive Committee. With a distinguished academic career, including positions at Princeton, the LSE, and Oxford, Hyun provides unique insights into the future of AI in finance.
Tune in for an enlightening conversation that uncovers the implications of AI as a general-purpose technology and its potential to transform central banking around the world.
Don't miss this episode—subscribe now and stay ahead in the AI revolution! 🎧
In today's epsiode, we dive deep into the economic dynamics shaping the Eurozone focusing on a critical issue: inflation expectations.
We uncover what financial markets can reveal about the of future inflation and also discuss evidence coming from investor and household surveys.
We're thrilled to have Ricardo Reis join us today. Ricardo is the A.W. Phillips Professor at the London School of Economics and an esteemed expert on inflation expectations and inflation-linked financial instruments.
In today's episode we dive into the complex world of state-based international lending. Recent years have seen a resurgence in cross-border state lending, highlighted by the significant financial support Ukraine has received from Western countries and China's growing role as a global lender. Additionally, central bank swap lines have become a common feature after the 2007/08 financial crisis and the COVID-19 pandemic.
Joining us is Christoph Trebesch from the Kiel Institute. Christoph is the Head of the Research Center on International Finance and Macroeconomics and a Professor of Macroeconomics at Kiel University. He will share his expert insights on this critical topic. Don’t miss it!
Join us today as we delve into the results of the European elections and their far-reaching consequences. We have the pleasure of speaking with Sophia Russack from the Centre of European Policy Studies (CEPS) in Brussels. Sophia is an expert in European politics and policy making, making her the perfect guest to shed light on the European election outcomes and their implications. Don't miss this insightful discussion! Tune in now!
The ECB has cut rates by 0.25% in its June meeting for the first time in many years. This happened despite forecasts of inflation having been revised slightly upwards. We review the reasoning behing this decision and the outlook for rates going forward.
Join us for an insightful discussion with Roman Arjona, Chief Economist at the European Commission’s Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs. We'll delve into the current state and future of Europe's Single Market, exploring how it compares to the US and the challenges it faces in a changing global trade landscape. Roman Arjona, also Vice-Chair of the OECD’s Committee for Industry, Innovation and Entrepreneurship, brings his expertise to shed light on these critical issues.
Join us as we discuss the outlook for ECB policy rates for the upcoming June policy meeting and thereafter. We put perspective on recent Euro Area growth numbers, consumer spending dynamics, and the inflation outlook. While a June rate cut looks likely, uncertainty about policy rates beyond June appears substantial. Currently available data suggest, however, a sequence of rate cuts.
Join our interesting discussion with Prof. Thiess Buettner, Chairman of the Independent Advisory Board of the German Stability Council, about fiscal policy challenges in Germany.
Countries across Europe and the United States have witnessed a significant surge in government debt and interest rates in the aftermath of the Covid-19 pandemic. Join us as we engage in a conversation with Vítor Gaspar, Director of the IMF's Fiscal Affairs Department, about possible stability risks confronting government finances and the need to manage these risks.
The neutral rate is relevant for understaning the stance of monetary policy and for the fiscal outlook, as it determines the financing conditions for government debt. We explain how the neutral rate is defined, discuss its economic determinants and provide estimates of how it has changed since the pre-pandemic period. Increased government debt supply appears to have excerted substantial upward pressure on the neutral rate.
We make reference to the following papers:
Thiago Ferreira and Samer Shousha titled “The supply of safe assets and global interest rates” , Journal of International Economics, 2023.
Atif Mian, Ludwig Straub, and Amir Sufi. titled “What explains the decline in r*? Rising income inequality versus demographic shifts.” Proceedings of the Jackson Hole Symposium, 2021.
We review the fiscal position of France, Germany, Italy and Spain, discuss the need for consolidation and how it could be implemented with minimal harm to output.
Provided wage growth moderates and inflation develops as expected, the ECB will start cutting interest rates in June. We discuss the uncertainties around this outlook and recent headwinds on the inflation front.
We discuss with Prof. Harald Fadinger (University of Mannheim) how the EU taxes the carbon content of imported goods via its Carbon Border Adjustment Mechanism (CBAM).
We critically review the effectivenes of CBAM to prevent "carbon leakage", i.e., the international reallocation of production to locations with low carbon prices, and its effect on the international competitiveness of EU firms. CBAM appears to perform badly on both of these and a number of other fronts.
We also discuss alternative approaches for international carbon price adjustments, partly based on research by Harald and his coauthors:
"Designing Effective Carbon Border Adjustment with Minimal Information Requirements. Theory and Empirics", by A. Campolmi, H. Fadinger, C. Forlati, S. Stillger and U. Wagner.
We discuss with Veronika Grimm (German Council of Economic Experts) about lifting Germany's long-run growth potential. We focus on measures that increase labor supply, human capital formation and the role of long-run electricity prices.
The @ecb is getting close to cutting interest rates: it signaled following it March 7 Governing Council Meeting its readiness to start cutting rates in June, if everything goes according to plan.
We talk about recent trends and future challenges for productivity growth in the French economy. Our guest, Alain Durré, is Head of the Macroeconomics and Europe Division at the Bureau of the French Prime Minister and Rapporteur Général of the French National Productivity Board.
Euro Area inflation fell like a rock: from the peak of 10.6%, reached in October 2022, it dropped to levels below 3% a year later. We analyze how much of this decline can be attributed to policy tightening by the ECB. We find that the direct effect of ECB policy is likely small. ECB policy may have had important indirect effecta via anchoring inflation expectations, but quantifying this effect is difficult.
The podcast makes reference
Speech by ECB's Philip Lane, The ECB's hiking cycle: an interim assesssment, https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230216_1~f8cf2cd689.en.html
Adam Shapiro, Decomposing Supply and Demand Driven Inflation, Federal Reserve Bank of San Fransciso, https://www.frbsf.org/research-and-insights/publications/working-papers/2022/10/decomposing-supply-and-demand-driven-inflation/
We present the main academic insights about how government debt should evolve over time, if the government seeks to maximize social welfare. We discuss (i) how to deal with positive/negative expenditure surprises, (ii) how refinancing risk, due to interest rate risk, impacts optimal government debt dynamics, and (iii) the optimal long-run level of government debt.
The academic papers we mention are:
Barro, R. J., On the Determination of Public Debt, Journal of Political Economy, 1979, https://www.journals.uchicago.edu/doi/abs/10.1086/260807
Aiyagari, S.R., A. Marcet, T.J. Sargent, J. Seppälä, Optimal Taxation without State-Contingent Debt, Journal of Political Economy, 2002, https://doi.org/10.1086/343744
Adam, K., Government Debt and Optimal Monetary and Fiscal Policy, European Economic Review, 2011, https://doi.org/10.1016/j.euroecorev.2010.11.003
Adam, K. and M. Grill, Optimal Sovereign Default, American Economic Journal: Macroeconomics, 2017, https://www.jstor.org/stable/pdf/26156466.pdf
We talk with Bernard Dadah (Head of Commodity Research, Natixis) about critical minerals. What are these? How big of market do they have? Who mines and refines them? What can the EU's Critical Raw Materials Act (CRMA) achieve?
We discuss with the ECB's Director General for Economics Oscar Arce about the Euro Area's macroeconomic outlook, the ECB's past forecast errors, the way forecasts are produced at the ECB and the difficulties associated with producing macroeconomic projections.
A true tour de force through the topic!
We review the ECB's assessement of the economic situation & the outlook for policy rates going forward.
We take stock of Germany's recent underperformance relative to its European peers and analyze its sources. We identify (real) household income dynamics as one of the main drivers.
We review and critically discuss the decisions taken by the ECB after the suprisingly benign November inflation numbers.
We discuss how various forms of uncertainty affect the conduct of optimal monetary policy. We provide a summary of key insights from the academic literature, some of which are quite surprising. We explain how to make sense of them.
We make reference to the following academic papers:
Indicator variables for optimal policy, LEO Svensson, M Woodford - Journal of Monetary Economics, 2003 https://www.sciencedirect.com/science/article/pii/S0304393203000308
Indicator variables for optimal policy under asymmetric information, LEO Svensson, M Woodford, Journal of Economic Dynamics and Control
Volume 28, Issue 4, January 2004, Pages 661-690
https://www.sciencedirect.com/science/article/pii/S0165188903000393
The learning cost of interest rate reversals, Martin Ellison, Journal of Monetary Economics, Volume 53, Issue 8, November 2006, Pages 1895-1907
https://www.sciencedirect.com/science/article/pii/S0304393206001498
We discuss with Professor Lars Feld (Advisor to the German Finance Minister) about what led to the Constitutional Court Ruling on the Debt Brake, what it implies for German federal budget and the Green Transition going forward.
Euro Area labour markets show astonishing resilience: unemployment rates are hovering around record lows despite serious adverse shocks having hit the Euro Area economy. We explore different explanation for this pheonmon and discuss whether it can last.
In October 2023, the European Council agreed on a reform of the European electricity market. We shed light on what went wrong in electricity markets in the past & critically review the main elements of the reform, together with Professor Andreas Loeschel, Chair of Resource Economics and Sustainability at the Ruhr University, Bochum, and Chairman of the German Governments’ Expert Commission for Monitoring the Energy Transformation.
We discuss with Prof. Jean-Marie Meier (Wharton School) about technology transfer to China: (i) what coercive methods does China deploy to force a transfer?, (ii) how do Western CEOs' incentives contribute to technology transfer? Based on Jean-Marie's latest research finding, we provide surprising insights, in particular on the latter mechanism.
Jean-Marie Meier's research paper is available here:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3949536#new_tab
We discuss the decisions taken by the ECB Governing Council and provide perspective on them.
We discuss with Guntram Wolff, CEO of the German Council on Foreign Relations (DGAP), about the prospects for a European Geopolitical Strategy. What would a Geopolitical Strategy consist of? What could be its guiding principles? How could it be implemented?
We discuss with Tobias Linzert about central bank frameworks for liquidity provision, in particular, how they changed following the financial crisis and how they might evolve going forward. Tobias is Adviser and Analytical Coordinator at the ECB’s Directorate General Market Operations.
We discuss the possible factors driving the recent strong increase in long-term government bond yields in the Euro Area. We disucss how monetary factors, fiscal developments and gobal factors have influenced bond yields dynamics.
Economists have a long tradition of opposing industrial policies measures, but advanced economies often use industrial policies to influence economic outcomes. We discuss with Professor Nathan Lane from Oxford University about what is known about the effects of industrial policies, when they work and when not.
Artificial Intelligence has made new inroads into areas of work that were reserved exclusively for humans: conversational interaction, pattern recognition & prediction, and writing & teaching. We discuss with Carl Benedikt Frey about the implications of AI technologies for labor market outcomes going forward. Carl Benedikt is the Dieter Schwarz Associate Professor of AI & Work at the Oxford Internet Institute and the Director of the Future of Work Program at the Oxford Martin School.
We review the main decisions taken by the European Central Bank at its policy meeting on Sept. 14, 2023 & provide perspective on them.
We kick off the fall 2023 season in our "Week in Europe" series by discussing the cyclical and longer-term outlook for the Euro Area growth. We present positive and negative factors affecting growth dynamics and discuss mechanisms through which recent negative supply shocks might give rise to long-term scarring implications for Euro Area GDP.
The paper we mention in the podcast is:
"The Scars of Supply Shocks: Monetary Policy Implications", by Luca Fornaro and Martin Wolf.
Working paper version (no paywall)
https://crei.cat/wp-content/uploads/2023/04/TSS-2.pdf
Publishes version:
https://www.sciencedirect.com/science/article/pii/S0304393223000417
In the heart of Europe, as national governments engage in intense negotiations over the reform of fiscal rules, the future of the continent's economic stability will be determined.
Olivier Blanchard, a Senior Research Fellow at the Peterson Institute, former Chief Economist of the International Monetary Fund and Professor of Economics at MIT, joins us to shed light on the diverse views and proposals shaping this crucial reform.
Various economic commentators have called for the ECB to raise its inflation objective, but central bankers in the Euro Area are reluctant to engange in a discussion about the target. We discuss both views and add insights from recent academic research about what constitutes an optimal inflation target for the Euro Area.
We discuss how trade integration affects labor market outcomes: who are the winners & losers from international trade? Where did the gains from trade end up? And how long-lasting are the effects of trade-induced labor market displacements? Our guest in this episode is Prof. David Dorn from the University of Zurich, see here for his latest research: https://www.ddorn.net/
The ECB has revised inflation forecasts strongly upwards, particularly for core inflation. We review the new ECB forecasts and the main decision taken by the ECB Governing Council. We also discuss the outlook for interest rates going forward.
We discuss about the new insights generated by so-called Heterogeneous Agent New Keynesian (HANK) models. HANK models allow taking into account household heterogeneity when analyzing monetary policy. Ben Moll is one of the founding fathers of this model classs and Professor of Economics at the London School of Economics.
For readers wishing to read up on this topic, here is a non-technical summary of the insights: https://www.imf.org/en/Publications/fandd/issues/2023/03/modern-monetary-policy-kaplan-moll-violante
We discuss the contributions of Nobel Prize winning Economist Robert E. Lucas Jr. to economics, together with Juan Pablo Nicolini, his former student, coauthor and friend. We review the main aspects of his work but also hear interesting anecdotes from Juan Pablo about his life and personality. Robert Lucas died May 15, 2023 in Chicago.
Euro area manufacturing activity was surprisingly weak over recent months: we put the pullback in historical perspectiv and discuss possible factors behind it, in particular whether recent weakness is a harbinger of more structural issues in the manufacturing sector.
We discusss the main channels through which Euro Area monetary policy generates income inequality in the cross-section of households and their quantitative importance. We also discuss why the ECB should care about inequality implications of its policies and whether the current rate increases generate effects that are symmetric to the effects generates by the rate cuts during Mario Draghi's ECB presidency.
We review the main decisions taken at the ECB's May 2023 Governing Council meeting & discuss the outlook for policy rates going forward.
We discuss what one can learn from the ongoing contraction in Euro Area money growth for output growth and inflation going forward. We discuss the various interpretations of the quantity theory of money and then analyze to what extent the resulting implications are born out by the data.
We discuss with the Global Head of Short-Term Liquidity Management of Groupe BPCE, the second-largest cooperative banking group in France, about liquidity managment & regulation, recent banking sector stress and the ECB's approach to liquidity provision.
We discuss whether recent stress in the banking sector will adversely affect Euro Area economic growth. We look at the latest indicators, their pandemic dislocations and academic research on the importance of financial shocks for business cycles (Jermann & Quadrini, Macroeconomic Effects of Financial Shocks, American Economic Review, https://www.aeaweb.org/articles?id=10.1257/aer.102.1.238 )
We discuss with Ignazio Angeloni about the state of banking supervision in the Euro Area. What kind of information do supervisors have access to and how do they use it? Ignazio Angeloni is a former member of the ECB's Supervisory Board. He coordinated the establishment of the so-called Single Supervisory Mechanism (SSM) at the ECB.
We review the main ECB decisions and the challenges that lie ahead in terms of inflation and financial stability.
The international trade order established by the World Trade Organization seems to be falling apart. We discuss with Harald Fadinger from the University of Mannheim about the reasons behind this development and how Europe should react to it.
We critically review the fiscal situation in Europe and the key elements of the fiscal reform proposal put forward by the European Commission.
We discuss how the Euro Area construction sector will perform given the record speed at which interest rates have been increasing. Can it derail the Euro Area economic recovery?
We discuss about
- the current state of the Italian economy,
- structural reforms in Italy, and about
- Italy's position on the reform of the ESM reform & Stability and Growth Pact.
Francesco Giavazzi is Professor of Economics at Bocconi University and was widely seen to be the most important economic advisor to former Prime Mario Draghi.
Europe needs to boost its growth potential - but how? We discuss with Professor Ludger Wößmann (University of Munich & ifo Institute), one of the most eminent researchers in education economics worldwide, about the role of human skills and schools in economic growth.
We discuss the main announcements and possible reasons for why the market wasn't buying them.
Policy rates have increased by 2,5% already since the summer of 2022, but how much more is needed to get Euro Area inflation back to 2%? We discuss:
- the inflationary situation in Europe,
- the main aspects of historical inflation surges, and
- simple calculations that provide a perspective on the required amount of tightening.
The Euro Area has faced one its most dramatic energy price shocks, is operating in an increasingly hostile international trade environment, and experienced a negative confidence shock following the Russian invasion in Ukraine. Yet, a recession has been avoided. We shed some light on why this is the case and what this means going forward.
The Inflation Reduction Act (IRA) has recently been signed into law by U.S. President Biden. We discuss its economic consequences for European industry and how the EU might have to respond to the IRA.
We review and discuss the important decisions taken by the ECB in its December 2022 monetary policy meeting.
We discuss about inflation, fiscal policy and labor markets in France and about the future of European fiscal rules.
We discuss with Alicia Garcia Herrero, Head of the Asian economic research platform of Natixis:
(i) why the EU-China relationship has deteriorated,
(ii) the Chinese perspective on this relationship, and
(ii) how the relationship might develop going forward.
We discuss under what circumstances and how the aggregate price level responds to fiscal decisions. We highlight the conditions under which the so-called Fiscal Theory of the Price Level applies and to what extent the data supports this theory.
We discuss with Ulrich Bindseil, Director General at the European Central Bank, about central bank balance sheets and the role of upcoming central bank losses, associated with past expansion of central bank balance sheets and rising short-term interest rates.
We review and evaluate the main monetary policy decisions taken in the ECB meeting on Oct 27, 2022.
We discuss with Prof. Stefan Reichelstein about cost effective ways to achieve the Green Transition in Europe and the U.S.. Prof. Reichelstein is Director of the Mannheim Institute for Sustainable Energy Studies (MISES) and was formerly professor at Stanford & Berkeley.
More information about MISES is available here:
https://www.uni-mannheim.de/en/mises/
European governments have become accustomed to running persistent primary deficits. This is only sustainable for debt dynamics if interest rates R are below the economy's growth rate G. We check if R < G was satisfied over the past 20 years and the discuss the outlook for this relationship in the future.
Papers we mention in the podcast are:
Atif Mian, Ludwig Straub, and Amir Sufi. Forthcoming. “What explains the decline in r*? Rising income inequality versus demographic shifts.” Proceedings of the 2021 Jackson Hole Symposium.
Paul Schmelzing, "Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018", https://www.bankofengland.co.uk/working-paper/2020/eight-centuries-of-global-real-interest-rates-r-g-and-the-suprasecular-decline-1311-2018
What factors are driving price formation in European gas markets? And which ones will drive prices near-term, i.e., in the upcoming winter, and beyond? Natixis commodity expert Joel Hancock succinctly provides us with his insights.
Federal elections in Italy and fiscal measures announced in the U.K. raised new questions about fiscal sustainability in both economies. We compare the medium-term growth outlook and the underlying fiscal position in Italy with that in the U.K.
We discuss the economic costs of a permanently high inflation rate. Economic theory suggests that inflation affects economic outcomes along a number of channels. We evaluate the quantitatitve importance of these channels and the empirical evidence that exists in their support.
Papers mentioned in the podcast:
Nakamura & Steinsson (Quarterly Journal of Economics, 2018), The Elusive Costs of Inflation: Price Dispersion During the Great U.S. Inflation, https://doi.org/10.1093/qje/qjy017
Adam et al. (Journal of Monetary Economics, forthcoming), The case for a positive Euro Area inflation rate: evidence from France, Germany and Italy, https://jimdo-storage.global.ssl.fastly.net/file/3eb2213a-50d0-47b7-88be-93858a266cb9/AdamGautierSantoroWeber_JME.pdf
Guido Ascari (2022, unpublished), The Long-Run Phillips Curve Is ...a Curve,
https://sites.google.com/site/guidoascari/working-papers?authuser=0
We discuss how a large manufacturing share and large trade exposure affect Germany in times of high energy prices & deglobalization risk.
We discuss the main aspects around the European Central Bank's decision from September 8 2022, and the outlook for policy rates going forward.
We critically review and discuss the major decisions elements of the important July 2022 ECB Governing Council meeting.
We discuss whether the ECB tightening path implied by current market prices is sufficient for getting inflation under control in the Euro Area. We highlight the role played by the neutral real rate, the slope of the Phillips curve and inflation expectations for inflation dynamics going forward.
The ECB working paper by Marta Banbura und Elena Bobeica that we mention in the podcast is available here:
https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2471~fc87caada8.en.pdf?9306b59fe8f49ee4e6e926121283ac85
Periods of high real interest rates are historically associated with high productivity growth and a high marginal product of capital. We discuss to what extent this implies that the expected increase in real interest rates due to ECB tightening measures will increase the marginal product of capital and productivity growth.
We talk with Klaus Regling, Head of the European Stability Mechanism (ESM), about the ESM's financial support programs, the OMT program, conditionality in these programs, and about fiscal rules in Europe.
We dicuss whether Euro Area sovereign bond spreads behave in unusual ways, whether or not the ECB should do something about them, and the potential pitfalls of ECB interventions.
The academic paper mentioned in the podcast is available here: https://doi.org/10.1515/ger-2018-0094
We review the ECB decision to end asset purchases and to embark on an interest rate hiking cycle, in light of record high Euro Area inflation rates. We focus on the likely path forward for interest rates and the challenges associated with seeking to contain interest rate spreads across Euro Area member countries.
The share of national income going to workers has been trending downwards over time in many advanced economies, including in Europe. We discuss to what extent this development is really there in European data and what economic mechanism can account for it.
We draw on insights provided by the following articles:
Gutierrez & Piton, "Revisiting the Global Decline in the (Non-Housing) Share of Income", AER Insights, 2021, https://www.aeaweb.org/articles?id=10.1257/aeri.20190285
Kehrig & Vincent, "The Micro-Level Anatomy of the Labor Share Decline", Quarterly Journal of Economics, 2021, https://doi.org/10.1093/qje/qjab002
DeLocker and Eeckhout, "Global Market Power", working paper, 2020, https://crei.cat/wp-content/uploads/2020/10/GLOBAL.pdf
We discuss with Lars Feld about
- a recent paper published by the German Finance Ministry outlining guideposts for economic and fiscal policy
- the German view on the reform of fiscal rules in Europe
- the role of gas and oil embargos
- the outlook on the German Green transition
We discuss the main indicators providing information about the short-term Euro Area economic outlook. We also discss why forecasting is generally difficult and why standard forecasting tools do not perform well during the current period and what can be done about it.
We mention two academic papers:
"Nowcasting with Large Bayesian Vectorautoregressions", by Cimadomo, Giannone, Lenza, Monti & Sokol, ECB Working Paper No. 2453, 2020
"How to Estimate a VAR after March 2020", by Lenza & Primiceri, ECB Working Paper No. 2461, 2020
We discuss with Mark Schieritz about the political approach, personal traits, and recent political decisions of Germany's new Chancellor Olaf Scholz.
Mark Schieritz is a leading journalist at Germany's weakly newspaper "Die Zeit" and the author of a recent book about Germany Chancellor Olaf Scholtz, titled "Olaf Scholz - Wer ist unser Kanzler?".
We discuss how ECB policy will be affected by
1 the likely acceleration of the Green transition, triggered by the Russian invasion & high prices for fossil fuel, and
2 the international economic decoupling between Western economies and Russia/China, as triggered by the same geopolitical tensions.
We argue that both developments will require an increase in real interest rates in the short term, even if they may lower them in the long-term.
The election behavior of French voters has undergone tectonic shifts. We discuss what this mean for the upcoming presidential elections, for future French elections and for the European project. We also discuss the main economic and fiscal challenges that any future French President will have to confront.
We discuss with Russia expert Sergei Guriev (Sciences Po) about his new book "Spin Dictators", Russia's imperial ambitions, its economic situation at home, Putin's regime, opinion polling in a dictatorship and the economic relevance of energy sanctions for Russia.
Sergei's new book is available here:
https://press.princeton.edu/books/ebook/9780691224466/spin-dictators
We discuss with Princeton Professor Markus Brunnermeier the changes in the payment landscape for firms and households and the potential role of a digital euro in these transactions and for securing monetary independence of the Euro Area.
The EU parliament report by Markus Brunnermeier and Jean-Pierre Landau that mention in the podcast is available here:
https://www.europarl.europa.eu/thinktank/en/document/IPOL_STU(2022)703337
We discuss the likely economic consequences for the Euro Area asscoiated with an embargo on Russian energy imports.We also discuss and draw on results from a recent policy paper:
"What if? The Economic Effects for Germany of a Stop of Energy Imports from Russia"
which is available here:
https://www.econtribute.de/RePEc/ajk/ajkpbs/ECONtribute_PB028_2022.pdf
We review the latest decisions decission of by the ECB in March 2022 and dicuss the special the role of household inflation expectations.
The paper by D'Acunto, Malmendier, Weber mentioned in the podcast can be accessed here:
https://faculty.chicagobooth.edu/-/media/faculty/michael-weber/what-do-the-data-tell-us.pdf
We discuss with former ECB Vice-President Vítor Constâncio the Euro Area outlook and the challenges it poses for the ECB in light of the recent invasion of Ukraine by Russian forces.
We discuss how the geopolitical & economic uncertainty associated with the Russian invasion of Ukraine affects the economic outlook.
The 3 academic papers we mention in the podcast are:
"The World Uncertainty Index", by Ahir, Bloom and Fuceri, https://www.nber.org/papers/w29763
"The Impact of Uncertainty Schocks", by Bloom, https://doi.org/10.3982/ECTA6248
"Quantifying Confidence" by Angeletos, Collard and Dellas, https://doi.org/10.3982/ECTA13079
Martin Arnold, Bureau Chief of the Financial Times' Frankfurt office, provides his view about ECB communication, ECB policy and individual members of the ECB Governing Council.
We discuss - in an accessible way - the main elements making inflation forecasting a difficult business. We thereby draw on the latest insights from the economics and forecasting literatures.
We discuss with Xavier Ragot (President of the OFCE Institute in Paris) the economic and political challenges in France that the next French President will have to deal with.
We discuss how the the prospective end of asset purchases by the European Cental Bank is likely going to affect output, inflation and financial conditions going forward.
We discuss the inflationary pressures generated from future carbon tax hikes and stricter emission caps in the Euro Area.
Frank Smets has held key positions at ECB over the past 22 years, amongst others as Mario Draghi's personal advisor and currently as Director General Economics. We discuss with Frank about what has changed at #ECB over the past 20 years and about the challenges that lie ahead.
We review and discuss the monetary policy decisions taken by the European Central Bank on December 16, 2021 and also the latest European macro data.
How does Italy get out of the pandemic slump? What prospects do Mario Draghi's reform projects hold for the future of Italy? We discuss with Roberto Perotti, Professor of Economics at Bocconi University and a former advisor to Italian Prime Minister Matteo Renzi.
Euro Area inflation has been rising, but bond yields remained surprisingly low. We discuss what's behing this with Natixis interest rates strategist Jean-Christoph Machado.
We discuss the main features of the "treaty" agreed between the new German coalition partners (Social Democrats, Greens & Liberals) and also the latest Euro Area macro data .
We discuss whether a reversal of high private sector savings rates will generate demand pressures and fuel further inflation. We also summarize the latest Euro Area macro data.
We discuss with Stanford Professor Hanno Lustig about what makes assets safe, reviewing some of the problematic features in the setup of safe assets in the Euro Area.
We discuss the latest European macro data and indicators that allow assessing the tightness of the Euro Area labor markt and the potential for future wage pressures.
We discuss the latest European macro data and interview energy expert Joel Hancock (Natixis) about the drivers and the outlook for the oil and gas markets in Europe.
We discuss the latest European macro data and what to expect of the upcoming ECB meeting.
We discuss the latest European macro data and what economic theory can tells us about how monetary policy should respond to stagflationary situations.
We discuss the latest European macro data and the and challenges awaiting the new German government that is currently being formed.
We discuss the outcomes of the 2021 ECB Strategy Review with Prof. Lucrezia Reichlin from London Business School.
We discuss the latest European macro data and how the digitalisation push induced by be the pandemic might affect productivity and inflation going forward.
We discuss the latest European macro data and the prospects for the upcoming German federal elections, with an eye on what they might imply for Europe.
We discuss the latest European macro data and how fiscal rules in the Euro Area can be meaningfully reformed.