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New Member States (NMS) are receiving large and increasing volumes of EU transfers that affect the process of convergence between the EU economies. Growth benefits from EU funds, related to a real convergence, depend strongly on the absorption and utilisation of the transfers, with the priority to finance investments. EU transfers bring opportunities as well as challenges for the process of nominal convergence between NMS and the EMU economies. The intervention highlights the argument that macroeconomic policies oriented towards a sustainable growth, close to its potential, help new members maximise benefits from EU funds.

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Acta Oeconomica
Authors: Aehyung Kim, Boris Pleskovic, and Béla Személy

Kaminsky, G. - Reinhart, C. - Vegh, C. A. (2004): When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies . NBER Working Paper, No. 10780. When it Rains, it Pours

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This paper explores the relationship between macroeconomic regimes and the intensity of change in cost structures in Central and Eastern Europe (CEE). Change in the cost structure may be considered as a structural factor, with a potential to strongly affect macroeconomic policy and vice versa. Macroeconomic policies should take into account the intensity of change in cost structures and its effects on the tightness of the macroeconomic regime. Similar macroeconomic polices have different sectoral (industry) and overall growth effects. A successful macroeconomic policy handles both the underlying industry structure and the intensity of changes in costs. An analysis of the relationship between industry cost structures and macroeconomic regimes in five CEE countries shows that i) cost structures are more homogenous within industries than within countries; ii) changes in cost structures are dominantly intra-industry, i.e. unrelated to changes in industry structures, though in some countries structural and specialisation effects were also found to be significant. Linking the intensity of changes in industry cost structures with a composite measure of macroeconomic stability, the paper identifies a country-specific relationship between changes in costs and macroeconomic stability. Based on these findings, arguments are provided for the integration of macroeconomic and industrial (technology) policies.

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Debts, crises and competitiveness

Interview with Ángel Gurría, Secretary-General of the OECD

Society and Economy
Authors: László Andor and Tamás Pesuth

In this interview, Ángel Gurría looks back at a decade of financial and economic crisis and draws conclusions for macroeconomic policy. What concerns the European Economic and Monetary Union, he stresses the need to further improve the shock absorption capacity of the single currency. He insists that the OECD remains committed to going beyond GDP, and this is particularly relevant at a time when a new Jobs Strategy is being developed. He also highlights some key chapters in the 22 year long cooperation between the OECD and Hungary.

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This paper provides an analysis of the economic benefits, costs and risks that a fast unilateral euroisation would have for the Central and Eastern European EU accession countries. In doing so, a comprehensive and broad overview of the euroisation debate is presented. The overall conclusion from the analysis is that, at this stage, the economics of a rapid unilateral euroisation are highly ambiguous and probably even harmful for the accession countries. However, there are good reasons to believe that the cost-benefit balance of full monetary integration will turn positive for some accession countries within a few years if sound macroeconomic policies are retained, the Maastricht criteria are fulfilled and structural reforms are carried on further to underpin the sustainability of convergence.

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One of the most often committed mistakes in economic reasoning is the supposition about the continuity of economic processes. However, what dominates in reality is a process of permanent changes, which sometimes proceed in a cascading manner rather than linearly. It must be acknowledged that the capitalist market economy by its very nature is involved in periodical crises. They must occur from time to time, yet the magnitude of the recent crisis is a result of inappropriate institutions and wrong macroeconomic policies based on neoliberalism. While the underlying causes of the crisis and the ways out of it at the era of interdependent global economy is discussed vividly in countless books and papers, yet it ought to be clear that the world is moving from one crisis to another. Thus, one must consider not only the economics of crisis, but also a kind of crisis of economics. There is a need for a New Pragmatism, based on the better understanding of economics as science, describing the economy as a system of forces and flows which contantly give feedback and influence each other.

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The recent global financial crisis has resulted in a new creative set of economic policies. The justifi- cation for the unconventional policy response was based on the implicit assumption that the departure from the norms of macroeconomic policies would be temporary. This detour has lasted longer than expected. Now that the process of normalization has started in the United States and is likely to be followed (albeit in some delay) in Europe, it would be important for policy makers to emphasize that the unconventional set of economic policies were just a detour from the longstanding convention rather than representing a new paradigm. The experience of the crisis and the post-crises years should be recorded in history as refl ecting a period during which new and important policy chapters were drafted. These chapters should be added to the corpus of knowledge of macroeconomic theory and policy. The new chapters contain important lessons that should definitely not be forgotten once the crisis is over. They should be added to, but not replace, the old textbooks.

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I found that during booming years national policy makers were strongly constrained to decrease or effectively manage the risks of unhedged foreign currency lending (FCL) to households due to the economic characteristics of Central and Eastern Europe (CEE). Strong FCL growth was mainly driven by private sector consumption and investment. Foreign banking groups easily intermediated international financing into open CEE markets. International measures, which could have limited FCL, were not taken. I found an inconsistency: FCL was primarily a result of macroeconomic imbalances, but macroeconomic policies mostly proved inefficient to downsize it. Administrative measures seemed to be the most effective, however, only for a short period due to the high degree of financial liberalisation. Regulatory measures proved less efficient, while relatively frequently used supervisory actions did not have any notable effects. Financial education, moral suasion, and market development measures (with the exception of long-term, fixed rate local currency (LC) housing finance) were not efficient at all. Out of 12 investigated countries 6 had some success to limit FCL. Others did not have any efficient policy mix. Comparing the experiences of Hungary and other countries I found that the ‘we cannot do anything’ is a worse policy approach than the ‘we will try to do something’ one in spite of its deficiencies. The euro membership could not automatically eliminate FCL as the example of Slovenia shows.

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. Penn World Table Version 7.1 2012 Hibbs, D.A., Jr. (1977): Political Parties and Macroeconomic Policy. The American

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, D.C. Kaminsky, G. — Reinhart, C. — Végh, C. (2004): When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies. NBER Working Paper , No. 10780, Cambridge, MA. Kell, M. (2001

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