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Yesterday I wrote that the consequence of a fiscal rule with a short horizon has been austerity, which delayed the UK’s economic recovery. Of course, that analysis misses a very important element of the recent recession, which is that the UK’s monetary policy was at the ZLB. That greatly increased the effect of fiscal policy […]
Last week I discussed the importance of good fiscal rules for sustainability, but the recent mess in the UK has demonstrated how poor rules can inhibit growth. When the Government took office in 2010 it faced a startlingly high deficit. It promised to eliminate that within five years, which happens to be the length of […]
Did you follow the NGDP targeting debate with interest but bemoan the lack of theoretical arguments? Then you’ll love the latest iteration of the debate, in which ex-Bank of England macroeconomist, Tony Yates, takes on Oxford’s Simon Wren-Lewis. Tony’s initial swings at NGDP targeting focus on the sub-optimality of weighting inflation and output equally: I don’t see […]
Today has seen a debate over whether the Office for Budget Responsibility should cost Opposition policies. Sajid Javid appeared on the BBC to defend the Government’s decision not to allow it. He avoided criticising the idea but pushed the Government’s line that now is not the right time to extend the OBR’s mandate. On the […]
Simon blogs on the new fiscal rules and largely agrees with our view: Getting the debt to GDP ratio to fall at some stage is a good idea, but having a target for a specific year is silly. It is not optimal because if some shock hits the economy before 2016/7 which means debt tends […]
Before Christmas I wrote a couple of posts on fiscal rules and you might very well be asking why it really matters. The first reason is that the current trajectory of public spending is unsustainable, but not in the sense that the Government means it. Sustainability in public spending should be measured over decades, not […]