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  • Author: Jeffrey A. Frankel
  • Publication Date: 06-1999
  • Content Type: Policy Brief
  • Institution: The Brookings Institution
  • Abstract: The recent financial crises in many emerging market economies have raised anew questions about the appropriate exchange-rate regime and the use of capital controls as policy instruments. The use of both mechanisms should be tailored to each country's unique circumstances. Fixed exchange-rate mechanisms, such as dollarization (adopting the dollar as legal tender in place of the national currency), are suited to small open economies or those desperate to import monetary stability. Larger economies, such as the European Union (EU) and the United States, should allow their currencies to float. Intermediate regimes that fall between fixed- and floating-rate regimes—such as bands, baskets, and crawls (See Figure 1 for definitions)—are still appropriate for some countries. Certain well-targeted restrictions on the composition of capital flows might be appropriate for some emerging-market countries as temporary measures when inflows are particularly high.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Europe
  • Publication Date: 12-1999
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: In its sixth year of expansion, the Dutch economy has continued to perform well, with strong real GDP growth and job creation. But some tensions have appeared, and inflation is close to the upper limit of price stability as defined by the European Central Bank. The outlook is broadly favourable as GDP growth is expected to slow only moderately: this would provide a welcome cooling-off of the economy. However, fiscal policy needs to remain particularly vigilant concerning the risk of overheating, and stand ready to tighten promptly, within the budgetary framework, if so needed. A major challenge facing the authorities is to deal with the important unfinished agenda in the structural area through speeding up the process of structural reform. The announced income tax reform is particularly necessary, not only to improve fiscal efficiency and equity, but also to redress incentives to work. This would enhance labour market policies aimed at increasing the outflow from social security schemes, and would boost the active labour force and potential output. Other necessary actions include reforming the health care system and introducing more market forces in public transport and some other former public utilities. Taking advantage of the favourable conjunctural situation, the authorities should move ahead forcefully along all these lines, thereby contributing to the continuation of strong job creation in an environment of sustainable economic growth.
  • Topic: Economics
  • Political Geography: Europe, Netherlands
  • Publication Date: 12-1999
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: The euro came into being under mixed auspices. On the one hand, convergence efforts in the run-up to monetary union, particularly in the fiscal area, had helped bring inflation and interest rates down to historically low levels. On the other hand, growth, which had only just started to recover in earnest after several disappointing years, was slowing down in the wake of a series of emerging market crises. The macroeconomic policy mix prevailing in 1999 combined monetary easing and modest fiscal consolidation. It contributed to sustain domestic demand, limiting the extent of the deceleration. With a brightening external environment, growth picked up vigorously in the second half of the year. In hindsight, the new regime's début is commendable, especially when recalling the gloomy predictions of some sceptics and taking into account that this first year has been a period of learning-by-doing for all agents. Major challenges lie ahead, however, both as regards long-run fiscal sustainability in the face of population ageing and as regards market structures. The policy tradeoffs facing European policymakers are harsher in some important ways than those confronting their counterparts across the Atlantic, because of deeply ingrained labour and product market rigidities. Those are being addressed in various ways, and tangible progress is being made. Nonetheless, reform efforts should be stepped up to raise economic performance significantly above the record of the 1990s.
  • Topic: Economics
  • Political Geography: Europe
  • Publication Date: 12-1999
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: The new government has set itself the ambitious tasks of lowering unemployment, modernising the economy and the social system, and securing the long term viability of the budget and the health and pension systems. Ecological goals have been given equal prominence in order to ensure the environmental sustainability of economic development. In some fields there has been progress. However, the fiscal package needs to be fully implemented to put public finances on a sustainable path and to create a tax regime that is more business friendly. These policies should be underpinned by structural reforms that strengthen future growth prospects. Such policies can benefit both macroeconomic performance and future fiscal outcomes. While short-term growth prospects are already improving, unemployment remains a major problem. With respect to its strategy for reducing unemployment, the government is seeking to obtain consensus, inter-alia on an employmentfriendly wage policy, via round-table talks with the social partners. It is important that a consistent set of policy instruments emerge that establish clear links between policies and ultimate policy goals. For Germany to attain the employment, growth and environmental aims commensurate with its key position in the European economy, requires not only favourable macroeconomic conditions, including aggregate wage developments, but a policy emphasis which more effectively enhances labour-market flexibility, as well as structural reforms that strengthen individual initiative, economic choice and the role of competition. Since structural and macroeconomic policies tend to have synergies which make them mutually reinforcing, achieving a more flexible and dynamic use of resources will help to assure progress towards the country's social, budgetary, environmental and economic goals.
  • Topic: Economics
  • Political Geography: Europe, Germany
  • Publication Date: 12-1999
  • Content Type: Policy Brief
  • Institution: The Organisation for Economic Co-operation and Development
  • Abstract: The Icelandic economy has expanded rapidly over the past five years, bringing output to well above its potential. Clear signs of overheating have emerged, with unemployment below 2 per cent, inflation picking up and a large current external deficit. These developments are projected to continue, raising the risks of a wage-price spiral and financial instability. To guard against such risks, a significant tightening of monetary policy is required, with less priority attached to the exchange rate as a target for policy. This should be complemented by a medium-term fiscal discipline aiming at achieving a structural budget surplus. Such a course would help cope with long-term care spending that will rise with ageing. On the other hand, except for government employees, pensions should not constitute a burden for public finances, as, for the main, they will be provided by the private sector. To enhance future growth prospects, it will be important to maintain and extend the fishing quota regime in the face of legal threats and to increase competitive forces, especially in the telecommunications industry.
  • Topic: Economics
  • Political Geography: Europe, Iceland
  • Author: Oxford Analytica
  • Publication Date: 12-1999
  • Content Type: Policy Brief
  • Institution: Oxford Analytica
  • Abstract: The quarter-point increase in the fed funds rate announced at the November 16 Federal Open Market Committee (FOMC) meeting was accompanied by the adoption of a neutral directive for the inter-meeting period, in place of the bias towards tightening in force since early October. The directive indicates that the Fed intends the rise to be the last of this year. However, the OECD, in its recent Economic Outlook, predicted that another one percentage point increase in the fed funds rate will be needed to restore demand and supply to equilibrium. While the economy will probably not slow sufficiently of its own accord, the incentives to defer action into 2000 mean that rates are likely to remain as they are during 1999, though probably associated with an announced bias towards tightening.
  • Topic: Economics
  • Political Geography: United States, Europe
  • Author: Oxford Analytica
  • Publication Date: 09-1999
  • Content Type: Policy Brief
  • Institution: Oxford Analytica
  • Abstract: The attractions of the single european currency are likely to draw the Scandinavian countries into the euro-area by around 2003. However, the outlook for United Kingdom accession is complicated by differences in its economic profile compared with the rest of the euro-area, combined with its enduringly euro-sceptical public opinion. These factors are likely to postpone its accession until later in the decade.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United Kingdom, Europe
  • Author: Oxford Analytica
  • Publication Date: 07-1999
  • Content Type: Policy Brief
  • Institution: Oxford Analytica
  • Abstract: In recent weeks, economic data has produced conflicting signals about the strength of domestic demand within the US economy. A majority within the Federal Open Market Committee (FOMC) believes that growth will decelerate and that only a small tightening of monetary policy will be necessary in the short term. However, the Federal Reserve has consistently underestimated domestic demand, and there are signs that the economy is still buoyant. Moreover, with improving economic prospects in Europe and Asia, the external forces encouraging lower US interest rates are likely to be reversed. The combination of these factors could put pressure on the Fed to tighten further.
  • Topic: Economics
  • Political Geography: United States, Europe, Asia
  • Author: Steve H. Hanke
  • Publication Date: 10-1998
  • Content Type: Policy Brief
  • Institution: The Cato Institute
  • Abstract: The devaluation of the Russian ruble this year was predictable, especially considering Russia's poor monetary history. State-manipulated money has been a Russian hallmark since the time of Peter the Great and shows that the country's money problems are endemic and do not depend on who controls the central bank. Czarist, Soviet, and post-Soviet governments have used the central bank printing press to finance deficit spending, resulting in high inflation, confiscation of savings, capital controls, or a combination of the three.
  • Topic: Economics, International Political Economy
  • Political Geography: Russia, Europe, Asia, Soviet Union
  • Author: Peter D. Sutherland
  • Publication Date: 10-1998
  • Content Type: Policy Brief
  • Institution: Overseas Development Council
  • Abstract: Good afternoon. Thank you, Sir Jeremy, for that kind introduction. I am honored, not merely to have been selected to deliver this year's Per Jacobsson lecture, but by the presence of so many distinguished guests. I am also delighted that two previous Per Jacobsson lecturers could be here this afternoon, and I would like to recognize them: Jacques de Larosiere, the former Managing Director of the IMF and more recently the President of the European Bank for Reconstruction and Development, and Joseph Yam, the Chief Executive of the Hong Kong Monetary Authority.
  • Topic: Economics, Globalization, Government, International Trade and Finance, Politics
  • Political Geography: Europe